Redundancy - the test for "other acceptable employment"?

Application to vary redundancy pay

Section 120 of the Fair Work Act (Act) allows an employer to apply to the Fair Work Commission (Commission) for an order to vary the redundancy pay an employee is entitled to under the Act, where the employer:

• obtains other acceptable employment for the employee (s 120(1)(b)(i)), or
• cannot pay the amount.

The question of whether or not acceptable alternative employment has been obtained by the employer for the employee is a matter that is to be determined on the basis of the facts and evidence before a Commission.[1]

The provision does not allow the employer to reduce the payment without any order. 

The onus rests on the applicant, to demonstrate that the amount payable ought to be reduced and the level of relief (if any) granted to the employer is determined by the Commission objectively, on the circumstances of that case.

What is “other acceptable employment”?

The principles to be applied by the Commission when considering whether an employer has obtained “other acceptable employment” for an employee include[2]:

1. the determination of what constitutes acceptable alternative employment is an objective exercise
2. mere rejection by the employee of alternative employment does not make it objectively unacceptable
3. in order to establish whether alternative employment obtained by the employer is acceptable, regard is to be had to the totality of the circumstances including (non-exhaustively) factors such as pay levels, hours of work, seniority, workload, job security, location and travelling.[3] No one matter is determinative[4]
4. comparable or equivalent pay and conditions, including hours of work and continuity of service are important and relevant considerations
5. to be acceptable, the new employment would need to take account of the employees’ skills, seniority, experience and capacity to perform the job
6. the location and additional travel times to and from work are a relevant consideration. For example, an offer of reemployment to another State would not ordinarily be found to be ‘acceptable employment’
7. ‘acceptable employment’ need not be identical employment and may still be considered acceptable, notwithstanding there might be additional inconvenience or a detrimental alteration to the terms and conditions of employment, and
8. employees should not unreasonably refuse offers of alternative employment merely because they wish to access the benefits of redundancy pay.

What is incapacity to pay?

The ‘incapacity to pay’ element of s 120 of the  Act is a factor which the Commission may consider if (and when) determining to reduce the amount of redundancy pay up to an amount of nil. The granting of full or partial relief from the obligation is an exercise of discretion in the circumstances of the case. Again, the onus is on the employer to establish that there are grounds justifying the exercise of the discretion.

To do so, the employer must satisfy the Fair Work Commission that it is “not financially competent or possessed of the necessary funds to make the payment and has no reasonable source of funds”.[5]

The assessment of financial competence will include consideration of:

1. The financial standing of the business, including:[6]
   1. its cash position, and
   2. the assets of the business.
2. The effect upon the employees immediately concerned, including the potential impact of an order on:
   1. recovering the entitlements through other means, including if company is liquidated
   2. the status of employees as potential creditors should the company become insolvent, and
   3. the employee’s rights under any government schemes.[7]
3. The effect upon the continuation of the business, including whether reducing the entitlement of dismissed employees may have a beneficial effect on other employees, enhancing their prospects of remaining employed.[8]

Putting it to the test

An application to reduce 13 weeks redundancy pay to zero was recently considered in the Decision of Deputy President Boyce in Hybrid Building Services Pty Ltd [2024] FWC 745 (Hybrid). Hybrid argued that it:

• had obtained (and offered) other acceptable employment with associated entity, and/or
• cannot pay the redundancy pay due and would cease trading once all its existing contracts had been completed.

In considering the submission that Hybrid had obtained other acceptable employment, DP Boyce analysed the differences and similarities between the two roles in detail. DP Boyce expressed the view that there were material differences between the redundant role and the employment offered and that whilst the employee might “theoretically be capable of understanding the BDM Role, subject to undisclosed and unidentified on the job learning, and support and training” … it held no genuine “connection with [the employee’s] demonstrated skill and experience”[9]. DP Boyce was not satisfied it amounted to other acceptable employment.

Similarly, DP Boyce was not satisfied that the employer “cannot pay” the redundancy pay because:

1. Hybrid was not financially incompetent or unpossessed of the necessary funds to make payment to Mr Faludi of his redundancy entitlements (by reference to its outstanding accounts receivable).
2. Hybrid did not demonstrate that it has no reasonable source of funds to make payment to Mr Faludi of his redundancy entitlements, e.g. via a loan from Nova.
3. Any reduction of Mr Faludi’s redundancy entitlement would not have a beneficial effect on other employees of Hybrid.
4. Any reduction of Mr Faludi’s redundancy entitlement would not have a beneficial effect upon the continuation of Hybrid’s business, i.e. given that it has intentionally chosen to wind down and cease trading over an extended time period.[10]

Accordingly, the case was dismissed.

For other Fair Work Commission decisions that consider redundancy pay and acceptable alternate employment, check out our previous article.

Watch this space

A new benchmark decision on redundancy, and particular, redeployment in the realm of s 389(2) of the Act may arise from a recent special leave application made to the High Court.

Section 389(2) of the Act sets out that a person’s dismissal is not a case of genuine redundancy if it would have been reasonable for them to be redeployed within the employer’s enterprise or an enterprise of an associated entity of the employer.

In May 2024, a special leave application was made to the High Court, seeking to overturn a decision of the Full Federal Court, in which the Court found that an employer ought to have assessed whether 22 workers could replace already engaged contractors before making them redundant in mid-2020.

Takeaways

• The test is objective – and takes into consideration all facts and circumstances.
• Whilst an alternative role does not need to be identical, deep consideration should be given to the transfer of the employee’s skills and knowledge.

[1] Hybrid Building Services Pty Ltd [2024] FWC 745 at [6]; UXC Connect v Moore [2012] FWC 4296.

[2] Ibid [14].

[3] CGL – Retail Services v Chapman [2023] FWC 1651 at [48] citing Australian Chamber of Manufacturers and Derole Nominees Pty Ltd (1990) 140 IR 123 at [128].

[4] Ibid.

[5] Company P v DS [2014] FWC 4673.

[6] Ibid.

[7] Ibid.

[8] Ibid.

[9] Ibid [21].

[10] Ibid at [31].