Employer offered to reduce the CEO's pay after saying it can no longer afford it
The Industrial Magistrate’s Court of Western Australia (IMC) has recently ordered an employer to pay a severance payment to its Chief Executive Officer (CEO) after finding that his employment was terminated due to redundancy.
The CEO worked for the employer’s steel product manufacturing business. He worked there for almost five years before his employment was terminated. The employer advised him that the business “could no longer afford the [CEO’s remuneration]” and “if he would not accept a reduction, his employment would be terminated.” The CEO indicated that he “did not wish to resign, but nor would he accept a reduction in pay.” After that, the employer sent him a letter terminating his employment on the same day.
The employer’s managing partner then took over the CEO’s duties, with some assistance from an outside consultancy, but no one held the title of CEO until August 2021.
The CEO brought a claim in the IMC for his severance pay, saying that the termination of the employment was a redundancy.
According to the employer, the CEO’s role “continued to be performed by another employee after his departure.” It also said the employer “showed an intention to have the role of CEO continue,” and that “it was not liable to pay a redundancy payment.”
The IMC held that “the fact the employer offered to pay the [CEO] a lower salary did not mean that the termination of his employment, when he declined the lower remuneration, was not due to redundancy.”
The IMC further said that the employer’s “wish” for the role to continue “did not prevent the termination of employment constituting a redundancy.”
The IMC also said that even though parts of the CEO’s job were being performed by other employees within the employer’s business, it was “insufficient to avoid an obligation to pay severance pay. Rather, an issue was whether there were any duties left for the employee to perform.”
According to records, the CEO had requested a salary proposal but the employer failed to provide it. The IMC said that it “indicated that the [employer] had decided that it no longer wished the role of CEO to be performed by anyone.”
Thus, the IMC found that the termination of the CEO’s employment was a redundancy, and that the employer was liable to pay severance pay to him.
