In the Australian workplace, redundancy typically involves the complete termination of employment and a final pay, usually after the employer consults with the employee. However, in some cases, a significant reduction in contracted hours without ending the relationship can also amount to redundancy. This may entitle the employee to redundancy pay and create a financial obligation for the employer.
A reduction in hours does not automatically amount to redundancy. It will always depend on the specific facts, the terms of the employment contract, and any applicable industrial instrument.
What defines a “genuine redundancy”?
Under the Fair Work Act 2009, redundancy occurs when an employer no longer requires a person’s job to be performed by anyone due to changes in operational requirements. The focus is on the job itself, not the person. For a dismissal to qualify as a “genuine redundancy”, three elements must be met:
- The employer no longer requires the job to be performed by anyone due to operational changes.
- The employer complies with any consultation obligations in an applicable modern award or enterprise agreement.
- Redeployment within the employer’s enterprise or an associated entity would not be reasonable in the circumstances.
If any of these elements are missing, the dismissal may not qualify as a “genuine redundancy”. This primarily affects unfair dismissal claims. A “genuine redundancy” can prevent the Fair Work Commission from finding a dismissal unfair. However, redundancy pay rights remain a separate issue.
Can you “reduce” someone’s role into a redundancy?
In some circumstances, yes. It depends on whether the change is so significant that it effectively ends the original employment contract.
If an employer unilaterally makes a major change to a fundamental term of the contract, such as a substantial reduction in hours and pay, the law may treat this as repudiation. In simple terms, the employer breaks the original agreement. This effectively ends the old job and replaces it with a new one.
Whether a reduction in hours amounts to repudiation and termination is highly fact-specific. Relevant factors include:
- The size and permanence of the reduction in hours and pay.
- The terms of the contract and any applicable award or agreement. For example, if an instrument allows limited changes to hours, this may weigh against repudiation when the employer acts within that scope.
- The business reasons for the change.
- The conduct of both employer and employee, including whether they genuinely agreed to vary the contract.
Not every change to hours, rosters, or duties results in repudiation or redundancy. Adjustments that follow the contract or applicable instruments, or that are modest or temporary, are less likely to end the original employment contract.
Case study: Broadlex Services Pty Ltd v United Workers’ Union
A key Federal Court case that illustrates this issue is Broadlex Services Pty Ltd v United Workers’ Union [2020] FCA 867.
The situation
An employee worked full-time as a cleaner. After a change in a service contract, the employer, Broadlex, told her that her weekly hours would drop from 38 to 20, along with her pay. The worker refused to sign a consent form but continued working part-time because she felt she had no real choice.
The dispute
The Union argued that the employee’s full-time role had become redundant and that she was entitled to redundancy pay. This applied even though she remained employed in a part-time role. The employer argued there was no termination because the employment relationship continued.
The Court’s ruling
The Federal Court of Australia found in favour of the employee. The Court held that:
- The shift from full-time to part-time fundamentally changed the employment contract.
- The employer repudiated and effectively terminated the full-time contract by imposing the change unilaterally.
- The full-time role no longer existed due to operational changes and was therefore redundant.
- The employee was entitled to redundancy pay even though she continued working in a part-time role.
The Court treated the part-time work as a new contract. The redundancy arose from the termination of the original full-time role.
Key considerations for employers
If you face a downturn or restructure, take care when reducing hours:
- Consent is important: Always try to negotiate changes to hours and pay. A genuine written agreement reduces the risk that a court will later treat the change as a termination.
- Check contracts, awards and agreements: Review the employment contract and any applicable Modern Award or Enterprise Agreement. These often include consultation rules and limits on changing hours.
- Consultation obligations: Follow all required consultation processes before making major changes, including changes to hours and rosters.
- Redundancy pay may still apply: Even if an employee stays on reduced hours, you may still need to pay redundancy if the original role no longer exists.
- Consider redeployment: Before making a role redundant, assess whether you can redeploy the employee within your business or an associated entity. In some cases, this may reduce redundancy pay.
- Seek legal advice: If you plan to restructure or change contracts, seek legal advice.
Key considerations for employees
If your employer reduces your hours:
- Check your contract: Review your contract and any applicable Award or Enterprise Agreement. Many contracts do not allow unilateral reductions in hours.
- Clarify your role: Ask if your original role is redundant and whether the employer is offering a new role.
- Ask about alternatives: Check if other suitable roles exist. This may affect your entitlements.
- Seek advice early: Before signing a new contract, get advice from a lawyer, union, or advisory service. Early advice helps protect your rights.
Key takeaways
- Operational change: Redundancy occurs when the job is no longer needed due to operational changes, not simply because someone leaves.
- Fundamental changes: A major, non-consensual reduction in hours can end the original contract. The employee may still qualify for redundancy pay even if they continue working.
- Genuine redundancy requirements: The employer must no longer require the job, must follow consultation rules, and must consider redeployment.
- Consultation and process: Employers must follow proper processes, and employees should engage with them and seek advice where needed.
This article provides general information only and does not constitute legal advice. Workplace laws change over time, and their application varies depending on your circumstances, industry, and location.
This information reflects Australian federal workplace law and may not apply to all situations. You should obtain professional advice before acting on it. For assistance, please call (03) 9600 2768 or email [email protected].