For some time now I have been personally intrigued by the question whether statutory redundancy is payable by an employer who forces an employee to accept a lesser position, for example part time employment after making the employee’s position redundant. The issue arises because the main determinant of whether an employee is entitled to redundancy pay is whether the employee’s employment is “terminated” (see sec 119(1), Fair Work Act 2009) which in a sense does not occur if the affected employee accepts an alternative position against his or her will when the employee’s position is abolished.
The answer (at least for the moment) is that for the purposes of the redundancy provisions of the Act, an employee is to be regarded as having his or her employment “terminated” if it is abolished irrespective whether he or she offers a lesser position and continues in employment.
“Legislative context and purpose
- Section 119 is located within Division 11 of the FW Act, which deals with, and is entitled “Notice of termination and redundancy pay”, and includes ss 117 to 123 inclusive.
- Subdivision A is concerned with notice. Section 117 prohibits an employer from terminating “an employee’s employment” without written notice or payment in lieu and prescribes the minimum period of notice. Section 118 provides that a modern award or enterprise agreement may include terms specifying the period of notice.
- Subdivision B is concerned with redundancy pay.
- As noted at  above, s 119 is a relatively new statutory entitlement. Before the enactment of the FW Act, redundancy pay was covered by awards but there was no comparable provision in the former Act.
- Subsection 119(1) describes the circumstances in which the entitlement arises and s 119(2) the amount by reference to the “employee’s period of continuous service with the employer on termination”. Broadlex argued that the expression “on termination” in subs (2) is a contextual indication that the legislature had in mind the termination of the employment relationship. It argued that, because the amount of redundancy pay is linked to the duration of continuous service and only the severance of the employment relationship breaks continuity, the Parliament could only have had in mind a termination of the employment relationship. Otherwise, it complained that, if the employee continued to work for the employer, albeit in a different job and at a substantially reduced rate of pay, the employee would recover twice for the same loss.
- But s 119 must be read with s 120. Section 120 gives the Fair Work Commission the power, on the application of the employer, to determine that the amount of redundancy payment should be reduced in the circumstances described in subs (1), that is to say, if:
(a) an employee is entitled to be paid an amount of redundancy pay by the employer because of section 119; and
(b) the employer:
(i) obtains other acceptable employment for the employee; or
(ii) cannot pay the amount.
- On its face, the expression “other acceptable employment” is not confined to employment with another employer. There is certainly nothing in the Act to limit the application of the section to a situation in which the employer obtains “acceptable employment” for the employee with another employer. There is no apparent reason why the expression should be read down in this way. That is not the view the Fair Work Commission has taken: see, for example, Stanley International College Pty Ltd t/a Stanley College  FWC 4843. And Broadlex did not argue for such a restriction.
- The Union submitted that, if Broadlex’s construction of s 119 were correct, then s 120 would never be engaged where an employer obtains other acceptable employment for the employee within the same firm.
- Broadlex did not engage with the Union’s point in its written submissions in reply. In oral argument it submitted that, for the purposes of s 120, employment means something different from what it means in s 119. It argued that there had to be a break in the continuity of employment before s 120 would be engaged. Based on Broadlex’s interpretation, an employee whose contract was terminated but immediately entered into a new contract would not be entitled to redundancy pay but an employee who entered into a new contract a day or two later would be. It seems unlikely that this was Parliament’s intention.
- Section 119 includes the following note, which is part of the Act (see s 13 of the Acts Interpretation Act):
Sections 121, 122 and 123 describe situations in which the employee does not have this entitlement.
- The note indicates that s 119 should be read with ss 121, 122 and 123. But none of these sections sheds any light on the present issue.
- Subsection 121(1) provides that s 119 does not apply to “the termination of an employee’s employment” if, immediately before the time of termination or at the time the employee was given notice of termination, whichever occurred first, the employee’s period of continuous service with the employer was less than 12 months or the employer is “a small business employer”. Subsection 121(2) provides that a modern award may include a term specifying other situations in which s 119 does not apply to the termination of an employee’s employment. Where a modern award includes such a term, subs 121(3) allows for its incorporation by reference in an enterprise agreement.
