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Overview

This decision goes against the doctrine that if an employee continues to work for an employer under changed circumstances, then the affected employee has an “implied” acceptance to the changes…or does it? Each and every HR person should read this report as it is fundamental to the contract of employment.

Introduction

The Federal Court hearing an appeal from a decision of the magistrates’ court contemplates whether the reduction of an employee’s hours of work constitutes a bona fide redundancy. Each and every HR person should read this report as it is fundamental to the contract of employment.

Background

This was an appeal by the employer against a ruling of the magistrates’ court, where an employee’s union argued that the reduction to an employee’s hour of work was tantamount to redundancy for the purposes of the Fair Work Act 2009.

The union “won” this case and the employer appealed to the federal court and lost, again.

Not relevant, but to give context is the fact that the company was a cleaning business and the employee a cleaner.

The cleaner had been employed since 1 May 2014 as a full-time cleaner by the company.

Due to circumstances beyond the company’s control, the company decided to reduce the employee’s hours to from 38 hours a week to 20 hours a week, with a corresponding loss of earning of some 40 percent.

Whilst refusing to sign an amended contract of employment, the employee began working the reduced hours on 12 September 2017 because she considered she had no choice.

In the magistrates’ court, the magistrate upheld the Union’s claims, awarded the cleaner $5,194.98 in redundancy pay, with interest fixed at $502.56, and ordered the employer to pay the Union a civil penalty of $1,500.

The employer’s argument

The employer contended that the magistrate’s decision was based on an incorrect interpretation of the Act, arguing that the employee was not entitled to redundancy pay because the employment relationship continued after the termination of the contract and termination of a contract of employment at the employer’s initiative is not enough to generate an entitlement to redundancy.

The magistrate did not accept that there had been a variation of the full-time contract, her Honour found that the employer had repudiated [retracted] the contract and the employee accepted the repudiation.

The focus of the employer’s argument was on the distinction between the termination of the employment relationship and the employment contract. The employer submitted that the magistrate erred by relying on the fact that s 119 fails to refer expressly to the employment relationship as a reason for construing the phrase “employment is terminated” to include the employment contract.

The legal parameters

Subsection 119(1) of the Fair Work Act 2009 (Cth) (FW Act) provides that:

An employee is entitled to be paid redundancy pay by the employer if the employee’s employment is terminated:

(a)          at the employer’s initiative because the employer no longer requires the job done by the employee to be done by anyone, except where this is due to the ordinary and customary turnover of labour; or

(b)          because of the insolvency or bankruptcy of the employer.

“Dismissed” is defined in s 386 of the Act. It relevantly provides that:

A person has been dismissed if:

(a)          the person’s employment with his or her employer has been terminated on the employer’s initiative; or

(b)          the person has resigned from his or her employment, but was forced to do so because of conduct, or a course of conduct, engaged in by his or her employer.

However, a person has not been dismissed if:

(c)           the person was demoted in employment but:

(i)            the demotion does not involve a significant reduction in his or her remuneration or duties; and

(ii)           he or she remains employed with the employer that effected the demotion.

The common law

Citing a number of judgments, the judge in this matter quoted:

“[A] person’s employment cannot be divorced from the contract of employment which governs it. This is so even if the employment and the contract terminate at different times, for instance in circumstances where, although the employment has ended following a dismissal, the contract remains on foot because the employer’s repudiatory conduct has not been accepted: Visscher v Giudice (2009) 239 CLR 361.

Because the terms of a person’s employment are determined by the related contract of employment, to identify whether the employment of a person such as Mr Jovic has been terminated and replaced with another employment or continued according to amended terms depends on the contractual terms applicable to that employment.

The reasons for the employer’s actions are not relevant to this aspect of the analysis”.

What is redundancy?

Putting to one side the exception for the ordinary and customary turnover of labour, which is irrelevant in this case, para 119(1)(a) erects an entitlement to redundancy pay on the happening of two causally connected events:

  • One is the termination of the employee’s employment at the employer’s initiative.
  • The other is the termination of the employee’s employment because the employer no longer requires the job done by the employee to be done by anyone.

