Avoiding redundancy pay

An employer may be exempted, in whole or in part, from paying statutory redundancy to an employee whose employment is terminated due to redundancy at the discretion pf the Fair Work Commission, upon an application to it by the employer if it cannot pay the amount, or if the employer obtains other acceptable employment for the employer.

Here is a superb summary of the law on this issue in an extract of a recent decision of the Commission.

“Section 120 of the Act is an avenue for the employer to apply to the Commission to vary an obligation which would otherwise be imposed to make redundancy payments. That section provides that FWA “may” determine to reduce the amount of redundancy pay up to an amount which may be nil, indicating that the granting of full or partial relief from the obligation is an exercise of discretion in the circumstances of the case. The employer bears the onus of establishing that there are grounds justifying the exercise of the discretion.

The terms of s.120(1)(b)(i) were previously found in the standard award provision established in the Termination, Change and Redundancy Case. 6 There have been a number of cases where the operation of the provision and the meaning to be given to terms within it, have been considered. In my view, the principles set out in those cases continue to be relevant. In Re Clothing Trades Award (1982)(1) Appeals by Derole Nominees Pty Ltd and ACM7 a Full Bench of the Australian Industrial Relations Commission said:

“The Award provision does no more than provide an avenue by which an employer may apply to the Commission to vary the obligation which would be otherwise imposed by the award. It does not follow from the terms of the clause that an employer coming within its scope will achieve necessarily full or partial relief. The level of relief, if any, to apply in a given case, is a matter to be determined as an exercise of discretion in the circumstances of that case.” 8

The Full Bench also observed that effort of a sufficient kind by an outgoing employer may cause the obligation for redundancy pay to be reduced. 9 The meaning of the term “obtains” was derived by the Full Bench in that case from the Shorter Oxford Dictionary (3rd Edition) as: “to procure or gain, as the result of purpose and effort”. The Bench in adopting that definition noted that one employer is incapable at law of effecting a contract of employment between an employee and another employer, and went on to state that:

“The employer by purpose and effort may establish an opportunity which suits the employee and which crystallises as alternative employment of an acceptable kind…it refers to action which causes acceptable alternative employment to become available to the redundant employee. The employer must be a strong moving force towards the creation of the available opportunity.” 10

In deciding whether to exercise discretion on the grounds that the employer has obtained acceptable alternative employment, the Commission must be satisfied that the employer took positive and proactive steps to obtain such employment, so that it can be said that the employer is a “strong moving force” 11 towards the creation of the opportunity for the employee to gain alternative employment.

The question of what constitutes “acceptable alternative employment” has also been the subject of consideration in a number of cases, from which the following principles can be distilled:

  • The onus lies on an employer seeking exemption from redundancy provisions to establish that the alternative employment is acceptable; 12
  • The term “acceptable” means that it is not “any” employment that will qualify; 13
  • The test of whether alternative employment is acceptable is objective; 14
  • Although the test it objective, it is applied to individual employees and their particular circumstances; 15
  • The provision should not be interpreted so that employees have an unreasonable and uncontrollable opportunity to reject the new employment in order to receive redundancy pay. 16

In determining whether alternative employment is objectively acceptable, consideration is given to factors including: whether service with the previous employer is recognised as service with the new employer; 17 the work being of a like nature; the location being not unreasonably distant; whether the pay arrangements comply with award requirements;18 pay levels; hours of work; seniority; fringe benefits; workload and speed; job security and other matters.19

It is also relevant to the assessment that redundancy payments are not made solely for the purpose of assisting employees to find alternative employment. Redundancy payments are intended to tide an employee over during the search for alternative employment, and to compensate the employee for loss of credits for sick leave, long service leave and other entitlements based on length of service. 20

The fact that an alternative position does not meet the personal preferences of an employee, is not sufficient to establish that the position is not an acceptable alternative. Where the employee does not co-operate with the employer in its efforts to obtain alternative employment 21, or where the employee refuses a position that is found to be acceptable on an objective basis, the employee’s entitlement to redundancy payment may also be reduced.22…………….

I am therefore not satisfied that the Applicant “obtained” alternative employment for Ms Garnham in the sense that it established an opportunity which suited Ms Garnham and which crystallised as alternative employment. This is because the numerous exchanges and discussions with Ms Garnham did not result in an offer which could reasonably have been accepted by Ms Garnham on the basis that the first time it was set out in written form was in a letter stating that Ms Garnham had not accepted the offer and her employment was terminated. As previously stated, that letter was given to Ms Garnham at a point where she was still seeking to negotiate the terms of her ongoing employment with the Applicant and had not been told that the Applicant had formed a view that negotiations had concluded, and where the Applicant had not put its final position to Ms Garnham in relation to the proposed alternative employment. Further, the significant matter of when the 30 hours per week were to be worked was not clearly established.

I do not accept that emails sent by Ms Garnham to her husband complaining about the discussions in relation to alternative employment evidence that Ms Garnham had been offered alternative employment or that she had rejected an offer. The emails do no more than evidence that Ms Garnham was seeking to continue negotiations about the terms and conditions of the proposed position and was not satisfied with what had been articulated by the Applicant at that point. The email also does not evidence that Ms Garnham was not trying to negotiate her ongoing employment. In any event it was overtaken by the email sent to the Directors on 13 November 2018 in which Ms Garnham put a counter proposal in relation to her ongoing employment indicating a desire to continue negotiations.

For these reasons, the Applicant has not taken steps sufficient to establish that it obtained alternative employment for Ms Garnham. In reaching this conclusion I accept that there is no rule that an employee must be given an offer of employment in writing before it can be found that an employer has obtained alternative employment for the purposes of deciding an application under s.120(b)(i) of the Act. However, in the present case, the ongoing discussions and range of options canvassed by the parties, the lack of clarity about working hours, the fact that Ms Garnham was still negotiating the alternative position, and the failure of the Applicant to make a firm final offer before terminating Ms Garnham’s employment, means that I am unable to be satisfied that the Applicant obtained employment for Ms Garnham.

I also do not accept that the offer of alternative employment was acceptable in Ms Garnham’s particular circumstances. While the total weekly hours of work were the same, the times at which work was required were not clear and a change in this regard would have meant that Ms Garnham may have been required to engage paid child care assistance. The rate of pay for the proposed role was $2.91 per hour below Ms Garnham’s hourly rate equating to almost $90 per week less in gross earnings with corresponding decreases in other benefits including superannuation contributions. It is also the case that Ms Garnham would have had no team members reporting to her in comparison with her previous role notwithstanding that she would have reported to the Directors. While it is relevant that the rate offered was above the Award rate it was not determinative in the present case particularly when the rate offered for the proposed role is below the rate that Ms Garnham was paid in her former role. I do not accept that the puppy preschool earnings were sufficiently certain to offset the reduction in Ms Garnham’s hourly rate.

On balance I do not accept that the Applicant obtained alternative employment for Ms Garner or that the alternative employment proposed by the Applicant was acceptable.”


Re Stabler & Howlett Veterinary Surgeons Pty Ltd (2009) FWC 1208 delivered 8 March 2019 per Asbury DP