The Federal Court recently confirmed that a reduction in an employee’s terms and conditions of employment without consent can give rise to a redundancy entitlement, even where the employee continues working for their employer.
According to Luis Izzo from Australian Business Lawyers “The decision should act as a warning to employers looking to unilaterally reduce conditions in response to changing business demands”.
In Broadlex Services Pty Ltd v United Workers’ Union  FCA 867, the employer, Broadlex, decided to reduce the working hours of its full-time employee, Ms Vrtkovski, by 40%. The reduction from 38 hours per week to 20 hours per week was documented in a consent form which Broadlex asked its employee to sign.
The employee refused to sign the form, but continued working for Broadlex after the reduction in hours.
Years later, the United Workers Union filed a claim alleging that the employee’s material reduction in conditions triggered a redundancy payment.
Broadlex denied the claim, arguing that the employee’s continued employment meant that no redundancy could have arisen as her employment was never terminated.
In a surprising decision, Justice Katzman found that a redundancy was triggered because the reduction in hours had the effect of terminating the employee’s employment.
Justice Katzmann found that:
- The unilateral reduction of the employee’s working hours constituted a “repudiation” of the contract (that is, a fundamental breach going to the root of the contract).
- The employee’s refusal to sign a consent form constituted an acceptance of the repudiation by the employee – thereby bringing the pre-existing employment contract to an end.
- When the contract came to an end, the employment relationship also came to an end – thereby triggering the redundancy entitlement under the Fair Work Act.
- The employee’s continued work for the employer on a part-time basis constituted the creation of a new and different employment relationship. It was not a continuation of the existing relationship the employee had with Broadlex.
Impacts for employers
Whilst the facts considered in Broadlex were somewhat severe (a 40% reduction in hours), the principles have application to the reduction of other significant contractual conditions. The decision could be applied to the reduction of other material contractual conditions such as:
- access to a motor vehicle
- incentive payments
- an employee’s status or seniority
- remuneration or
- work location.
Particularly as employers respond to financial distress caused by COVID-19, it is important that consent is obtained for contractual variations. Alternatively, employers need to ensure any variations to the employment are permitted by the relevant employment contract (or possibly industrial instrument).
Care especially needs to be taken where reductions are being made to large numbers of employees, in order to avoid a compounding of exposure and the possibility of class actions.
Where to get help
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Membership includes access to professional employment contracts, policies and proceedures to implement in their business. A full list of available documents can be found on the Member’s Portal.
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