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Refusal to accept pay cut does not lead to a genuine redundancy

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This article was written by Georgia Mullins.

Four employees have won the right to have their unfair dismissal applications heard after the Fair Work Commission (FWC) rejected a "wide view" of the genuine redundancy provisions in the Fair Work Act 2009 (FW Act), finding that the employees' roles were not genuinely redundant following a refusal to accept a reduction in wages.  The redundancies were not genuine because the employer still required the positions to be performed, albeit at a lower rate of pay. 

Implications for employers 

Employers should be wary of dealing with employees in situations where the employer wishes to replace the employee with someone who can perform the role at a lower salary.  A job is redundant when the functions, duties and responsibilities formally attached to the job are determined by the employer to be superfluous to the current needs and purposes of the employer.  A significant variation in remuneration does not equate to the position no longer being required.

Background 

Parabellum International Pty Ltd (Parabellum) provides emergency responses services to Chevron Australia Pty Ltd (Chevron) on Western Australia's Barrow Island.  Chevron sought to reduce its contract prices with Parabellum.  Consequently, Parabellum underwent an operational restructure to reduce costs across its organisation and asked four employees to accept a 13% (approximately $21,000) pay reduction.  The employees declined the salary reduction and were consequently dismissed.  New employees were hired to perform the same jobs at the lower salary. 

The four employees alleged that they had been unfairly dismissed.  Parabellum raised a jurisdictional objection, claiming that each dismissal was a genuine redundancy, as it no longer required the employees' roles to be performed because of changes in Parabellum's operational requirements.  It also argued that there were no other suitable positions available to the employees.  Parabellum submitted that the FWC should adopt a "wide view" of the words "the employer no longer requires the person's job to be performed by anyone" when interpreting the meaning of a genuine redundancy under section 389 of the FW Act.  In particular, Parabellum argued that the concept of a "job" includes all contractual arrangements including remuneration.  Parabellum submitted that a variation in remuneration meant that the jobs were no longer required to be performed under the previous contracted salary and as such, the jobs were redundant. 

The employees argued that a dismissal cannot be a genuine redundancy simply because an employer can find another person who is prepared to perform the role for less pay. 

Decision

The FWC held that "a significant variation of the remuneration to be paid either by way of a salary increase … or decrease, does not equate to the employer no longer requiring 'the job' to be performed."  Additionally, the FWC noted that "the person's job to be performed" under section 389 of the FW Act is the "functions, duties and responsibilities associated with the job", whereas remuneration is "the value placed on performing the job by the employer." 

In making its decision, the FWC rejected Parabellum's interpretation of the term "job", noting that a "job" is not defined alone by the remuneration of the particular role and that Parabellum failed to provide an authority to support its assertion that the term "job" under section 389 of the FW Act must be read to include remuneration. 

The FWC also noted that the Explanatory Memorandum to the Fair Work Bill 2009 and the Australian Taxation Office Ruling TR 2009/2 Income Tax Genuine Redundancy Payments provide numerous examples of what is considered to be a genuine redundancy.  None of the examples include an employee's dismissal due to a failure to accept a reduction in remuneration.

The merits of the unfair dismissal claims will now be listed for future directions. 


Mallard v Parabellum International Pty Ltd [2017] FWC 2531 (15 May 2017).

 
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