IEU win: Federal Court backs member on redundancy taxation

The Federal Court has ruled in favour of IEU member Florencia Baya Casal in a case appealed by the Commissioner of Taxation, setting a precedent for members to claim fair redundancy when their part-time hours are significantly reduced.

The case highlights a common issue for IEU members: how to proceed when significant reductions to  part-time hours make a severance pay out the best option.

It also shows the importance of correctly classifying such payments as genuine redundancies to reduce tax.

The ruling sets a precedent to help the IEU ensure employers properly treat payouts as redundancy payments when members’ hours are cut by 20% or more.

Florencia had worked part-time as an Early Learning Centre assistant at Ivanhoe Grammar School since 2014. Following a restructure, her role was altered with reduced hours and changed days, even though her duties remained largely the same. Offered redeployment or redundancy, she rejected the new roles, which involved a 20–40% reduction in hours and pay, and received a severance payment of $15,326.96 in December 2021.

The school classified the payment as an employment termination payment (ETP), attracting significantly higher tax. Baya Casal sought a private ATO ruling to have it treated as a genuine redundancy, but the claim was rejected on the basis that other staff still performed her duties. She subsequently appealed to the Federal Court.

Florencia was supported by the IEU throughout the original ATO ruling process, the Federal Court proceeding,  and the Full Federal Court appeal.

Judgement

The Court ruled that Baya Casal’s payment was a genuine redundancy, not a more heavily taxed employment termination payment, stating that her role had been reduced so much that it became effectively redundant. Even though her duties were similar, cutting her hours by 20–40% significantly changed the scope of her job, and the resulting pay reduction supported the finding that her position was redundant.

A position can be made redundant even if its functions and duties are taken over by other roles, including newly created positions – for example, where a full-time role is split among several parttime employees.

The court ruled that the Commissioner of Taxation was wrong to suggest there is no redundancy if the same duties continue to be performed by others.

Your union works!

IEU General Secretary David Brear said the case proved how valuable union membership could be for any category of employee.

‘Holding your ground when you are up against an agency as formidable as the ATO is daunting and requires the expert legal assistance the IEU provides. This is a great win for Florencia, but also for many other part-time workers affected by reduced working hours. Your rights and entitlements shouldn’t be diminished by changes to your role.’

If you have a similar issue to Florencia, or you are in doubt about anything to do with your pay and conditions, please make sure you contact the union.