Earlier this week, the Federal Court dismissed an appeal from the Local Court of NSW, confirming that a reduction in an employee’s terms and conditions of employment without consent can give rise to a redundancy entitlement, even where the employee continues working for their employer.
The court dismissed the arguments brought by the employer, Broadlex Services, cementing an earlier decision to grant a full-time employee redundancy pay, after she accepted part-time employment at 40 per cent of her former wage against her will in 2017.
While the employee continued to work for the employer at a reduced rate of 20 hours per week, the Federal Court said that redundancy was triggered by the employee’s material reduction in conditions.
In announcing her decision, Justice Katzmann explained that the reduction in hours constituted a “repudiation” of the contract.
Moreover, the Justice found that when the contract came to an end, the employment relationship also came to an end, triggering the redundancy entitlement under the Fair Work Act.
The Justice also explained that the employee’s continued work for the employer on a part-time basis constituted the creation of a new and different employment relationship.
“I am satisfied that [employee’s name] employment was terminated when Broadlex repudiated her contract of employment as a full-time cleaner,” Justice Katzmann said.
“Since it is common ground that the reason for the termination was that Broadlex no longer required that job to be done by anyone, she was entitled to redundancy pay in accordance with s 119(1).”
This ruling could have serious repercussion for employers reducing employee hours as a result of the COVID-19 crisis, Luis Izzo of Australian Business Lawyers & Advisors (ABLA) has warned.
He noted that while the facts considered in Broadlex were somewhat severe, the principles have application to the reduction of other significant contractual conditions.
Mr Izzo explained that this decision could be applied to the reduction of other material contractual conditions such as access to a motor vehicle, incentive payments, duties, an employee’s status or seniority, remuneration or work location.
“Particularly as employers respond to financial distress caused by COVID-19, it is important that consent is obtained for contractual variations,” Mr Izzo said.
“Alternatively, employers need to ensure any variations to the employment are permitted by the relevant employment contract or possibly industrial instrument.”
He opined that care especially needs to be taken where reductions are being made to large numbers of employees, in order to avoid a compounding of exposure and the possibility of class actions.