The Fair Work Commission (FWC) has upheld the tax bosses' right to force eight junior employees in Melbourne to reapply for just four positions, with no guarantee of jobs for the losers in the process.

The Australian Services Union (ASU) says the judgment sets a precedent which the Taxation Office can use to reduce its workforce while dodging the requirements of its collective agreement.

But an ATO spokeswoman said the decision is "fair and sensible" and will allow the public service department to manage "excess staff".

According to the Taxation Office, four of the eight facilities management workers are now excess as management moves 2500 Melbourne CBD-based bureaucrats from five separate locations to one location in the city's massive Collins Square development.

The eight staff members were encouraged to apply for the reduced number of jobs or to consider asking for a voluntary redundancy.

The union took its fight against the move to the Fair Work Commission, arguing the move was in breach of the Taxation Office's obligation to find alternative work and retraining for staff deemed to be excess to requirements.

But commission vice-president Michael Lawler has found that the ATO's approach was a "practical, sensible and fair" response to a "classic redundancy situation" where the eight Melbourne staff did not have technical taxation skills needed if they were to be moved around the organisation.

The ASU's Melbourne Tax Officers Branch secretary Jeff Lapidos says the union will appeal the decision to the full bench of the Fair Work Commission, arguing the precedent gives the ATO too much power in deciding ''who will stay and who will go.''

''The ATO could decide to

reduce the numbers in any team of its choosing and then decide who will stay and who go,'' Mr Lapidos said.

''Those who lose out in the reverse order of merit will then have to try to find another position after losing at the reverse order of merit.

''All teams have their least valuable player,'' he said.

''If someone has to go as a result of a reduction in team size, we generally know who it will be before the reverse order of merit process is even commenced - whoever is not favoured by the management.''

A spokeswoman for the ATO denied that the decision undermined job security in the organisation.''

''The ATO Fair Work Commission decision does not undermine job security - it provides a fair and sensible framework that allows the ATO to manage a situation where there is excess staff so that no staff member is disadvantaged,'' the spokeswoman said.

''Our processes have been found to be fair and reasonable by the Fair Work Commission.''