Appeal for payout classification dismissed by Federal Court

Contention between redundancy pay and termination pay has resulted in a part-time childcare worker’s case being backed by the Federal Court.

The full Federal Court has dismissed an appeal by the Commissioner of Taxation regarding a redundancy payment received by an early learning centre assistant working 34.56 hours a week after she declined a redeployment opportunity that would see her receive 20 to 40 per cent fewer working hours.

The part-time employee at Ivanhoe Grammar School was offered alternative employment after the school undertook a restructure in 2021, with offers of fewer weekly working hours (one role of 28.5 hours and two of 21.5 hours) translating to lower remuneration given her hourly pay structure.

The issue of contention lay in the nature of the payments the worker received from the school and whether they should have been applied as a redundancy payment or employment termination payment, which see different tax implications.

Should the payout be considered for genuine redundancy, the lump sum would have been retained in full, tax-free.

After the initial payout amount of 13 weeks’ pay, $15,326.96, was classified by the school as an employment termination payment (ETP), the worker initially applied to the Australian Taxation Office (ATO), which was rejected due to the understanding that the underlying tasks and duties remained necessary in the alternate position.

The application was further rejected by the Commissioner of Taxation, and again on appeal.

However, the worker’s application for review in the Federal Court was ultimately successful, which the Commissioner of Taxation then appealed.

In the primary Federal Court case, Justice Timothy McEvoy found that the three roles offered all involved an unknown change in the days to be worked, with a “material reduction in both hours and remuneration”.

In considering the appeal, the full Federal Court – Justice Catherine Button, Justice Lisa Hespe, and Justice Houda Younan – upheld this view, concluding that “the applicant’s position had become genuinely redundant” and “accordingly, the payment the applicant received from their employer in consequence of the voluntary termination of their employment was a genuine redundancy payment”.

In the determination, the full Federal Court clarified that “it is the ‘position’, not the employee, as a person, that must be the subject of the genuine redundancy”, with the question of redundancy relating to the “continued utility of the job performed by the employee”.

It was also noted that the attributes of the position must be identified as a matter of substance, not form, with the court explaining: “The ordinary concepts of ‘duties’ and ‘responsibilities’ are wide enough to incorporate days and hours of work.”

In this way, it had to be considered whether a change to the position’s collective functions, duties, and terms constituted redundancy, with a significant reduction in hours of work and remuneration possibly reflecting a change in the scope of the responsibilities.

On the role change, the court said: “It is necessary to consider the particular changes to the position to determine whether the role has so changed that the previous position can no longer exist. The degree to which the original role has been changed must be sufficient to conclude that for all practical purposes the role no longer exists.”

The ATO released the following Decision Impact Statement on 27 May 2026: “The ATO acknowledges the full Federal Court’s explanation, and accepts that material reductions in hours worked, and, consequently, remuneration, may be relevant factors in making an assessment of genuine redundancy but will not be determinative in all cases”.

As such, the court found that the role had been diminished to the point of redundancy.

The case: Commissioner of Taxation v Baya Casal [2026] FCAFC 11.

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