- While in general, if an employee’s employment is transferred from one employer to another, service with the first employer counts as service with the second employer (see subs 22(5)), subs 122(2) provides that such an employee is not entitled to redundancy pay under s 119 “in relation to the termination of his or her employment with the first employer”. Subsection 122(3) provides that an employee is not entitled to redundancy pay if the employee rejects an offer of employment made by another employer on substantially similar terms and conditions and which recognises the employee’s service with the first employer and, had the employee accepted the offer, there would have been a transfer of the employee’s employment.
- Section 123 excludes from the operation of the Division certain kinds of employees. They include employees on fixed-term contracts, employees whose employment is terminated for serious misconduct, and casual employees. Subsection 123(4) expressly exempts from operation of the redundancy pay provisions apprentices; employees covered by an industry‑specific redundancy scheme in a modern award; employees covered by certain redundancy schemes in enterprise agreements; and employees prescribed by the regulations. It does not exempt employees in Ms Vrtkovski’s situation, at least not expressly, and Broadlex did not argue that it exempted them implicitly.
- So what about the legislative purpose?
- The object of the FW Act is described in s 3 as follows:
The object of this Act is to provide a balanced framework for cooperative and productive workplace relations that promotes national economic prosperity and social inclusion for all Australians by:
(a) providing workplace relations laws that are fair to working Australians, are flexible for businesses, promote productivity and economic growth for Australia’s future economic prosperity and take into account Australia’s international labour obligations; and
(b) ensuring a guaranteed safety net of fair, relevant and enforceable minimum terms and conditions through the National Employment Standards, modern awards and national minimum wage orders; and
(c) ensuring that the guaranteed safety net of fair, relevant and enforceable minimum wages and conditions can no longer be undermined by the making of statutory individual employment agreements of any kind given that such agreements can never be part of a fair workplace relations system; and
(d) assisting employees to balance their work and family responsibilities by providing for flexible working arrangements; and
(e) enabling fairness and representation at work and the prevention of discrimination by recognising the right to freedom of association and the right to be represented, protecting against unfair treatment and discrimination, providing accessible and effective procedures to resolve grievances and disputes and providing effective compliance mechanisms; and
(f) achieving productivity and fairness through an emphasis on enterprise‑level collective bargaining underpinned by simple good faith bargaining obligations and clear rules governing industrial action; and
(g) acknowledging the special circumstances of small and medium‑sized businesses.
- Broadlex argued that subs 119(1) falls into the “category of statutory provisions” that strike a balance between competing interests so that a beneficial approach to its construction should not be adopted.
- In Spotless at – Colvin J made the following observations about the legislative purpose of s 119(1):
37 First, the Act is to provide a safety net of minimum terms and conditions of employment that cannot be undermined.
38 Second, the Act is not expressed as a reform that removes or reduces minimum terms and conditions of employment afforded by the law as it existed at the time of enactment. Nor is it expressed as a codification or improvement of existing minimum standards. Rather, its object is to ensure ‘fair, relevant and enforceable’ minimum terms and conditions. Save that there might be said to be unfairness to employees in a general sense if minimum standards were reduced by the Act (such as by confining the circumstances in which there may be an entitlement to redundancy pay), it is difficult to discern any specific object concerning the relativity between minimum standards as they existed before the Act was enacted and those expressed through the Standards. Nevertheless, it would appear to be unlikely that the Act would deploy established terminology in the field of industrial law concerning an established standard as to particular workplace conditions (such as redundancy pay) where it was intended to change the standard. A purpose of establishing minimum terms and conditions may be expected to be advanced by using existing terminology where such conditions were to be adopted by the Act.
39 Third, the Act has detailed provisions that provide for compliance and enforcement and establishes a Fair Work Ombudsman and a Fair Work Commission with substantial powers to supervise compliance and ensure enforcement of the Standards. The rights and protections afforded by the Act do not depend upon the employee independently resorting to claims. The Act puts in place a substantial structure to support the making of claims. Nevertheless, the Fair Work Act confers statutory entitlements upon employees that cannot be undermined and to that extent is protective of the interests of employees. It would be contrary to this purpose if a particular condition was interpreted in a manner that, in effect, conferred power upon an employer by adopting a particular business practice to decide whether its employees would receive the benefit of a particular minimum entitlement (such as redundancy pay).