The Union argued that the phrase “employment is terminated” is not to be construed in isolation from the words around them. Drawing on Amcor Limited v Construction, Forestry, Mining and Energy Union (2005) 222 CLR 241 at [44] (Gummow, Hayne and Heydon JJ), it submitted that the entitlement to redundancy pay created by para 119(1)(a) depends on the job becoming redundant and not on the employee being surplus to the employer’s requirements.

Put simply, when looking at your workforce as a whole, you determine which jobs you need and those you do not (and, naturally, the opposite also applies). Of secondary determination is which people are surplus to requirements, and this is where it tricky, as it is not a as simple of saying “that person occupies the surplus position, then it is that person who must go.

But the entitlement to redundancy pay in this matter does not only depend on the job being surplus to the employer’s requirements. It also depends on the employment having been terminated on that account. Both questions must be answered in the employee’s favour before she is eligible for redundancy pay. As Judge Cameron put it in FL Press at [230]:

“the reason for the termination should not distract from the question of termination”. Where, as here, it was common ground that the job the employee was doing was redundant, the only question was whether the employee’s employment had been terminated”.

Ambiguity

The judge in this matter finding that the phrase “employment is terminated” is ambiguous. According to the judge:

“It could refer to the employment relationship, to the employment contract, to both, or to the termination of employment in the job which the employer no longer requires done. Thus, to discern its meaning it is necessary to consider a number of contextual matters, including the context in which it is used in the section”.

The employer relied on some of the meanings derived from the Macquarie Dictionary, but not others, which the judge picked up on, as those other meanings went to the union’s favour.

Employment not defined in the FWA

Not only is “employment” not defined in the FW Act, but neither is the phrase “employment is terminated”. The judge noting that:

“It appears four times in the Act: in subs 119(1), 123(1), 772(2), and 789(1). Paragraph 123(1)(b) excludes an employee whose employment is terminated because of serious misconduct from the right to receive notice of termination or payment in lieu. Paragraph “772(2)(b) carves out an exception to para 772(1)(f), which prohibits an employer from terminating an employee’s employment on the basis of ‘race, colour, sex, sexual orientation, age, physical or mental disability, marital status, family or carer’s responsibilities, pregnancy, religion, political opinion, national extraction or social origin’. That exception operates where ‘the person is a member of the staff of an institution that is conducted in accordance with the doctrines, tenets, beliefs or teachings of a particular religion or creed’ and the ‘employment is terminated’ in good faith and to avoid injury to the religious susceptibilities of adherents of that religion or creed. Paragraph 789(1)(b) excludes the requirements for notification and consultation in Pt 6-4 Div 3 of the FW Act in relation to such an employee. The phrase also appears in a note to s 768BM, which cross-references s 119”.

However, the judge concluded that none of these references assists in resolving the question of interpretation in this case. The phrase “termination of employment” appears more frequently but likewise nothing in those provisions is of assistance, stating:

“Importantly, I was not taken to any authorities on the meaning of ‘employment’ or ‘termination of employment’ in any of these provisions”.

The legislative history

The history of the legislative entitlement to redundancy pay begins with two decisions of the Australian Conciliation and Arbitration Commission (C&A Commission): Termination, Change and Redundancy Case (1984) 8 IR 34 (TCR No 1) and Termination, Change and Redundancy Case (1984) 9 IR 115 (TCR No 2) (the TCR case). The TCR case was a test case brought by the Australian Council of Trade Unions. As a result of the TCR case, federal (and later most state) awards were varied to include a standard set of redundancy provisions.

The object of this was “to give effect or give further effect to” the ILO Convention (No. 158) concerning Termination of Employment at the Initiative of the Employer, done at Geneva on 22 June 1982, and entered into force for Australia on 26 February 1994.

