April 2004

New redundancy benefits for federal award employees

Twenty years ago, the the Australian Industrial Relations Commission set minimum redundancy entitlements in the Termination, Change and Redundancy ("TCR") test case. Those standards have since applied to federal award employees.

Over the years state redundancy entitlements have overtaken the federal entitlements. These disparties led to the union application for a new standard in federal awards.

Now the AIRC have given its decision on the union application and made important changes and increases to redundancy standards for federal award employees (Redundancy Case, 26 March 2004, PR032004).

The new redundancy scale

The union movement sought a doubling in the redundancy scale from 8 weeks to 16 weeks pay for six years of service.

The AIRC increased redundancy entitlements but only by reference to an increase in the years of service of an employee. The decision to increase the scale recognised that the old TCR scale did not adequately account for the effect of redundancies on employees with greater than 4 years service:

"The various aspects of hardship - in particular the trauma associated with termination of employment, loss of seniority and loss of transferable credits - continue to increase after four years of service..."

Interestingly, the AIRC reduced the severance entitlement from 16 weeks to 12 weeks for those with 10 years or more service. Redundancy payments are intended to compensate for loss of transferable credits. After 10 years service federal award employees are entitled to pro rata payment of long service leave. To increase the scale after 10 years would allow "double dipping".

  • Implication: The new scale will apply once each federal award is varied. The effects of the increase on business will need to be measured over time. Where organisations have applied state standards in redundancy policies rather than Federal award minimums there will now be little scope to boast that the organisation offers over award entitlements.

Small business

The 1984 TCR standard exempted employers with less than 15 staff from the obligation to pay any redundancy entitlements.

But in 2004 the AIRC has decided that employees of small businesses are entitled to some level of severance pay, though capped at 8 weeks.

Redundancy for casuals

As part of the push for greater entitlements and protections for casual employees, the ACTU sought termination benefits for casual employees.

The AIRC rejected this claim. While the Commission recognised the arguments in favour of entitlements being extended to casuals, the existence of the casual loading was sufficient. Providing redundancy entitlements to casuals would be "double dipping".

  • Implication: The decision confirms the rationale for casual loadings. Unions will however continue to push for increased entitlements for casuals.

Capacity to pay

The TCR standard will continue to contain a provision that allows employers to apply for a variation of severance obligations on the basis of capacity to pay.

  • Implication: An employer must show actual incapacity to pay. By maintaining this provision small business affected by the severance scale will be able to seek relief but at the cost of making an application to the AIRC and proving the case.

Interaction with unfair contract claims

Employer associations applied to amend the standard clause so that it operated to the exclusion of all state laws and awards, especially unfair contract claims under s.106 of the Industrial Relations Act 1996.

The law in NSW on whether federal award employees have access to s.106 proceedings is a developing area. On that basis the AIRC did not accede to the employer's claim.

  • Implication: The AIRC had the opportunity to remove doubt but did not. While the possibility of a claim by a federal award employee for greater severance pay under an unfair contract claim is yet to be determined, the prospects of a successful claim are uncertain.

Conclusion

It has taken 20 years for an increase in the TCR standard for federal award employees. All employers need to take note of the changes and small business employers face new obligations. The changes will not be effective until the particular award is amended to include the TCR standard but that is only a matter of an application by the relevant union.