A recent decision of the Australian Industrial Relations Commission (Commission) has confirmed that where an employer seeks to have the obligation to pay redundancy entitlements to its employees varied or set aside on the basis that the employer has obtained ‘acceptable alternative employment’ for its employees, it must satisfy the relevant factors in order for the alternative employment to be deemed ‘acceptable’.

The facts

In April 2008 the premises of the Tasman Sheepskin Tannery (Tasman) in Queensland was severely damaged by fire. As a result, a number of Tasman’s 24 employees were employed on salvage work or were assigned to acceptable alternative employment.

The applicable award, the Tanning Industry Award 1999 contained a clause which provided that an employer could make an application to the Commission for an order that no severance pay be payable in circumstances where the employer has provided acceptable alternative employment for the employee. Tasman made an application to the Commission under this provision of the Award in relation to four of its employees (Employees).

It is not uncommon for an award or agreement to enable an employer to apply to the Commission to vary or set aside the employer’s redundancy pay obligations in the situation where it has obtained acceptable alternative employment for the outgoing employee or employees.

The law

Regulation 2.24 of the Workplace Relations Regulations (Cth) 2006 (Regulations) provides that the Commission may vary or set aside an obligation to pay redundancy pay if it is satisfied that the alternative employment is acceptable. The acceptability of alternative employment is objectively assessed by the Commission according to the following relevant factors:

  • pay,
  • hours of work,
  • seniority,
  • workload, and
  • other matters particular to the application.

Although Commissioner Spencer provided only minimal written consideration of the above indicia in the Tasman application, there was considerable evidence provided by the Employees in respect of the pay and entitlements they claimed to have lost or stood to lose as a result of the alternative employment offered to them.

The Employees gave evidence that the work which was offered to them was in some cases “completely different” to the work they carried out before the fire damaged Tasman’s premises. Other evidence included the Employees’ loss of the full time ‘permanent’ status, supervisory duties, overtime and penalty rates.

Ruling

In Tasman, Commissioner Spencer ruled that the alternative employment was not acceptable on the basis that the alternative positions did not provide reasonable options of ongoing employment. Accordingly, Tasman’s obligation to pay redundancy entitlements in accordance with the provisions of the award were not varied or set aside.

Relevant recent authority

Commissioner Spencer’s relatively brief reasons for the decision in the Tasman application are most likely due to the considerable weight of authority and judgement arising in respect of this issue previously. For example, in the case of Re National Union of Workers v Tontine Fibres [2007] (NUW) the Commission examined the above indicia at length.

In NUW the Commission considered the following factors when determining whether the alternative employment was acceptable:

  • a decrease in pay or considerable discrepancy between remuneration in the two positions,
  • effect on the seniority or status of some employees,
  • increased daily travel requirements, and
  • significant overtime work.

The Commission in NUW found that such changes in the work performed by the employees, in the absence of an increase in pay or conditions, would support a finding that the alternative employment may be unacceptable.

The finding of unacceptable alternative employment by the Commission in the case of NUW also considered the nature of the work performed by the employees in the two roles. The Commission found that the work performed was very similar, if not the same in nature as the role the employees were performing at the alternative employment site.

This part of the NUW decision is particularly relevant to the Tasman application as the Tasman Employees gave evidence that they were offered alternative employment in ‘a modern and completely different process than producing wool on sheepskin’. Although the nature of the employment is not expressly stated as one of the indicia in Regulation 2.24, both the Tasman and NUW cases illustrate that the alternative employment must be comparable in almost all facets.

Acceptable alternative employment in the current economic climate

In the current economic climate, the issues of redundancy entitlements and acceptable alternative employment are of particular importance to employers’ strategic planning and ongoing viability. Employers seeking to have their redundancy pay obligations varied or set aside under a provision of the applicable award or agreement on the basis that they have obtained ‘acceptable alternative employment’ for employees must carefully consider the indicia contained in Regulation 2.24. Employers must not view acceptable alternative employment clauses in awards and agreements as an opportunity to avoid their redundancy pay obligations.

The purpose of Regulation 2.24 is to uphold the longstanding legal principal that an employer may not unilaterally (ie without employee’s consent) reduce an employee’s hours or remuneration or transition them to a position of a different nature without effectively terminating their employment.

Suggestions for employers

During the current economic instability, if an employer wishes to retain its employees, but transition them to different or lower paid roles, or roles with less seniority, this may be done by negotiation with the relevant employees and any agreement may be set out in a contractual variation agreement. Contractual variation agreements should also specify the effect and term of the variation.

By undertaking this negotiation process with employees on an open and honest basis, employers may avoid the process of having to find ‘acceptable’ alternative employment for employees and may also be able to retain preferred employees until the return of improved business conditions.