40 Fourth, the Act has objects that include the promotion of productivity and economic growth and flexibility for business. An interpretation that inhibited the ability of a business to adopt employment practices that best suited the nature of its business activities would be inconsistent with this object.
41 Fifth, the terms of Division 11 manifest an intention to provide a qualified right to redundancy pay. It is qualified by the presently contentious language in s 119(1)(a). It is also qualified by the exclusions expressed in s 121 (employees for less than 12 months and employees of small business and those the subject of a modern award with specific provisions). Importantly, it is further qualified because Division 11 does not apply to the employees described in s 123. They include employees ‘employed for a specified period of time, for a specified task, or for the duration of a specified season’, employees terminated for misconduct and casual employees.
The resolution of the issue
- The employment relationship is “inherently” a contractual one: Lister v Romford Ice and Cold Storage Co Ltd  AC 555 at 587; R v Bowen; Ex parte Amalgamated Metal Workers and Shipwrights’ Union (1980) 144 CLR 462 at 475. Consequently, there can be no employment relationship without a contract of employment. As McHugh and Gummow JJ observed in Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 436:
The evolution in the common law as to the relationship of employment has been seen as a classic illustration of the shift from status (that of master and servant) to that of contract (between employer and employee).
- Nevertheless, there is a difference between the employment relationship and the contract of employment. A contract of employment can come into existence before the employment relationship is formed and an employer who withdraws an offer of employment after it has been accepted or an employee who resigns before the starting date can be liable for breach of contract: Turner v The Australasian Coal and Shale Employees’ Federation (1984) 6 FCR 177; Network Ten Pty Ltd v Seven Network (Operations) Ltd  NSWSC 692. Furthermore, a contract of employment can include obligations, such as a restraint of trade covenant, which continue after the employment relationship has come to an end.
- There is also a conceptual difference between the termination of an employment relationship and the discharge of a contract of employment: Visscher v Giudice (2009) 239 CLR 361 at .
- The central flaw in Broadlex’s argument is that it proceeded on the false premise that the employment relationship survived the termination of the employment contract.
- In the 8thedition of Macken’s Law of Employment, published in 2016, Professor Sappideen and her fellow authors wrote (at [9.60]):
The employer-employee relationship will also end when the contract of employment ends, if that relationship has not ended earlier. The possibility of the contract of employment existing after the employment relationship has ended seems established, although ordinarily it will be of “no real significance”.
- The statement of principle is well-supported. In Byrne at 427, cited by the majority in Visscher at , Brennan CJ, Dawson and Toohey JJ said:
It does not appear to have been doubted in this country that a wrongful dismissal terminates the employment relationship notwithstanding that the contract of employment may continue until the employee accepts the repudiation constituted by the wrongful dismissal and puts an end to the contract. That was accepted by both the majority and minority in Automatic Fire Sprinklers Pty Ltd v Watson …
- In both Visscher (at ) and Byrne (at 427) reference was made to the statements of Latham CJ in Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435 at 454 that “[a]n employer terminates the employment of a servant when he dismisses him …” and Dixon J in the same case at 469 that “[t]here is nothing in the general law preventing the wrongful dismissal of a servant operating to discharge him from service, notwithstanding that he declines to accept the dismissal as absolving him from further performance but keeps the contract open and remains ready and willing to serve”. In Visscher (at ) reference was also made to the statement by Latham CJ in Automatic Fire Sprinklers Pty Ltd v Watson at 451 that:
[T]he wrongful dismissal determines the relationship of master and servant created by the contract, even though the servant may not have accepted his dismissal as entitling him to regard the contract as discharged.
- Visscher began as a claim for reinstatement in the Australian Industrial Relations Commission. Mr Visscher commenced employment with the respondent shipping company (Teekay) in March 2000. He began as a casual employee but soon afterwards accepted an offer of permanent employment as a Third Mate. Within months he was promoted to Chief Officer but Teekay wrote to him declaring that it would no longer be bound by its legal obligations. Nevertheless, Mr Visscher continued in its employment working as a Chief Officer, although Teekay considered he had returned to his original position as Third Mate albeit that his duties and remuneration did not change. In the Full Court, Buchanan J (with whom Ryan and Madgwick JJ agreed in separate judgments) held that Mr Visscher could not insist on performance of his contract, even if the contract itself remained on foot for limited purposes: Visscher v Australian Industrial Relations Commission  FCAFC 206; 170 IR 419 at . His employment as a permanent Chief Officer was brought to an end by Teekay’s conduct, although it was wrongful. His Honour went on to say at  that the fact that Mr Visscher remained in employment with Teekay and sailed as Chief Officer did not lead to a different conclusion. His Honour considered that Mr Visscher continued under a new contract, in his original position of permanent Third Mate.
