Can changing employment terms without consent lead to dismissal?
The Fair Work Commission (FWC) recently dealt with a case involving a worker who challenged their employer after discovering a significant reduction in their agreed pay rate shortly after starting employment.
The worker argued that the employer's unilateral decision to reduce their project allowance percentage breached their employment contract.
When they refused to sign a new contract with lower pay, they claimed they faced an ultimatum that effectively forced them to resign.
The case hinged on whether changing contractual pay rates without agreement constituted dismissal under the Fair Work Act 2009 (Cth), which would determine if the worker could pursue a general protections claim.
The worker was employed as a casual general labourer in a horticultural business, starting from 16 January 2025 after signing an employment contract on 12 December 2024.
The contract specified a base rate of $23.98 per hour (above the Horticulture Award rate), a 25% casual loading, and a project allowance of 30% of the base rate, totalling $37.17 per hour plus superannuation.
After relocating to Mildura for the job, the worker received their first pay for mid-January 2025. The payslip showed a reduced project allowance of only 15%, resulting in $34.48 per hour – considerably less than the contracted rate.
When the worker queried this discrepancy with the human resources team, the employer responded on 3 February 2025, explaining that company-wide changes to project percentages had been implemented in late December. The employer's email stated: "If you choose not to sign the terms and conditions outlined within the agreement, your employment will be forfeited, resulting in the termination of your employment."
The worker refused to sign the new contract with the lower pay rate and subsequently pursued a general protections claim involving dismissal.
The FWC examined whether the employer had repudiated the original contract by changing the agreed pay rate. In the hearing, the Commission specifically questioned whether unilaterally deciding to pay the worker less than the contracted rate for work already performed constituted a breach of a fundamental term of the contract.
The Commission noted in its decision: "There is nothing in the employment contract which allows the employer to unilaterally vary the project allowance." This observation was critical to determining whether the employer had the contractual right to make such changes.
The employer acknowledged making a mistake regarding this worker, who had been overlooked during the company's restructuring process. This admission came during the conciliation process that followed the jurisdictional hearing.
The Commission considered whether these circumstances met the definition of dismissal under Section 386(1) of the Fair Work Act, which states that a person has been dismissed if "the person's employment with his or her employer has been terminated on the employer's initiative" or if "the person has resigned from his or her employment, but was forced to do so because of conduct, or a course of conduct, engaged in by his or her employer."
To determine whether a repudiation had occurred, the FWC applied principles from the High Court case of Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007).
The Commission cited the High Court's explanation of repudiation as: "conduct which evinces an unwillingness or an inability to render substantial performance of the contract... The test is whether the conduct of one party is such as to convey to a reasonable person, in the situation of the other party, renunciation either of the contract as a whole or of a fundamental obligation under it."
The Commission found this was "a breach which is fundamental, and which goes to the root of the contract," explaining: "The rate of pay is a fundamental term of the Contract because [the worker] bargained for that rate of pay and likely would not have signed the contract, or moved his family to Mildura, if that term was not agreed."
This determination established that repudiating a fundamental contract term could constitute dismissal under the Fair Work Act, even without explicit termination.
The Commission concluded the worker was dismissed despite not being explicitly terminated. As stated in the decision: "By paying [the worker] at a lower rate for work he had already performed, without informing him, the contract was repudiated."
The FWC determined that "the contract was ended at the initiative of [the employer] within the meaning of s.386(1)(a) of the Fair Work Act." This finding directly addressed the jurisdictional question of whether dismissal had occurred under the Act.
The ruling concluded: "Therefore, the jurisdictional objection is dismissed and [the worker] is entitled to apply for general protections involving dismissal." This allowed the worker's substantive claim to proceed. Following this jurisdictional determination, the Commission entered into private conciliation with both parties.
This case demonstrates that fundamental changes to employment terms, particularly pay rates, can legally constitute dismissal if implemented unilaterally.
