Employers guide to redundancy

Table of Contents

Employers can make an employee redundant if they no longer need the employee’s job to be done by anyone or the employer’s business becomes insolvent or bankrupt.

The need to make an employee redundant may arise because an employer’s business:

  • introduces new technology (e.g. an employees job could be performed by a machine);
  • slows down due to lower sales or production;
  • closes down;
  • relocates interstate or overseas;
  • restructures or reorganises because a merger or takeover.

However, the Fair Work Act 2009 (Cth) sets out specific criteria which must be met in order for a redundancy to be ‘genuine’.

So how do you terminate an employee by way of redundancy in accordance with the Fair Work Act?

When is dismissal a genuine redundancy?

A “genuine redundancy” occurs when:

  • the employer no longer needs the employee’s job to be done by anyone;
  • the employer has followed consultation requirements set out in an award, enterprise agreement or other registered agreement; and
  • it is not suitable for the employee to be redeployed within the employer’s business or an associated business of the employer.

A dismissal will not be a genuine redundancy if the employer:

  • still needs the employee’s job to be done by someone (e.g. hires someone else to do the job);
  • has not followed relevant requirements to consult with the employees about the redundancy under an award or registered agreement; or
  • could have reasonably, in the circumstances, given the employee another job within the employer’s business or an associated entity.

What if the employer still needs the job to be performed within the business?

The first limb of a ‘genuine redundancy’ requires that the employee’s ‘job’ does not need to be done by anyone, rather than the employee’s ‘duties’. As such, an employee may be made redundant when there are aspects of the employee’s duties that will remain, despite the fact that the job is no longer required.

This means that the test to determine whether you no longer need the employee’s job to be done by anyone is whether that job survives the restructure or downsizing – not whether the duties have survived in some form.

What are the consultation requirements when making an employee redundant?

The obligation to consult about redundancy only arises where:

  • a modern award or enterprise agreement applies to an employee; and
  • that modern award or enterprise agreement contains requirements (which they often do) to consult about redundancy.

If a modern award or enterprise agreement does not apply to an employee, there are no consultation requirements that need to be met before you can dimiss an employee by way of redundancy.

When is it reasonable for an employee to be redeployed with your business or the business of an associated enterprise?

Whether redeployment of an employee is considered ‘reasonable’ will depend on the circumstances that exist at the time of the dismissal.

In determining whether redeployment was reasonable a number of matters are relevant, including:

  • whether there exists a job or a position or other work to which the employee can be redeployed;
  • the nature of any available position;
  • the qualifications required to perform the job;
  • the employee’s skills, qualifications and experience; and
  • the location of the job in relation to the employee’s residence and the remuneration (pay and entitlements) which is offered.

Evidence in relation to whether there was a job, position or other work would usually include canvassing the steps you have taken to identify other work which could be performed by the employee.

It is important to note that if you have other positions available, even at a lower level, which the redundant employee has the skills to perform, you should not presume that the employee will refuse that position.

What to do if you’re considering making an employee’s job redundant?

If you’ve made a decision to make an employee’s job redundant, we recommend that you:

  • meet with the employee and notify them that you are considering making their job redundant;
  • provide the employee with reasons as to why their job is being made redundant;
  • provide the employee with an opportunity to respond; and
  • allow the employee to have a support person present to assist at any discussions relating to redundancy.

You should attend to the above in order to protect yourself from an unfair dismissal application where the elements of a genuine redundancy have not been met.

It is also important to note that where you consult with the employee, the consultation should be meaningful and engaged in before an irreversible decision to terminate the employee has been made.

How much notice is an employee entitled to?

The amount of notice an employee should be given will depend on their age and how long they have been employed by you on a continuous basis.

However, if the employee’s employment contract entitles to employee to a longer notice period, then that is the notice period that will apply on the termination of their employment.

What entitlements should be paid on termination?

When dismissing an employee, you should pay them the following entitlements in their final pay:

  • outstanding wages or other remuneration still owing;
  • pay in lieu of notice of termination (if applicable);
  • accrued annual leave and long service leave entitlements;
  • the balance of any time off instead of overtime that the employee has accrued but not yet taken;
  • any redundancy pay or entitlements if the employees has been made redundant and is eligible.

Is my employee entitled to redundancy pay?

If an employee’s job is made redundant, you will be required to give them redundancy pay.

The amount of redundancy pay the employee is entitled to will be based on their continuous service with their employer.

Section 119 of the Fair Work Act 2009 (Cth) provides the ordinary amount of redundancy pay which is payable to employees.

However, your employee will not be entitled to redundancy pay if:

  • their period of continuous service with your business is less than 12 months;
  • they were employed for a stated period of time, an identified task or project or a particular season;
  • they are a casual employee, trainee engaged only for the length of the training agreement or an apprentice; or
  • your business employs less than 15 employees.

Can I reduce the redundancy pay owed to an employee?

You can definitely apply to the Fair Work Commission to have the amount of redundancy pay reduced if:

  • you find other acceptable employment for the employee; or
  • you can’t afford the full redundancy amount.

If you apply to have redundancy pay reduced, the Fair Work Commission may determine to reduce the amount of redundancy pay to a specified amount (which may be nil) if it considers it appropriate to do so.

Where the Fair Work Commission makes a determination, the amount of redundancy pay to which the employee is entitled will be reduced to the amount specified in the determination.

How we can help

  • Advising you on how to best carry out a redundancy
  • Prepare internal processes and procedures to manage redundancies
  • Prepare template and bespoke notices of redundancy
  • Help you understand the criteria for a genuine redundancy and how calculate notice, final pay and severance pay requirements
  • Provide pragmatic advice to mitigate employment risk and prevent unfair dismissal, unlawful termination or discrimination claims