Can I reduce an employee’s redundancy pay?

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FWA, FWC, FWO – they’re European football codes, right?

The Fair Work Act (2009), administered by the Fair Work Commission and overseen by the Fair Work Ombudsman, is the source of many rules relating to employment, and in this case, to redundancy pay.

Sections 119 through 123 of the FWA have applicability here, and are readily available online, but needless to say, the devil is in the detail. Additionally, there have been particular court decisions that provide clarification for employers on several important matters.

There are some cases where redundancy pay is not applicable at all, including:

  • Casual employees.
  • Employees employed for less than 12 months.
  • Employees hired for a specific task, timeframe, or season.
  • Trainees under an apprenticeship or other such agreement.
  • If the employer is a small business.

There are several other specific cases that apply to particular industries, where daily, weekly, or seasonal hire, is the accepted norm.


Am I a Small Business?

It depends who you ask.

The Bureau of Statistics has one definition, and the Australian Tax Office has another, but all that matters here is what the FWA defines, which is: a business employing less than 15 regular employees, generally not counting casuals, at the relevant time qualifies as a small business. (FWA Section 23)

The relevant time means at the start of the process, not the end. That is, if you employ 20 people, but intend terminating 6, leaving you with 14, you are not defined as a small business, since you started with 20.


Terminated … but I’m still here!

It would be entirely natural to assume that redundancy pay, paid in case of termination, would only apply where an employee has left your employment.

The courts have decided that this is not necessarily the case.

For example, an employee who has worked 37 hours per week, but whose hours have now been reduced to 21, can be found to have been terminated. That is, their original agreement of employment has been repudiated by this significant change and therefore, their original contract has been terminated, even though they are still employed at the same firm, and redundancy pay may be appropriate.

This circumstance of reduced hours and reduced pay is quite relevant during the COVID business environment where possibly large reductions in business activity are necessary. This is worthy of professional advice.


Okay, but can the amount be reduced?

There are circumstances in which redundancy pay can be reduced, but the employer cannot make that decision alone, they must apply to the FWC.

Essentially, only where:

  • The employer finds other acceptable employment for the employee.
  • The employer cannot pay the normal amount.

There are two key words here.

  • The first is acceptable, and that has far-reaching considerations. Further, such alternative employment not only has to be acceptable, it must be offered. That is, mere talk of future possibilities, no matter how appealing, is not enough to satisfy the clause.
  • Second, the word cannot. Note that it does not say, doesn’t want to. The FWA application form for redundancy pay variation will require full explanation and supporting documentation. Nor will COVID necessarily be a justifiable reason, as recent cases will attest.


Key take-away

As with the high-diver diving into the small pool, it is much better to get the facts before taking the plunge. Employment Law – don’t assume, get it right. It will be easier with sound legal advice from the experts.

Owen Hodge Lawyers. We are here to help. Contact us today.

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