Legal Insights

Managing risk and voluntary redundancies

By Simone Luca

• 06 December 2023 • 3 min read
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Lessons learned from Clarke v Pacific National Services Pty Ltd [2023] FCA 699

When businesses are faced with the need to make tough choices about their operations, asking employees to self-nominate for voluntary redundancies is one approach they may adopt. This can help in avoiding the difficulties selection processes can often throw up and preventing forced, disputed terminations, which can be difficult for all involved.

However, employers need to take care to not bind themselves to proceeding with a redundancy, simply because an employee has volunteered, without ensuring that the role in question is genuinely surplus to requirements.

The context

In Clarke v Pacific National Services Pty Ltd [2023] FCA 699, Pacific National engaged in a lengthy consultation process regarding potential redundancies, which included asking employees to submit non-binding, and then binding, expressions of interest for options including alternative roles, job swaps and voluntary redundancies.

The challenge

A group of employees submitted ‘binding’ expressions of interest for voluntary redundancies, which were accepted by Pacific National in writing. Some months later, Pacific National wrote to all employees confirming its decision to retain all employees at the site. The union argued that the employees had made binding contracts with Pacific National, under which the employees were entitled to their severance payments.

The decision

The Federal Court agreed with the union that binding contracts had been made. However, fortunately for Pacific National, it also held that the contracts were subject to a condition precedent that the positions were actually redundant. As Pacific National had decided to retain the roles and, therefore, the employees performing those roles, the condition precedent was not satisfied. As a result, Pacific National was not required to perform its side of the bargain.

Key takeaways for employers

This case highlights the importance for any employer considering engaging in a voluntary redundancy process of ensuring that any offer connected with a redundancy, or requirement to proceed with a redundancy, is subject to an employee’s role becoming genuinely surplus to requirements.

Despite the unfortunate description of the expressions of interest as ‘binding’, which resulted in a finding that there was a legally effective contract, Pacific National made it clear throughout its consultation process that any agreement was subject to the position actually becoming redundant through comments such as:

  • it is anticipated your position will become redundant in the future;
  • your employment will not terminate until such time as your role actually becomes redundant, which will not occur until such time as we no longer require you to perform work which is within the scope of your skills, expertise and qualifications;
  • we must be very clear that this letter does not serve as notice of termination;
  • you will be notified as soon as your role becomes redundant and provided at this time with notice of your termination date;
  • as stated above, your role has not yet become redundant; and
  • you will only be eligible for, and receive, a severance payment if your employment ceases due to the redundancy of your role.

    The choice of the term ‘binding’ was contrary to the above, and though it created a contract, the fact that objectively there was no redundancy meant the obligation to pay redundancy money wasn’t engaged.

    If in any doubt as to the redundancy process, please reach out to a member of our Employment & Workplace Team.

    Read more from Employment, Safety & People 2023 Year in Review

    By Simone Luca

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