The Federal Court has recently determined that where an employee’s terms and conditions of employment have been reduced without consent, this can give rise to an entitlement to redundancy pay even when the employee has remained employed by the employer.

Background

In the case of Broadlex Services Pty Ltd v United Workers’ Union [2020] FCA 867, Broadlex (the employer), entered into a cleaning contract with Ausgrid which saw a reduced demand for cleaners employed by Broadlex.

Consequently, in August 2017 Brizitka Vrtkovski (the employee) was advised that her position was to be changed from full time to part time due to reduced workflow. The hours of work were to change from 38 to 20 hours per week.

The change in hours were outlined in a consent form which the employee was asked to sign. The employee refused to sign the consent form presented to her by Broadlex. Despite not signing the agreement, the employee continued to work for Broadlex on the reduced hours effective on 12 September 2017.

Local Court Proceedings

In 2019, the employee’s union (United Workers Union) commenced proceedings in the Local Court seeking a declaration that Broadlex had contravened section 44 of the Fair Work Act 2009 (the Act), by failing to pay the employee redundancy pay in accordance with section 119 of the Act. The union sought orders for compensation and penalties.

At trial, the parties apparently agreed that the duties and tasks performed by the employee performed on a part-time basis were the same as those she had performed on a full-time basis, and it was common ground that her accrued service benefits were maintained after she began working part-time.

It was found that by reducing the employment status from full time to part time, Broadlex repudiated the employment contract.

The Magistrate found that employee had accepted the repudiation by refusing to sign the consent form or agreeing to the variation in terms.

Consequently, the court found that:

  1. The contract of employment was terminated and, when the employee started work on a part-time basis, she did so under a new contract of employment;
  2. The employment was terminated at the initiative of the employer 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.
  3. Accordingly, the employee was entitled to redundancy pay.

The Magistrate upheld the union’s claims, awarded the employee $5,194.98 in redundancy pay, with interest fixed at $502.56, and ordered Broadlex to pay the union a civil penalty of $1,500.

Appeal to the Federal Court

Broadlex subsequently appealed the Magistrate’s decision on the basis of an incorrect interpretation of subsection 119(1) of the Act. Broadlex argued that the employment relationship continued after the termination of the contract and therefore the employee was not entitled to a redundancy payment. In their appeal, Broadlex sought that the Magistrate’s judgement be reversed, the civil penalty be quashed and the union repay all amounts paid by Broadlex together with interest at the applicable rate.

Justice Katzman found that a redundancy was triggered because the reduction in hours had the effect of terminating the employee’s employment. Justice Katzmann found that:

  1. The unilateral reduction of the employee’s working hours constituted a “repudiation” of the contract (that is, a fundamental breach going to the root of the contract).
  2. The employee’s refusal to sign a consent form constituted an acceptance of the repudiation by the employee – thereby bringing the pre-existing employment contract to an end.
  3. When the contract came to an end, the employment relationship also came to an end – thereby triggering the redundancy entitlement under the Act.
  4. The employee’s continued work for the employer on a part-time basis constituted the creation of a new and different employment relationship. It was not a continuation of the existing relationship the employee had with Broadlex.

On the basis of the points listed above, the Appeal filed by Broadlex was dismissed.

Takeaway Points for Members

  • Members are reminded that consent should always be obtained from employees prior to varying employment contracts. This should be done clearly in writing so that there is a record of the consent being given by the employee for the variation in the
  • Alternatively, Members should check whether any variation of employment conditions are permitted by the employee’s employment contract (or possibly industrial instrument).
  • LASA is mindful that as employers respond to financial stress caused by COVID-19, members may look to changing employment conditions. Members are encouraged to keep the principles of this Decision in mind and contact LASA’s ER team if any questions arise.