- In the High Court the majority said that Buchanan J had elided the concepts of termination of an employment relationship and the discharge of a contract of employment: Visscher at . Their Honours explained that it does not follow from the fact that a wrongful dismissal is effective to bring the employment relationship to an end that the contract is thereby discharged. At  they said that the case did not involve dismissal with a consequent destruction of the employment relationship. It was accepted that the employment relationship continued after the repudiation. But Visscher was a very unusual case. As the majority observed at , it was a feature of the case that “the employment relationship continued with Mr Visscher undertaking the duties of a Chief Officer and being remunerated to the same extent”.
- Here, in contrast to Visscher, there was, in effect, a wrongful dismissal constituted by Broadlex’s repudiation of the employment contract, which brought the employment relationship to an end. The relationship in which Ms Vrtkovski entered after she accepted the repudiation was a fundamentally different relationship from the relationship the parties previously enjoyed. She was no longer a full-time employee but a part-time employee, performing a fraction of the work she formerly undertook for a fraction of the remuneration she formerly received.
- Even if I am wrong in this respect, I do not accept that what happened to Ms Vrtkovski was not a termination of her employment within the meaning of the FW Act.
- I mentioned earlier that, before the FW Act and following TCR No 1, employers who transferred employees to lower paid duties by reason of redundancy were required by federal awards to give the same notice to employees or make payment in lieu as they would have been required to give if their employment had been terminated. If Broadlex were right, however, then s 117, which is the National Employment Standard for written notice of termination or payment in lieu, would not apply to employees who were transferred to lower paid duties because it provides that an employer must not “terminate an employee’s employment” without giving the requisite written notice or payment in lieu. Yet there is no reason to think that the enactment of s 117 was intended to reduce the rights employees had formerly enjoyed under federal awards.
- Broadlex argued that the learned magistrate was wrong to conclude that none of the authorities upon which it relied supported its construction of s 119(1).
- I accept that those authorities acknowledged that there was a difference between the employment contract and the employment relationship. I also accept that there is support for the notion that in some circumstances the employment relationship can survive the termination of the employment contract. But none of those authorities was directly on point. None of them stands for the proposition that, where the employer repudiates the contract of employment and the employee accepts the repudiation, the employment relationship endures.
- In Brackenridge v Toyota Motor Corporation Australia Ltd (1996) 142 ALR 99, upon which Broadlex relied, the Full Court of the Industrial Relations Court of Australia (Wilcox CJ, von Doussa and Marshall JJ) dismissed an appeal from a judgment of Beazley J who held that a demotion did not constitute a “termination of employment” within the meaning of Div 3 of Pt VIA of the Industrial Relations Act 1988 (Cth) (IR Act), although, unlike her Honour, the Full Court accepted that the demotion terminated Ms Brackenridge’s contract of employment as a chef supervisor and she was thereafter employed under a new contract as a canteen assistant. Their Honours held at 101 that there was a conceptual difference between the two situations and, while dismissal will ordinarily terminate both the particular contract of employment and the employment relationship, Ms Brackenridge continued to be employed after her original contract was terminated, albeit under a new contract of employment.
- It does not follow, however, that the phrase in subs 119(1) should be interpreted in the same way or that the magistrate was wrong to find that Ms Vrtkovski was entitled to redundancy pay.
- First, the object of Div 3 of Pt VIA of the IR Act, as stated in para 170CA(1)(a), was “to give effect, or give further effect to” the ILO Convention (No. 158) concerning Termination of Employment at the Initiative of the Employer, done at Geneva on 22 June 1982, and entered into force for Australia on 26 February 1994. Section 170CB provided that expressions in Div 3 of Pt VIA picked up the meaning of those expressions in the Convention. There are no comparable provisions to ss 170CA or 170CB in the FW Act.
