A Federal Court decision entitling an employee to redundancy pay after their hours were reduced holds a vital warning to employers looking to scale back their workforce.
The Federal Court of Australia (FCA) confirmed, in Broadlex Services Pty Ltd v United Workers’ Union [2020] FCA 867, that a lack of consent to reduce an employee’s hours of work can give rise to an entitlement to redundancy pay, even if the staff member continues to work for the employer.
The case
The employer, Broadlex Services Pty Ltd (Broadlex), employed Ms Vrtovski in May 2014 as a full-time cleaner on 38 hours per week.
On 15 August 2017, Broadlex informed Ms Vrtovski that they would reduce her hours due to operational requirements.
The reduction, initiated by Broadlex, effectively changed Ms Vrtovski’s working hours from 38 hours per week to 20 hours a week and reduced her salary by 40 per cent.
Broadlex invited Ms Vrtovski to sign a form to consent to this change, described as a “transfer from full-time to part-time” employment, inclusive of a change in hourly rates.
Ms Vrtovski refused to sign the form, however, went on to work the reduced hours from the 12 September 2017, believing she had no other choice.
Several years later the United Workers Union (UWU) filed a claim that alleged Ms Vrtovski’s reduction in hours and salary triggered her entitlement to redundancy pay.
Broadlex denied the claim on the grounds the employee continued to be employed and was not terminated.
The decision
In the FCA decision, Justice Katzman determined that redundancy was triggered because of the reduction in the fundamental terms and conditions of employment had the effect of terminating the employee’s employment.
Justice Katzman found that the unilateral reduction of Ms Vrtovski’s hours and rate of pay constituted a ‘repudiation’ of the contract of employment.
‘Repudiation’ can include conduct that shows an unwillingness or inability to perform substantial terms of the contract.
Ms Vrtovski accepted the repudiation when she refused to sign the consent form and commenced working in the part-time role, thereby bringing the employment contract to an end.
Subsequentially, by continuing to work with reduced hours Ms Vrtovski was found to have created a new contract of employment, rather than a continuation of the existing relationship with Broadlex.
As a result of these findings, Justice Katzman determined that Ms Vrtovski's full-time role had been made redundant and her employment terminated in 2017, triggering entitlement to redundancy pay under section 119 of the Fair Work Act 2009, despite remaining employed with Broadlex.
Key takeaway
This decision stands as a reminder to consult with employees where fundamental changes to their employment are required. Employees must genuinely consent to the change before you make variations to their working hours.
Employers, on application to the Fair Work Commission, may be able to reduce the amount of redundancy pay they need to make if the employee finds other acceptable work.
Alternatively, employers who have carefully drafted contracts of employment may be able to make variations without consent depending on other industrial instruments, if the changes are reasonable in the circumstances.
Like to know more? Contact CCIWA’s Employee Relations Advice Centre on (08) 9365 7660 or email [email protected]
This information was featured in CCIWA's HR Quarterly Briefing - Emerging from the Wreckage, which took place on September 17, 2020. For more, along with updates on JobKeeper 2.0 and other significant case law, watch the presentation by CCIWA Employee Relations Advisor Chris Nunn. Enter password: awicc1709
