Is refusing to accept a pay-cut a redundancy situation?
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Is refusing to accept a pay-cut a redundancy situation?

Is refusing to accept a pay-cut a redundancy situation?

 

Employers are urged to exercise caution when making an employee’s position redundant. In a recent case,[1] the FWC has made it explicitly clear that a dismissal will not constitute a genuine redundancy if it arises after an employee has refused to accept a pay-cut. Employers will most certainly land themselves in hot water if they simply seek to replace a “redundant” employee with someone at a lower cost.  

Parabellum, who provided emergency response services to Chevron, sought to reduce four workers salaries by 13%, when Chevron cut its contract prices. The workers refused to accept the pay-cut and their roles were subsequently made redundant as part of an operational restructure. The employees argued their dismissal was not a case of genuine redundancy because their positions were filled by newcomers on lower salaries.

For a dismissal to be a case of a genuine redundancy, the Fair Work Act 2009 (Cth) (“FWA”) states that the employer “no longer requires the job to be performed by anyone”.

Parabellum urged the Commission to adopt a wide interpretation of these words, arguing that a persons ‘job’ includes contractual arrangements that the employer has entered into with third parties. Consequently when a third party contract changes, or the rates paid under a contract are varied, then the ‘job’ is no longer required.

It was submitted on behalf of the employees that the word ‘job’ means “a collection of functions, duties and responsibilities” that has no association with remuneration. It follows that this could not be a redundancy situation, as it would allow employers to carry out redundancies simply because they can find another employee to do the same tasks performed for less money.

The Commission disagreed that it should adopt a wide interpretation of the FWA and found that a variation in pay does not equate to the employer no longer requiring ‘the job’ to be performed. Instead, it concluded that a redundancy situation exists when “the functions, duties and responsibilities attached to the job are determined ‘superfluous’ to the employers needs”. The FWC also criticised Parabellum’s failure to provide any authority to support its view that the interpretation of the word ‘job’ should include remuneration.

Lessons for Employers

  • Consider your obligations under the FWA and ensure that the reasons for the redundancy are genuinely based on the operational requirements of the business.
  • When contemplating whether redundancies are to be implemented, consider whether you still need the positions to be performed. Redundant employees cannot simply be replaced with someone at a lower salary.
  • Remember that refusing to accept a pay-cut does not give rise to a redundancy situation.
  • If redundancies are to be implemented, ensure all affected employees are paid out their entitlements including redundancy pay if applicable.

     

    Summary

     

    In a recent case, the FWC had to decide whether the dismissal of 4 employees who refused to accept a pay-cut was a genuine redundancy. In their decision, it was agreed that the word ‘job’ must be interpreted as meaning “a collection of functions, duties and responsibilities associated with the position”, but is not associated with remuneration.

 

[1] Mallard v Parabellum International Pty Ltd [2017] FWC 2531 (15 May 2017).

 

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

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