- Second, Brackenridge involved a demotion. This case does not. What occurred in the present case appears to have been within the contemplation of the Convention. Paragraph 22 of the 1995 General Survey of the International Labour Office entitled “Protection against Unjustified Dismissal”, to which the Full Court referred at 103–4 of its reasons, relevantly stated:
Certain changes introduced by the employer, in particular as concerns conditions of employment and which do not arise out of genuine operational requirements, might place the worker under pressure either to accept such changes or to give up his job or incur the risk of being sanctioned for having disregarded the employer’s instructions. It is therefore necessary to be able to verify whether a situation does not constitute a disguised dismissal or a real termination of the relationship instigated by the employer in the sense of the Convention, since otherwise the worker concerned would de facto or de jure be unduly deprived of the protection provided by the Convention.
- Third, in Brackenridge, as the majority observed in Visscher at , the employer did not breach the employment contract. The Full Court in Brackenridge held at 109 that Toyota was entitled to terminate the first contract and replace it with another. Moreover, while Ms Brackenridge was demoted and future award increases would only be paid at the rate applicable to the lower position, her salary was maintained.
- Fourth, a termination of employment under the FW Act can occur even if the employee remains in the employment of the employer. That is apparent from the unfair dismissal provisions.
- No remedy is available for unfair dismissal in a case such as the present because cases of genuine redundancy are excluded from s 385, presumably because a person in that position is entitled to redundancy pay under subs 119(1). But s 386 defines “dismissed” in such a way as to indicate that, where there has been a repudiation by the employer of the contract of employment and the employee is re-employed in a significantly diminished or inferior position whether in duties or income, the employment is terminated.
- “Dismissed” is defined in s 386 of the Act. It relevantly provides that:
(1) A person has been dismissed if:
(a) the person’s employment with his or her employer has been terminated on the employer’s initiative; or
(b) the person has resigned from his or her employment, but was forced to do so because of conduct, or a course of conduct, engaged in by his or her employer.
(2) However, a person has not been dismissed if:
(c) the person was demoted in employment but:
(i) the demotion does not involve a significant reduction in his or her remuneration or duties; and
(ii) he or she remains employed with the employer that effected the demotion.
- Subsection 386(2) re-enacts the exception introduced into the WR Act in 2001. That was contained in subs 170CD(1B) of that Act. Only the chapeau was different because that Act, like the IR Act, referred to “termination or termination of employment” rather than dismissal. In Visscher all members of the Court accepted that “termination of employment” within the meaning of subs 170CD(1B) could include a demotion in employment which involved a significant reduction in the employee’s remuneration or duties.
- As Broadlex submitted, para 386(2)(c) necessarily implies that a demotion involving a significant reduction in remuneration or duties is a dismissal although the employee remains in the employer’s employment. Logically, the termination of a full-time contract at the initiative of the employer and its replacement by a part-time contract with significantly reduced hours or duties would also be a dismissal within the meaning of s 386. Properly construed, s 385 treats both kinds of cases as the termination of the employee’s employment on the employer’s initiative.
- Broadlex submitted, however, that “[d]emotion as implicitly referred to in s 386(2)(c) is a specific type of dismissal that is outside the meaning of termination of employment”, citing Scott Harrison v FLSmidth Pty Limited t/a FLSmidth Pty Limited  FWC 6695 at . I do not accept the submission. Notwithstanding the approach taken in that case and with due respect to similar views expressed in other decisions of the Commission, properly construed s 386 does not erect a class of deemed dismissals. It proceeds from the premise that a demotion in employment which involves a significant reduction in remuneration or duties is a termination of employment within the meaning of the FW Act.
- Broadlex drew attention to paragraph 1528 of the Explanatory Memorandum to the FW Bill, which states that s 386 is “intended to capture case law relating to the meaning of ‘termination at the initiative of the employer’” and which refers to Mohazab v Dick Smith Electronics Pty Ltd (1995) 62 IR 200 by way of example. According to Broadlex, this reference to Mohazab assists its argument. It claimed that there were two limbs to the decision in Mohazab: first, that termination must be at the employer’s initiative and second, that it is the employment relationship that must be terminated. In Mohazab the Full Court said at 205:
Consistent with the ordinary meaning of the expression in the Convention, a termination of employment at the initiative of the employer may be treated as a termination in which the action of the employer is the principal contributing factor which leads to the termination of the employment relationship. We proceed on the basis that the termination of the employment relationship is what is comprehended by the expression “termination of employment”: Siagian v Sanel (1994) 1 IRCR 1 at 19; 54 IR 185 at 201.
