If an employee is entitled to redundancy pay on termination, but their employer has obtained other acceptable employment for them, the employer can apply to the Fair Work Commission (FWC) for an order under the Fair Work Act 2009 (Cth) (FW Act) to reduce (including to nil) the amount of redundancy pay that is due to the employee.

The employer is required to demonstrate that:

  • it “obtained” the alternative employment for employees; and
  • the alternative employment was “acceptable”.

In the recent decision of Sodexo Australia Pty Ltd T/A Sodexo [2016] FWC 4012, Deputy President Sams of the FWC considered the second test of whether the alternative employment was “acceptable”.


Sodexo held the cleaning contracts for a number of years at two major Sydney hotels until it was advised that its services were no longer required as Challenger Hospitality Pty Ltd (Challenger) had won the contracts in a competitive tender process.

Sodexo negotiated with Challenger that it would employee 57 of its employees, and then applied to the FWC to have the redundancy payments that would otherwise be due to those employees reduced to nil.

The key issue for determination was whether the employment at Challenger was “acceptable”.

Was the alternative employment acceptable?

The employees employed by Challenger received the same rate of pay, were covered by the same industrial instrument, worked at the same location and performed the same or similar duties as when employed by Sodexo.

However, DP Sams found that two aspects of the alternative employment affected the acceptability of that employment:

  • despite not being subject to any recruitment or interview process, the employees were subject to a six month probationary period; and
  • Challenger did not recognise the employees’ past service with Sodexo.

Probationary period

Two employees had been dismissed during the first six months of employment with Challenger, without being provided a reason, and a further two believed they were forced to resign after their working arrangements were altered to their detriment.  None of these employees were able to access the unfair dismissal regime because they had not completed the minimum employment period.

All of the employees gave evidence that they were aware of the probationary period.  However, DP Sams said it was very likely they would not have understood the significance of it, particularly given the majority were from non-English speaking backgrounds.

In fine print, the contracts of employment referred to “a six month qualification period for the purposes of unfair dismissal”.  There were no other references to “probation” in the contracts or in any of the communications to employees, and DP Sams considered the contracts to be “misleading and deceptive”.

DP Sams also found it “astonishing and unbelievable” that Sodexo relied on mostly verbal assurances from Challenger and did not seek written assurances or guarantees as to the maintenance of existing working arrangements and entitlements for the employees transferring to Sodexo.

DP Sams found that the offers of redeployment to the four employees, whose employment ended during the probationary period, could not objectively constitute acceptable employment and they should receive 100% of their entitlement to redundancy pay.

Failure to recognise past service

As a result of the failure to recognise past service with Sodexo, other employees gave evidence that they had:

  • lost significant accruals of personal/carer’s leave;
  • lost the ability to request flexible working arrangements under the FW Act; and
  • in the case of two pregnant employees, lost the ability to access paid parental leave under the relevant enterprise agreement and unpaid parental leave under the FW Act.

DP Sams said that the loss of accrued personal leave of itself was not enough to justify a conclusion of unacceptable employment.  Therefore, where employees were only relying on that factor, the employment at Sodexo was acceptable and their entitlement to redundancy pay was reduced to nil.

However, the employment was not acceptable for employees with existing reasons to request flexible work arrangements, as they had lost the statutory right to request those arrangements.  It was also not acceptable employment for the two pregnant employees who had suffered a “real loss” of significance and magnitude.  Interestingly, DP Sams was still prepared to reduce their redundancy pay entitlements to 40% and 80% respectively.

Lessons for employers

When seeking to obtain acceptable alternative employment for employees and minimise the amount of redundancy pay, employers should:

  • consider each employee’s individual circumstances – what is acceptable for one employee may not be acceptable for others;
  • ensure that employees understand the terms of the offer of alternative employment and that no potentially misleading language is used, particularly if there are employees from non-English speaking backgrounds;
  • document the arrangements with the new employer in writing; and
  • where the new employer insists on a probationary period, consider seeking an indemnity from them in relation to any potential liability for redundancy pay in the event that the employment of employees is terminated during the probationary period.

The decision also shows that there may be scope for the reduction of entitlements even where the employment is found to be unacceptable asDP Sams was prepared to reduce the entitlement to redundancy pay in a way that reflected his assessment of the offer, rather than determining that it was either acceptable or not.  This approach is different to that taken by the FWC in Datamars (Australia) Pty Ltd T/A Datamars [2015] FWC 1269.

It remains to be seen whether DP Sams’ broader approach will be followed in future.

Thank you to Daniel Troy (Graduate) for his contribution to this article.

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