The Basics on Redundancy

It's never nice having to make an employee redundant, but if you have to, it's important to get it right

First published on Friday, Oct 21, 2022

Last updated on Tuesday, Aug 09, 2022

5 min read

The world of small businesses is no stranger to change. Organisational frameworks change, new technology is adopted, and the economy fluctuates. These operational changes and outside pressures may mean that some employees are redeployed, and that unfortunately other employees may lose their job.

Redundancy can be a complicated minefield to navigate and as an employer, it is essential that you know the legal requirements to consider when making employees redundant. This article will detail the various aspects of redundancy that may apply to your business.

What Is Redundancy?

A redundancy occurs when a business no longer requires anyone to do the employee’s job or, because the employer is insolvent or bankrupt. There are many reasons why a redundancy may occur. Some examples include introducing an automated process to do the job or the business relocating or closing down. The result is that the employee, who no longer has any work to do, may have their employment terminated.

A redundancy is not considered genuine if it occurs because of an employee’s performance or conduct, as the role is being made redundant, not the employee. It is important that employers follow a fair procedure for redundancy, including consultation with the relevant employee as to why the role is being made redundant and exploring options to keep the employee in the business. Failing to comply with these requirements makes it difficult to defend an unfair dismissal claim.

Genuine Redundancy

A redundancy is only exempt from unfair dismissal when the redundancy is genuine. From section 389 of the Fair Work Act 2009 (the Act), a redundancy is genuine when:

  • The employer no longer requires an employee’s job to be performed by anyone because of changes in the operational needs of the employer’s business; and
  • The employer has complied with any obligation in a modern award or enterprise agreement to consult about the redundancy. *

When Is A Redundancy Not Genuine?

A redundancy is not genuine in circumstances where the employer:

  • Hires someone else to do the same job as the employee who was dismissed
  • Has not properly consulted with the employee and given appropriate notice under the relevant modern award or enterprise agreement
  • Has not made a reasonable effort to redeploy the employee to another position in the company or, explored alternatives to redundancy.

What Is Consultation?

Consultation is part of the required process to comply with the Act, modern awards, and enterprise agreements. The consultation process involves:

  • Notifying the employees of the proposed change to their employment
  • Holding meetings with them to discuss the potential changes and taking into consideration any suggestions the employee may have about keeping their job
  • Offering the employee any vacant job within the business or an associated entity, if one exists, that they could reasonably do

Can You Make Someone Redundant Without Consultation?

Awards and registered agreements have a consultation process for when there are major changes to the workplace, such as redundancies. If you do not consult with the employee the redundancy may not be genuine which opens the business up to a risk of a claim of unfair dismissal, and the employer may be in breach of the Act, award, or registered agreement.

Redundancy Payments

If an employee is made redundant, they may be entitled to receive a payment. This redundancy pay is usually based upon the employee’s length of service and is usually provided for by the National Employment Standards (NES) contained within the Act. However, some industries such as the Building and Construction Industry, have specific redundancy schemes that override the NES and provide for different entitlements and eligibility requirements.

Redundancy is paid at the employee's base rate of pay for the ordinary hours they would otherwise have worked over that period. This does not include any incentive-based payments or bonuses, loadings, allowances, overtime, or penalty rates.

Employees are also entitled to notice of termination if they are being made redundant. This period is set out in the Act or the relevant award, enterprise agreement or contract of employment.

Who Does Not Get Redundancy Pay?

Not all employees who are made redundant are entitled to redundancy pay. In some instances, redundancy payment is not required due to the nature of the employee’s employment arrangement or type. Instances of employment ending where redundancy payment is not usually required are outlined below:

  • Termination of employees whose period of continuous service with the employer is less than 12 months;
  • employees terminated because of serious misconduct;
  • employees employed on a fixed-term contract for a specific period of time or for the duration of a project or season;
  • termination of trainees engaged only for the length of the training agreement
  • termination of casual employees
  • termination of apprentices
  • employees of a small business (depending on the circumstances).

What Happens If You Can’t Afford The Redundancy Payout?

An employer can apply to the Fair Work Commission, to have the amount of redundancy payment reduced if the employer can't afford the full redundancy amount. However, if the award or registered agreement provides for an industry-specific redundancy scheme, the Fair Work Commission cannot reduce the redundancy pay.

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