Genuine redundancy for reduced working hours and pay: a useful reminder from the Federal Court

The Federal Court of Australia has issued further guidance as to when an employee's termination has ended due to a genuine redundancy following an organisational restructure. The Court in Baya Casal v Deputy Commissioner of Taxation [2025] FCA 87 held that as the restructure materially reduced the working hours and remuneration of the employee, their position was made genuinely redundant for the purposes of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997).

While the decision concerned the interpretation and application of the genuine redundancy provisions for tax purposes, it should be taken into account by employers in considering whether there may be a redundancy for the purpose of the National Employment Standards or an applicable enterprise agreement.

Background in the Casal case

The applicant employee, Ms Florencia Baya Casal, was employed by the Ivanhoe Grammar School on a part-time basis as an early learning centre assistant. Following an organisational restructure of the school's Early Learning Centre, Ms Casal's position could not be maintained and she was offered three alternative roles. The proposed roles, while consisting of similar skills and duties, involved a reduction in working hours from 34.56 hours per week to either 28.5 or 21.5 hours per week and a reduction in annual salary from $50,698.88 to either $40,363 or $30,655 respectively. All alternative roles proposed to reduce Ms Casal's working hours and salary by between approximately 20-40%.

Following Ms Casal's refusal to accept the proposed roles and termination of her employment, Ms Casal received a payment of $15,326.96 from the Ivanhoe Grammar School. The school characterised the payment as an employment termination payment (ETP) pursuant to section 83-130 of the ITAA 1997 rather than as a genuine redundancy payment within the meaning of section 83-175 of the ITAA 1997. A genuine redundancy payment is taxed more favourably than an ETP, offering tax-free treatment up to specified caps (although concessional tax treatment may be available for ETPs).

Ms Casal sought a private binding ruling from the Australian Taxation Office to determine whether the payment was, and should be taxed as, a genuine redundancy payment. The ATO ruled that the payment was an ETP. Ms Casal objected to the ATO's decision, which was later disallowed by the ATO. Ms Casal then appealed the objection decision to the Federal Court.

What is a genuine redundancy payment for tax purposes?

The ITAA 1997 defines a genuine redundancy payment as a payment received by an employee who is dismissed from employment because the employee's position is genuinely redundant as exceeds the amount that could reasonably be expected to be received by the employee in consequence of the voluntary termination of his or her employment at the time of the dismissal. Other requirements, including age-based limits, must also be satisfied.

The Deputy Commissioner of Taxation contended that:

• a genuine redundancy does not occur when an employer still requires an employee to perform a role, particularly if the duties of the new role are not too dissimilar from the existing role;

• a genuine redundancy will only arise where there was no alternative job for which the employee was suited; and

• Ms Casal was not made genuinely redundant as she was offered three new roles with similar skills and duties as her previous position, the school still required employees to work in the Early Learning Centre and the applicant could have performed one of these roles but chose not to do so.

Ms Casal contended that:

• the Deputy Commissioner's argument involved an incorrect proposition that a genuine redundancy will not arise where the duties attached to a pre-restructure role survive the restructure in the form of a new post-restructure role;

• restructuring a position out of existence results in a genuine redundancy, unless a new post-restructure position exists that closely approximates the pre-restructure position; and

• she was made genuinely redundant as the alternative roles offered to her involved material reductions in working hours and remuneration, and changes to her working days.

In support of her position that the reduction in her hours amounted to a genuine redundancy, the applicant relied on several industrial decisions on redundancy which have arisen under the Fair Work Act 2009 (Cth) (FW Act). The Deputy Commissioner urged caution relying on decisions regarding redundancy under the FW Act when considering whether there is a genuine redundancy for the purpose of the ITAA 1997.

Position was made genuinely redundant

The Court summarised key principles in relation to a genuine redundancy:

• the issue of redundancy is linked to the question of the continued utility of the job which the employee is performing. A job becomes redundant when the employer no longer desires to have it performed by anyone;

• suitable redeployment should not be understood as a redeployment into any role no matter how different from an employee's existing role, but instead a role by reference to the particular duties of the existing role;

• there will be no genuine redundancy where the duties of a post-restructure role are not too dissimilar from the duties previously carried out by the employee;

• "duties" and "responsibilities" are wide enough to incorporate days and hours of work; and

• a genuine redundancy will occur where a post-restructure role results in a material reduction in working hours, and therefore a corresponding reduction in remuneration, to the existing role.

Having regard to these principles, the Court found that Ms Casal's position was genuinely redundant. This was because the proposed alternative roles amounted to a material reduction in her working hours and pay and were therefore inappropriate alternatives to the pre-restructure position. The Court held that it cannot be the case that if an employee's working hours and remuneration are materially reduced the employee is nevertheless in the same "position".

Justice McEvoy also noted that the degree of change between a position pre and post-restructure involved an objective rather than subjective assessment.