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Avoiding the Pitfalls of Redundancy: Lessons for Employers

Avoiding the Pitfalls of Redundancy: Lessons for Employers

Redundancy must be genuine to be legal. Here, we'll discuss a case where an employer failed to find 'acceptable alternative employment' to the employee.

18th September 2013

We regularly provide advice around redundancy and know from practice that it can be an area fraught with pitfalls. To meet the test for genuine redundancy under the Fair Work Act the redundancy process must include the employer exploring, with the employee, any available redeployment options. Related to this concept is that of ‘alternative acceptable employment’ which may affect the redundancy pay.

Smith v Onesteel Limited & Anor [2013] NSWDC 18 (15 March 2013)
This decision, handed down in March this year, considered in some detail the issues around ‘acceptable alternative employment’ and how this should be interpreted. Mr Smith was employed by the Commonwealth Steel Company Pty Ltd for 32 years, the last 20 of which he worked as a furnace operator, accruing seniority based on his significant length of service. In mid-2010 Mr Smith was told by his employer that because of a lack of work he was being moved into another role painting railway wheels on a finishing line. Humiliated and stressed by what he perceived as a considerable demotion, and physically unable to fulfil the requirements of the role, the employee tendered his resignation.

The case turned on the issue of alternative acceptable employment. The employee’s resignation was found to have occurred after his position as a furnace operator was made redundant, and the crux of the case was the issue of ‘acceptable alternative employment’. The relevant Award provisions required the judge to consider whether the new role met the test for acceptable alternative employment. If it did, the employee was not entitled to the redundancy entitlements under the Award.  The employee’s location of work, hours and even his pay did not change. Importantly, however, the judge found that the alternative role signified a reduction in status and seniority (accrued because of his long service), and pointed to the employee’s reaction as evidence of this change.

Another critical factor appears to be that the employee was not ‘offered’ the other role but simply directed to move into it without any discussion or consultation.  These facts, combined with the significant reduction in seniority,  meant the alternative role was not acceptable and that the employee did not act unreasonably in his response, given the lack of an ‘offer’ and any ‘consultation’ with him about his capabilities. Mr Smith was awarded just over $150,000 in redundancy entitlements.

Sarah Waterhouse, Solicitor, BlandsLaw

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Dominic Woolrych

Dominic is the CEO of Lawpath, dedicating his days to making legal easier, faster and more accessible to businesses. Dominic is a recognised thought-leader in Australian legal disruption, and was recognised as a winner of the 2015 Australian Legal Innovation Index.