Avoiding the pitfalls of redundancy: Lessons for employers

We regularly provide advice around redundancy and know from practice that it can be an area fraught with pitfalls. To meet the test for genuine redundancy under the Fair Work Act the redundancy process must include the employer exploring, with the employee, any available redeployment options. Related to this concept is that of ‘alternative acceptable employment’ which may affect the redundancy pay.

Smith v Onesteel Limited & Anor [2013] NSWDC 18 (15 March 2013)

This decision, handed down in March this year, considered in some detail the issues around ‘acceptable alternative employment’ and how this should be interpreted. Mr Smith was employed by the Commonwealth Steel Company Pty Ltd for 32 years, the last 20 of which he worked as a furnace operator, accruing seniority based on his significant length of service. In mid-2010 Mr Smith was told by his employer that because of a lack of work he was being moved into another role painting railway wheels on a finishing line. Humiliated and stressed by what he perceived as a considerable demotion, and physically unable to fulfill the requirements of the role, the employee tendered his resignation.

The case turned on the issue of alternative acceptable employment. The employee’s resignation was found to have occurred after his position as a furnace operator was made redundant, and the crux of the case was the issue of ‘acceptable alternative employment’. The relevant Award provisions required the judge to consider whether the new role met the test for acceptable alternative employment. If it did, the employee was not entitled to the redundancy entitlements under the Award.  The employee’s location of work, hours and even his pay did not change. Importantly, however, the judge found that the alternative role signified a reduction in status and seniority (accrued because of his long service), and pointed to the employee’s reaction as evidence of this change.

Another critical factor appears to be that the employee was not ‘offered’ the other role but simply directed to move into it without any discussion or consultation.  These facts, combined with the significant reduction in seniority,  meant the alternative role was not acceptable and that the employee did not act unreasonably in his response, given the lack of an ‘offer’ and any ‘consultation’ with him about his capabilities. Mr Smith was awarded just over $150,000 in redundancy entitlements.


As part of a redundancy process an employer must consider redeployment. All alternative roles should be considered in consultation with the employee. This should include more junior roles  and any positions available in an associated entity. If there are options, these should be offered to the employee who may then reject or accept as they see fit.

Alternative acceptable employment

In the case above, this issue was critical because of the provisions in the applicable Award. The concept of acceptable employment may also be considered in relation to redundancy pay. Under the Fair Work Act an employer can seek a determination by the Fair Work Commission to reduce the amount of redundancy pay otherwise payable if they have obtained other acceptable employment for the employee. In determining what is acceptable there are a number of relevant factors; these include pay levels, hours of work, seniority, type of role, skills, location and loss of benefits.  In the case of a significant demotion, for example, or reduction in seniority as occurred in the case above, these factors may affect the determination about redundancy pay.

It is important that employers consider all redeployment options. If alternative roles are available, employees should be offered any other available roles. The facts of each situation and the details around the roles, may in turn impact on whether redundancy pay is still payable.

Lesson for employers

The lesson here for employers is to approach a potential redundancy in a considered and careful manner. Both the reasons for, and the process of , redundancy are critical. All redeployment options must be considered, and then discussed with the employee – who may accept or reject any offers. If an alternative role is accepted by an employee, the details of that alternative role may impact on redundancy pay.  For some employees you may also have to consider whether there are relevant Award provisions covering redundancy.

In summary, if you are uncertain about any aspects of a proposed redundancy, make sure you get advice early in the process to help avoid problems down the track.

Sarah Waterhouse, Solicitor, BlandsLaw



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