Proceed With Caution: Changing Employment Conditions

Varying the work conditions of employees without their consent to offset financial struggle exposes employers to the risk of class actions.  A Federal Court decision confirms that a reduction in employees’ conditions of employment without consent can make them eligible for redundancy even if they continue working.

Broadlex Services decided to reduce the hours of a full-time employee from 38 to 20 hours per week. A consent form to do so was presented to the employee but the employee refused to sign, continuing working for Broadlex after the reduction in hours. Now, years later the United Workers Union claimed the employee’s material reduction in contractual conditions triggered a redundancy (including redundancy payment). Broadlex denied this stating the employee’s continued employment meant there was no termination therefore no redundancy occurred.

The federal court decided the redundancy was triggered, the reduction in hours acted as a termination of the employment. More specifically the one-sided reduction in working hours of the employee constituted a fundamental breach of the employment contract. Because the employee refused to consent to changes in the employment contract, the pre-existing contract ended. When the contract ended so did the employment relationship, triggering the redundancy. The employee’s continued work for Broadlex on a part-time basis constituted the creation of a new employment relationship.

This is a controversial decision by the Federal Court. The principles of this case can be applied to the reduction of other contractual conditions such as access to a motor vehicle, incentive payments, employee’s seniority, or remuneration. This is particularly important now, as many employers are needing to make changes in response to the financial strains caused by COVID. Therefore before doing so employers must obtain consent from employees for any contractual variations and ensure the variations are permitted by the employment contract. Not doing so has potentially devastating consequences for employers. Particularly those who reduce large numbers of employees, as this compounds the exposure and possibility of class actions.

Before you consider varying the employment conditions of your employees to deal with financial distress of COVID-19 contact ProcessWorx for assistance on (08) 9316 9896 or enquiries@processworx.com.au

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