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Redundancy: Lessons for Employers (2021 Update)

Redundancy: Lessons for Employers (2021 Update)

A redundancy must be genuine. Read about a case where an employer failed to find 'acceptable alternative employment' for the employee.

17th February 2021
Reading Time: 2 minutes

Key points

  • A redundancy needs to be genuine in order to be legal
  • The employer needs to explore redeployment opportunities for the employee
  • A recent case has shown that redeployment should not amount to a significant demotion

Genuine Redundancy

In order for a redundancy to be valid, it must be genuine. This means that an employee’s job doesn’t need to be done by anyone anymore. Employees also need to receive consultation and adequate notice. To meet the test for genuine redundancy under the Fair Work Act 2009 (Cth), 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.

Recent findings

In Smith v Onesteel Limited & Anor [2013], the Judge had to determine what acceptable redeployment for employees looks like. More specifically, this looked at the issue of ‘acceptable alternative employment’ and how this should be interpreted.

Background

  • Mr Smith’s employer was the Commonwealth Steel Company Pty Ltd for 32 years.
  • Throughout the last 20 years, he worked as a furnace operator. He accrued seniority based on his significant length of service.
  • In mid-2010 Mr Smith was informed that because of a lack of work he would have to commence another role
  • This role involved 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.

Alternative acceptable employment

The case turned on the issue of alternative acceptable employment. The employee’ resigned after his position as a furnace operator was made redundant. The crux of the case was subsequently then 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 would receive a redundancy payment under the Award. This test involves:

  • The employee’s location of work
  • The employee’s hours and also pay
  • Work load and travel time
  • Job security

Notably, 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. The role was also not entirely suitable for the employee, due to a medical issue with his knee. Another critical factor is that the employee did not receive an offer for the other role. The employee was simply directed to move into it without any discussion or consultation. These facts, along with the significant reduction in seniority,  meant the alternative role was not acceptable. The employee subsequently did not act unreasonably in his response, given the lack of an ‘offer’ and any ‘consultation’ with him about his capabilities. The employer had to pay Mr Smith just over $150,000 in redundancy entitlements.

Lessons

The test for acceptable alternative employment is objective, but is also on a case-by-case basis. Employers who intend to redeploy an employee in lieu of redundancy need to therefore ensure that the role is acceptable. In some cases, the level of demotion can fail the test. If you have further questions about redundancy, it may be worth getting in touch with a Employment Lawyer for further advice.

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Author
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.