- Since the statement in paragraph 1528 of the Explanatory Memorandum was that s 386 was intended to capture case law relating to the meaning of “termination at the initiative of the employer” it seems to me that the intention was to pick up that part of the decision in Mohazab which I emphasised in the above extract. If anything, the absence of a similar reference to Mohazab or, for that matter, Brackenridge in the paragraph of the Explanatory Memorandum dealing with redundancy tends to undermine Broadlex’s argument. It rather suggests that it was not Parliament’s intention that s 119 “capture” the same case law.
- In Siagian, to which the Full Court in Mohazab referred, Wilcox CJ said that it was “preferable to the treat the words ‘termination of … employment’ in Div 3 of the Part VIA of the [IR Act] as including any act that brings to an end the employer-employee relationship, whether or not the act, or any acceptance of it, also brings to an end the contract of employment”. His Honour did not decide that employment or the employment relationship endures where an employer repudiates the contract of employment and the employee accepts the repudiation. Indeed, his Honour referred at  with apparent approval to a statement from the 3rd edition of Macken’s Law of Employment in substantially identical terms to the statement I quoted in  above.
- Broadlex also relied on the decision in Saeid Khayam v Navitas English PIL t/a Navitas English  FWCFB 5162; 273 IR 44. In Navitas, the Full Bench found that Department of Justice v Lunn (2006) 158 IR 410; 59 AILR 100-595 stood for several incorrect propositions, one of which was that “the expression ‘termination of employment at the initiative of the employer’ in s 170CB of the WR Act as it then was bore its ‘ordinary meaning’ and referred to the termination of a contract of employment, not the termination of the employment relationship” (at ). Drawing on Visscher, the Full Bench said at  that this proposition was incorrect:
Thus it is clear, contrary to the first proposition stated in Lunn to which we have earlier referred, that a termination of the employment relationship might constitute a termination at the initiative of the employer under the WR Act notwithstanding that the contract of employment remains on foot. That is, under the WR Act, termination at the initiative of the employer did not, on its ordinary meaning, refer to termination of the contract of employment. The first proposition in Lunn to which we have earlier referred was therefore not a correct statement of the law under the WR Act, and as a result the Full Bench’s analysis in Lunn proceeded on the wrong premise that it was necessary to analyse whether the final employment contract was terminated at the initiative of the employer, not whether the employment relationship was terminated at the initiative of the employer. The correct position remained as stated in Mohazab, namely that a termination of employment at the initiative of the employer occurs where the action of the employer is the principal contributing factor which leads to the termination of the employment relationship.
- This extract certainly underscores the conceptual difference between an employment contract and an employment relationship. It does not however support the proposition that employment or an employment relationship survives where the employer repudiates the contract of employment and the employee accepts the repudiation by entering into a new contract of employment on substantially inferior terms.
- In the result, in a case such as the present, where, for reasons unrelated to the ordinary and customary turnover of labour, the employer repudiates the employee’s contract of employment because it no longer required the job the employee was doing to be done by anyone and the employee accepts the repudiation by agreeing to work significantly fewer hours with a consequential reduction in her remuneration, the employee is entitled to be paid redundancy pay. By repudiating the contract the employer terminates the employment relationship. By accepting the repudiation the employee brings the employment contract to an end. Reading s 119(1) in this way is entirely harmonious with the operation of the unfair dismissal provisions in Pt 3‑2 of the FW Act.
- For all these reasons I am satisfied that Ms Vrtkovski’s employment was terminated when Broadlex repudiated her contract of employment as a full-time cleaner. Since it is common ground that the reason for the termination was that Broadlex no longer required that job to be done by anyone, she was entitled to redundancy pay in accordance with s 119(1). It follows that the appeal must be dismissed.”
Broadlex Services Pty Ltd v United Workers’ Union  FCA 867 delivered 22 June 2020 per Katzmann J