Further, in TCR No 1, the C&A Commission took the view that the payment of redundancy (or severance) pay was justifiable “as compensation for non-transferable credits and the inconvenience and hardship imposed on employees” (at 71). In doing so, the C&A Commission adopted two of three conclusions reached by the Committee of Inquiry into Technological Change in Australia 1980 (CITCA Committee) as to the elements of monetary compensation for retrenchment. They were set out at 72–73 of the decision:

  • compensation for non-transferable ‘credits’ that have been built up, such as: accrued benefits like sick leave and long service leave; loss of seniority; and loss of the employer’s contribution to pension or superannuation.
  • compensation for the inconvenience or hardship imposed and assistance to the retrenched employee to make the change, with aims such as: to act as temporary income maintenance while the retrenched employee searches for another job; and to allow for the possibility of retraining or relocation to take up a new job.

In TCR No 2, the Full Bench sat again to consider an amendment to the Metal Industry Award 1984 to reflect its decision and, after hearing further argument, determined (at 135) to include a provision in these terms in the amendment:

“An employer, in a particular redundancy case, may make application to the Commission to have the general severance pay prescription varied if he/she obtains acceptable alternative employment for an employee”.

The current legislation

The judge found it abundantly clear that the terms of s 119 derive from the relevant part of the standard clause developed by the C&A Commission for inclusion in federal awards. That clause distinguished between an employee who was transferred to lower paid duties by reason of redundancy and an employee whose employment was terminated for that reason:

#.1 Definition  

Redundancy occurs when an employer decides that the employer no longer wishes the job the employee has been doing to be done by anyone and this is not due to the ordinary and customary turnover of labour.

#.2 Transfer to lower paid duties  

Where an employee is transferred to lower paid duties by reason of redundancy the same period of notice must be given as the employee would have been entitled to if the employment had been terminated and the employer may at the employer’s option, make payment in lieu thereof of an amount equal to the difference between the former ordinary rate of pay and the new ordinary time rate for the number of weeks of notice still owing.

#.3 Severance pay  

#.3.1 In addition to the period of notice prescribed for ordinary termination in clause ? – Termination of employment, an employee whose employment is terminated by reason of redundancy must be paid, subject to further order of the Commission, the following amount of severance pay in respect of a continuous period of service:

The FW Act does not state that its intention was to codify established minimum terms and conditions of employment. Clause r.82 of the regulatory analysis incorporated in the Explanatory Memorandum to the Fair Work Bill 2008 (Cth) (FW Bill) states:

“The NES will provide for written notice of termination and redundancy pay. These are currently awards-based entitlements, which will be legislated to provide more comprehensive protection for employees and extend redundancy pay to award-free employees”.

Beyond this, there is no indication that the Parliament intended to extend the entitlement to redundancy pay, according to the judge.

So what about the legislative purpose of the FWA?

The object of the FW Act is described in s3 as follows:

The object of this Act is to provide a balanced framework for cooperative and productive workplace relations that promotes national economic prosperity and social inclusion for all Australians by:

(a)          providing workplace relations laws that are fair to working Australians, are flexible for businesses, promote productivity and economic growth for Australia’s future economic prosperity and take into account Australia’s international labour obligations; and

(b)          ensuring a guaranteed safety net of fair, relevant and enforceable minimum terms and conditions through the National Employment Standards, modern awards and national minimum wage orders; and

(c)           ensuring that the guaranteed safety net of fair, relevant and enforceable minimum wages and conditions can no longer be undermined by the making of statutory individual employment agreements of any kind given that such agreements can never be part of a fair workplace relations system; and

(d)          assisting employees to balance their work and family responsibilities by providing for flexible working arrangements; and

(e)          enabling fairness and representation at work and the prevention of discrimination by recognising the right to freedom of association and the right to be represented, protecting against unfair treatment and discrimination, providing accessible and effective procedures to resolve grievances and disputes and providing effective compliance mechanisms; and

(f)           achieving productivity and fairness through an emphasis on enterprise‑level collective bargaining underpinned by simple good faith bargaining obligations and clear rules governing industrial action; and

(g)          acknowledging the special circumstances of small and medium‑sized businesses.

In Spotless at [37]–[41] Colvin J made the following observations about the legislative purpose of s119(1):

“37         First, the Act is to provide a safety net of minimum terms and conditions of employment that cannot be undermined.

