Can HR reduce a redundancy payment?

In a recent case, the Fair Work Commission considered whether a worker’s redundancy payment should be reduced given her previous employer obtained alternative employment for her. Ultimately, given the worker’s significant pay cut in her new role, the Commission declined to reduce her redundancy payment.

The worker was employed by a former fruit, vegetable and grocery store. In mid-March 2021, the store received notice to vacate its premises, as a new company was replacing it in the tenancy. The store director advised her employees that their roles would likely be made redundant and collected the resumés of those interested in working at the new company, including the worker’s.

Shortly thereafter, the worker received a redundancy letter, advising that she would be entitled to 11 weeks’ severance pay. The worker then attended a meeting with the new company, facilitated by the store director, to discuss potential employment. The worker was offered immediate employment with the new company and chose to commence her new role two weeks later. On this basis, the store director applied to the Fair Work Commission to reduce the worker’s severance pay to two weeks. 

The Hearing

The store director submitted that she invested considerable time and effort into creating a relationship between her employees and the new company to obtain opportunities for her staff after their termination. In contrast, the worker asserted that she secured her new role on her own merit, not the efforts of the store director.

The primary issue for the Commission was whether the store director had obtained other “acceptable employment” for the worker. The Commission was satisfied that the store director demonstrated “conscious, intended acts” of affording her staff every opportunity to be employed by the new company. However, it also noted the significant reduction in the worker’s hourly wage (from $27.32/hr to $21.76/hr) and that the worker’s six years of service and accrued personal leave did not carry over to her new role.

Based on these factors, the Commission was not satisfied that the alternative employment obtained for the worker was acceptable. It ordered that an 11-week severance package be paid to the worker.

Key Takeaways

• Where an employer seeks to reduce a worker’s redundancy payment, the Commission will consider whether the employer “obtained” other employment for the worker, and whether the other employment was “acceptable”
• The Commission will consider a range of factors to determine whether other employment is “acceptable”, including job description, rate of remuneration, leave entitlements, and commute time
• Where the other employment deviates significantly from the worker’s previous role, the Commission may not consider it “acceptable” to reduce a redundancy payment