Caution for employers:

Facts

On 1 May 2014, Broadlex Services Pty Ltd (Employer) hired Ms Brizitka Vrtkovski (Employee) as a full-time cleaner.

On 15 August 2017 the Employer informed the Employee that “due to consideration of work flow an operational requirement has been identified to reduce [her] status from full time to part time” and that her work hours would alter on and from 12 September 2017. The Employee’s hours were reduced from 38 hours a week to 20 hours a week, and her salary by about 40%. The Employee refused to sign a consent form to the change described as a “transfer from full time to part time” however; she began working the reduced hours from 12 September 2017.

United Voice (now the United Workers’ Union) (Union) brought proceedings against the Employer on behalf of the Employee in the Local Court seeking redundancy pay for her, and a declaration that the Employer had breached the National Employment Standards (NES) under section 119 of the Fair Work Act 2009 (Cth) (FW Act).

The Local Court upheld the Union’s claims, and awarded the Employee with redundancy pay (plus interests), because the employer no longer required the full-time job to be performed by anyone (Decision). 

FCA decision

The Employer appealed the Decision, arguing the Employee would only be entitled to a redundancy payment under section 119 of the FW Act if the employment relationship ended, which did not happen in this case as the employment relationship continued when the Employee entered into the part-time employment relationship, thereby accepting the Employer’s repudiation of the contract.

Regarding these appeal arguments, the FCA held that [at 70]:

• there was wrongful dismissal constituted by the Employer's repudiation of the employment contract, which brought the full-time contract of employment to an end;
• the relationship in which the Employee entered after she accepted the repudiation was a fundamentally different relationship (part-time employment) from the relationship the parties previously enjoyed (full-time employment);
• the Employee 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 FCA was satisfied that because the reason for the termination was that the employer no longer required the full-time job to be performed by anyone, the Employee was entitled to a redundancy payment under section 119 of the FW Act.  Based on this, the Employer's appeal was dismissed.

FCA’ analysis of the phrase “employment is terminated” in s 119(1) of the FW Act

The FCA also considered what is meant by the phrase “employment is terminated” in s 119(1) of the FW Act,² and how the phrase interacts with the concepts of ‘employment relationship’ and ‘contract of employment’

In doing so, the FCA also discussed section 386(2)(c)(i) of the FW Act, which indicates that “a person has not been dismissed” if the person was demoted in employment, but the demotion does not involve a significant reduction in the employee’s remuneration or duties.  Therefore, for contrary argument, the FCA held [at 85] that “a demotion in employment which involves a significant reduction in remuneration or duties is a termination of employment within the meaning of the FW Act”, as happened in the present case.

The FCA decision ultimately confirmed an employment relationship does not endure where:

• an employer imposes a unilateral amendment to an employee’s employment that leaves the employee in a substantially inferior position; and
• the employee accepts that unilateral amendment.

Takeaways

This decision reminds us that employers cannot change the employees’ status from full time to part time without their written consent.  If this change is done unilaterality, the employee is likely to be entitled to redundancy pay, even when the employee continues working for their employer.

The decision is also opportune, as many employers in the current COVID-19 pandemic environment have faced the need to reduce employees’ hours and pay, assign them to different roles, etc.

It is also worth noting that the Federal Government’s JobKeeper scheme allows eligible employers to give certain directions to eligible employees, requiring them to work reduced hours for a certain period.  The decision is only relevant for those employers not covered by the JobKeeper scheme who are seeking to make changes in employment conditions of employees.