“38         Second, the Act is not expressed as a reform that removes or reduces minimum terms and conditions of employment afforded by the law as it existed at the time of enactment. Nor is it expressed as a codification or improvement of existing minimum standards. Rather, its object is to ensure ‘fair, relevant and enforceable’ minimum terms and conditions. Save that there might be said to be unfairness to employees in a general sense if minimum standards were reduced by the Act (such as by confining the circumstances in which there may be an entitlement to redundancy pay), it is difficult to discern any specific object concerning the relativity between minimum standards as they existed before the Act was enacted and those expressed through the Standards. Nevertheless, it would appear to be unlikely that the Act would deploy established terminology in the field of industrial law concerning an established standard as to particular workplace conditions (such as redundancy pay) where it was intended to change the standard. A purpose of establishing minimum terms and conditions may be expected to be advanced by using existing terminology where such conditions were to be adopted by the Act.

“39         Third, the Act has detailed provisions that provide for compliance and enforcement and establishes a Fair Work Ombudsman and a Fair Work Commission with substantial powers to supervise compliance and ensure enforcement of the Standards. The rights and protections afforded by the Act do not depend upon the employee independently resorting to claims. The Act puts in place a substantial structure to support the making of claims. Nevertheless, the Fair Work Act confers statutory entitlements upon employees that cannot be undermined and to that extent is protective of the interests of employees. It would be contrary to this purpose if a particular condition was interpreted in a manner that, in effect, conferred power upon an employer by adopting a particular business practice to decide whether its employees would receive the benefit of a particular minimum entitlement (such as redundancy pay).

“40         Fourth, the Act has objects that include the promotion of productivity and economic growth and flexibility for business. An interpretation that inhibited the ability of a business to adopt employment practices that best suited the nature of its business activities would be inconsistent with this object.

“41         Fifth, the terms of Division 11 manifest an intention to provide a qualified right to redundancy pay. It is qualified by the presently contentious language in s 119(1)(a). It is also qualified by the exclusions expressed in s 121 (employees for less than 12 months and employees of small business and those the subject of a modern award with specific provisions). Importantly, it is further qualified because Division 11 does not apply to the employees described in s 123. They include employees ‘employed for a specified period of time, for a specified task, or for the duration of a specified season’, employees terminated for misconduct and casual employees.”

The employment relationship is “inherently” a contractual one

The employment relationship is “inherently” a contractual one. Consequently, there can be no employment relationship without a contract of employment. As McHugh and Gummow JJ observed in Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 436:

“The evolution in the common law as to the relationship of employment has been seen as a classic illustration of the shift from status (that of master and servant) to that of contract (between employer and employee)”.

Nevertheless, there is a difference between the employment relationship and the contract of employment. A contract of employment can come into existence before the employment relationship is formed and an employer who withdraws an offer of employment after it has been accepted or an employee who resigns before the starting date can be liable for breach of contract. Furthermore, a contract of employment can include obligations, such as a restraint of trade covenant, which continue after the employment relationship has come to an end.

There is also a conceptual difference between the termination of an employment relationship and the discharge of a contract of employment.

The judge finding:

“The central flaw in [the employer’s] argument is that it proceeded on the false premise that the employment relationship survived the termination of the employment contract”.

Quoting from the 8th edition of Macken’s Law of Employment, the judge noted:

“The employer-employee relationship will also end when the contract of employment ends, if that relationship has not ended earlier. The possibility of the contract of employment existing after the employment relationship has ended seems established, although ordinarily it will be of ‘no real significance’”.

The judge adding the statement of principle is well-supported. In Byrne:

“It does not appear to have been doubted in this country that a wrongful dismissal terminates the employment relationship notwithstanding that the contract of employment may continue until the employee accepts the repudiation constituted by the wrongful dismissal and puts an end to the contract…”

In both Visscher (at [53]) and Byrne (at 427) reference was made to the statements of Latham CJ in Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435 at 454 that “[a]n employer terminates the employment of a servant when he dismisses him …” and Dixon J in the same case at 469 that “[t]here is nothing in the general law preventing the wrongful dismissal of a servant operating to discharge him from service, notwithstanding that he declines to accept the dismissal as absolving him from further performance but keeps the contract open and remains ready and willing to serve”. In Visscher (at [54]) reference was also made to the statement by Latham CJ in Automatic Fire Sprinklers Pty Ltd v Watson at 451 that:

“[T]he wrongful dismissal determines the relationship of master and servant created by the contract, even though the servant may not have accepted his dismissal as entitling him to regard the contract as discharged”.

