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Caution for Employers: Employee able to have cake & eat it too!

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The Federal Court of Australia (‘FCA’) has issued a decision granting an employee redundancy pay after moving from full-time to part-time employment.

The facts...

In the decision of Broadlex Services Pty Ltd v United Workers’ Union [2020] FCA 867, the FCA confirmed an earlier decision of the Local Court of New South Wales (‘Local Court’) granting redundancy pay despite the full-time employee continuing in employment as a part-time employee.

On 1 March 2014, Broadlex Services Pty Ltd (‘Broadlex’) entered into a full-time employment contract with Brizitka Vrtkovksi (‘Vrtkovksi’) to perform cleaning duties at an Energy Australia/Ausgrid site at Newcastle.

In July 2017, Broadlex negotiated a new contract with Ausgrid whereby the cleaning hours were reduced. On 15 August 2017, Vrtkovksi was informed that “due to consideration of work flow an operational requirement has been identified to reduce [her] status from full time to part time” and that her hours would alter on and from 12 September 2017. The effect of this decision was that Vrtkovksi’s hours were to reduce from 38 hours per week to 20 hours per week with an approximate 40% salary reduction. Vrtkovksi was asked to sign a written consent to this change described as a “transfer from full time to part time” with a change in hourly rates. Vrtkovksi refused but began working the reduced hours on 12 September 2017 because she considered she had no choice.

Union Claim

United Voice (now the United Workers’ Union) (‘Union’) issued proceedings in the Local Court claiming redundancy pay under section 119 of the Fair Work Act 2009 (‘FW Act’) including orders for compensation and penalties. Section 119 of the FW Act relevantly provides an entitlement to redundancy pay ‘if the employee’s employment is terminated at the employer’s initiative because the employer no longer requires the job done by the employee to be done by anyone, except where this is due to the ordinary and customary turnover of labour.

A key question was whether the employment had been terminated.

Local Court decision

The Magistrate held that Vrtkovksi’s full time contract had been terminated and that when she started on a part-time basis she did so under a new employment contract. By reducing Vrtkovksi’s status from full-time to part-time, Broadlex had repudiated her employment contract and Vrtkovksi had accepted this repudiation by refusing to sign the consent form or agreeing to the variation in terms (Repudiation is where a party indicates by words or conduct that it is unwilling or unable to perform it’s obligations under a contract).

The Magistrate concluded that Vrtkovksi’s employment was terminated by Broadlex at its initiative because it no longer required the full time job to be done by anyone. There was no evidence that the termination was due to the ordinary and customary turnover of labour and therefore Vrtkovksi was entitled to redundancy pay. The magistrate also upheld the Union’s claims for interest and a civil penalty.

Appeal to Federal Court

Broadlex appealed to the FCA arguing that Vrtkovksi was not entitled to redundancy pay because the employment relationship had continued on a part-time basis after the termination of the full-time employment contract.

The FCA rejected Broadlex’s argument.

The FCA found that by Broadlex repudiating the full-time employment contract due to it no longer requiring the full-time job to be done by anyone, it had terminated the employment relationship and that by Vrtkovksi accepting there had been a repudiation by agreeing to work significantly fewer hours with a consequential reduction in pay, she had brought an end to the full-time employment contract.

Basically, the key point is the FCA found that Broadlex had terminated the employment relationship. Therefore, in accordance with section 119 of the FW Act, as Vrtkovksi’s employment had been terminated at Broadlex’s initiative because it no longer required the full-time job to be done by anyone, Vrtkovksi was entitled to redundancy pay.

The take home...

Unless there is an appeal, this decision provides an exception to the general rule that where the employment relationship continues, there is no termination of employment and therefore no entitlement to redundancy pay.

The exception is there will be a termination of employment for the purpose of an entitlement to redundancy pay where:

  • an employer arbitrarily ends an employee’s full-time employment contract but offers a part-time employment contract which results in the employee being in a substantially inferior position; and
  • the employee refuses to consent to the change but reluctantly works in accordance with the part-time employment contract.

Employers must be mindful when proposing to make an employee’s position redundant not to arbitrarily end an employee’s employment contract as they may in fact be terminating the employee’s employment at this time and creating a liability for redundancy pay.

It would be more prudent in these circumstances for an employer to offer the full-time employee the part-time position as a redeployment opportunity including engaging in appropriate consultation. If the full-time employee does not agree, then the employer should terminate the full-time employment contract and therefore the employment on the basis of a redundancy and pay any redundancy pay entitlement.

The take home point here is that employers must obtain clear and unequivocal consent from an employee, preferably in writing, prior to assuming that a redeployment opportunity suffices for the purpose of there not being an entitlement to redundancy pay.

Please note that the Federal Government’s JobKeeper scheme allows eligible employers to give certain directions to eligible employees including requiring them to work reduced hours.  This decision is only relevant for those employers not covered by the JobKeeper scheme.

Not sure of your obligations?

If you would like to know more about redundancy pay obligations, please contact us and a Mapien Workplace Strategist will be in touch within 24 hours.

Written by
Charles Lentini
Charles combines his passion for delivering successful outcomes with his extensive experience in both the public and private sector to provide tailored and practical Industrial Relations solutions. He has a calm, methodical and diligent approach to solving complex issues which allows him to analyse each issue logically and instill confidence in his clients.