How far does an employer have to go to avoid, or at least reduce, their redundancy payments when they lose a contract? Apparently the whole nine yards according to a recent Fair Work Commission (FWC) decision, where an employer failed to obtain other acceptable employment for its employees when it lost its contracts. 

When the defence services company lost five of its six defence contracts, it sought to reduce its redundancy liability. The company argued that it had obtained acceptable employment with a number of incoming contractors by assisting their workers in the recruitment process and co-operating with the new contractors. 

FWC Commissioner Roe said that “there must be a causal connection between the purpose and effort of the employer and the gaining of employment or an offer of employment, by the employee.” He also said the company needed to prove they were a “strong moving force” leading to the creation of job opportunities for its employees. 

What’s interesting here is that the Commission acknowledges that the company went considerably beyond what they were obliged to do under their EAs. Alas, it was the Commission’s view that the company did not “guarantee” alternate employment with incoming contractors. 

For example, Commissioner Roe said that the company did not reach an agreement with incoming contractors to employ all of the employees without the need for a selection process. Instead, each contractor ran their own recruitment process and candidates were selected based upon their qualifications and experience. 

Commissioner Roe was also sceptical of the company’s motivation for their involvement with incoming contractors.  He said that some of the company’s efforts to assist their redundant employees and contact incoming contractors was directed at reducing their redundancy obligations. 

This decision shows that the test for reducing an employer’s redundancy obligation is extremely high. When an employer loses a contract, they must “guarantee” alternative employment to avoid or reduce big redundancy cash outs. This may mean setting up an agreement with an incoming contractor that secures employment for the employer’s redundant employees without a competitive selection process. 

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