History of the Visscher case

Visscher began as a claim for reinstatement in the Australian Industrial Relations Commission. Mr Visscher commenced employment with the respondent shipping company (Teekay) in March 2000. He began as a casual employee but soon afterwards accepted an offer of permanent employment as a Third Mate. Within months he was promoted to Chief Officer but Teekay wrote to him declaring that it would no longer be bound by its legal obligations. Nevertheless, Mr Visscher continued in its employment working as a Chief Officer, although Teekay considered he had returned to his original position as Third Mate albeit that his duties and remuneration did not change. In the Full Court, held that Mr Visscher could not insist on performance of his contract, even if the contract itself remained on foot for limited purposes. His Honour went on to say at [50] that the fact that Mr Visscher remained in employment with Teekay and sailed as Chief Officer did not lead to a different conclusion. His Honour considered that Mr Visscher continued under a new contract, in his original position of permanent Third Mate.

In the High Court the majority said that Buchanan J had elided the concepts of termination of an employment relationship and the discharge of a contract of employment: Visscher at [53]. Their Honours explained that it does not follow from the fact that a wrongful dismissal is effective to bring the employment relationship to an end that the contract is thereby discharged. At [56] they said that the case did not involve dismissal with a consequent destruction of the employment relationship. It was accepted that the employment relationship continued after the repudiation. But Visscher was a very unusual case. As the majority observed at [57], it was a feature of the case that “the employment relationship continued with Mr Visscher undertaking the duties of a Chief Officer and being remunerated to the same extent”.

Visscher v the current case

Here, in contrast to Visscher, there was, in effect, a wrongful dismissal constituted by the employer’s repudiation of the employment contract, which brought the employment relationship to an end. The relationship in which the employee entered after she accepted the repudiation was a fundamentally different relationship from the relationship the parties previously enjoyed. She was no longer a full-time employee but a part-time employee, performing a fraction of the work she formerly undertook for a fraction of the remuneration she formerly received. The judge adding:

“Even if I am wrong in this respect, I do not accept that what happened to [the employee] was not a termination of her employment within the meaning of the FW Act”.

The judge then digging deeper into history:

“What occurred in the present case appears to have been within the contemplation of the Convention. Paragraph 22 of the 1995 General Survey of the International Labour Office entitled “Protection against Unjustified Dismissal”, to which the Full Court referred at 103–4 of its reasons, relevantly stated:

‘Certain changes introduced by the employer, in particular as concerns conditions of employment and which do not arise out of genuine operational requirements, might place the worker under pressure either to accept such changes or to give up his job or incur the risk of being sanctioned for having disregarded the employer’s instructions. It is therefore necessary to be able to verify whether a situation does not constitute a disguised dismissal or a real termination of the relationship instigated by the employer in the sense of the Convention, since otherwise the worker concerned would de facto or de jure be unduly deprived of the protection provided by the Convention’”.

What is termination of employment?

In Siagian, to which the Full Court in Mohazab referred, Wilcox CJ said that it was “preferable to the treat the words ‘termination of … employment’ in Div 3 of the Part VIA of the [IR Act] as including any act that brings to an end the employer-employee relationship, whether or not the act, or any acceptance of it, also brings to an end the contract of employment”.

Conclusion

The judge concluding:

“For all these reasons I am satisfied that [the employee’s] employment was terminated when [the employer] repudiated her contract of employment as a full-time cleaner. Since it is common ground that the reason for the termination was that [the employer] no longer required that job to be done by anyone, she was entitled to redundancy pay…[and] it follows that the appeal must be dismissed”.