Lost contract, new job, but redundancy pay still owed

What happened

Savco cleared vegetation around high-voltage power lines in north-west New South Wales. On 6 April 2021 it learned it had lost the tender for that work with Essential Energy. It decided it was no longer viable to keep on a number of its workers, including Mr Corcoran.

The next day, the general manager of the company that had won the contract, ETS, rang Savco's director. They talked about moving as many Savco staff across to ETS as ETS was comfortable to take. Managers of the two companies discussed advising Savco staff to apply for jobs ETS had advertised on SEEK. Savco sent ETS some training records and hosted staff meetings in May 2021 where ETS managers explained the move.

Mr Corcoran applied through SEEK, was interviewed, and on 27 May 2021 received an offer from ETS. On 31 May 2021 Savco sent him a letter ending his employment for redundancy from 2 July 2021. The letter warned that staff who took jobs with the new contractor would be the subject of an application to the Fair Work Commission asking that their severance pay not be paid.

The employer's application

Savco then applied under s 120 of the Fair Work Act 2009 (Cth) to reduce each worker's redundancy pay to nil. For Mr Corcoran that meant 8 weeks' pay. Savco argued it had been a strong moving force behind the ETS jobs, that pay, hours and locations were comparable, and that because the workers moved straight into new work, the purpose of redundancy pay was not engaged.

The other workers dropped out one by one. Seven withdrew, each saying he had signed a confidential agreement with Savco, and Savco told the Commission an eighth was working for it again. That left only Mr Corcoran, represented by his union, the CEPU. Both sides agreed the Commission could decide the case on the papers, without a hearing.

The legal test

Under the National Employment Standards, the minimum terms every national system employee has, s 119 gives a worker made redundant a set amount of redundancy pay based on length of service. Section 120 lets the employer apply to have that amount reduced, even to nil, if it "obtains other acceptable employment for the employee" or cannot pay.

Two things follow from the words of the section. The employer bears the onus of proving it obtained the job. And the section only applies where the worker is entitled to redundancy pay "because of section 119".

What the Commission decided

Commissioner Cambridge found the application failed at the first hurdle. Savco was covered by a 2009–2011 enterprise agreement that had passed its nominal expiry date but had never been terminated or replaced. An expired agreement keeps operating until that happens. The agreement had its own redundancy clause and severance table, so Mr Corcoran's redundancy pay came from the agreement, not from s 119. The s 120 application was "without jurisdictional foundation".

Because the agreement had its own clause allowing the Commission to reduce severance where the employer obtained acceptable alternative employment, the Commissioner went on to decide that question too, to head off further litigation.

On that, Savco lost again. The evidence did not show its actions were the primary means by which Mr Corcoran got the ETS job. ETS had made the first contact, and ETS's own evidence described a path for Savco workers to potentially join ETS following a competitive recruitment process. Facilitation and assistance "falls far short" of obtaining employment.

Nor was the job acceptable, judged objectively. Mr Corcoran was paid $5.17 an hour less, had less attractive work location and rostering arrangements, was put on a six-month probation, and lost non-transferable credits built up through his length of service. The application was dismissed.

What this means for you

If you are made redundant and land a job with the business that took over your employer's work, you may still be entitled to your redundancy pay. The employer must prove it actually obtained the job for you, and that the job is acceptable when its pay, hours, location, security and lost service benefits are compared with what you had.

If you are an employer planning to ask for a reduction, check first where the redundancy entitlement comes from. If it comes from an enterprise agreement, s 120 may not be the right path, and the agreement's own terms will matter. Small businesses with fewer than 15 employees generally do not owe redundancy pay under s 119 (s 121 sets out the exemption and its limits). Savco said it had 61 employees, well above that line.

A worker asked to sign a release in exchange for dropping a redundancy claim should consider getting advice before signing.