Change is typical in the modern workplace as companies adapt to shifting market demands and technological advancements. Whether it’s through the sale, relocation or restructuring of a business, or a downturn in the market, redundancies in the workplace are sometimes inevitable. In such cases, employers must understand their obligations and comply with the applicable legal requirements as failing to do so can leave employers open to various workplace issues including claims for unfair dismissal or breach of award or agreement.
In this article, we provide an overview of redundancies in the workplace, explaining what employers need to know to help effectively navigate this challenging terrain and meet their obligations. The information is general only and we recommend employers consult a legal professional when considering redundancies in the workplace.
What is a Genuine Redundancy?
To minimise potential claims when ending an employment relationship through redundancy, employers must satisfy the genuine redundancy test. This requires employers to distinguish between redundancy and other factors leading to separation, such as poor performance or misconduct.
A genuine redundancy occurs when an employer no longer requires a particular job to be performed by anyone and the employer follows the required consultation process prescribed by a modern award or enterprise agreement.
Employers should also consider whether there are options available for the employee whose role is to become redundant to work elsewhere within the business or an “associated entity” of the employer. The redundancy may not be genuine if, in all of the circumstances, it would have been reasonable to redeploy the employee elsewhere in the business.
Redundancy should not be used as a guise for terminating underperforming employees. Dismissing an employee on the basis of a purported redundancy when this is not the case could lead to a potential unfair dismissal claim. Issues relating to employee performance should be managed according to complying processes.
Consultation Processes During Redundancy
When considering redundancy, employers must follow the consultation processes set out in the applicable award or agreement. Employers should commence the process with transparency and open communication, informing affected employees of the impending redundancies and providing opportunities for consultation.
Redundancy criteria should be applied objectively and consistently across all affected employees to mitigate any actual or perceived bias or discrimination.
Key steps in the redundancy process typically include conducting thorough assessments of the business’s operational needs, identifying at-risk roles, exploring alternatives to redundancy (such as retraining or redeployment), and conducting fair selection processes if multiple employees are affected. A support system should also be in place to help employees navigate and deal with the effects of a proposed redundancy.
Notice Periods
Notice periods form part of the National Employment Standards (NES). Apart from certain exceptions, such as casual, seasonal or fixed-term workers, they set out the minimum notice period (or payment in lieu of notice) that employers must give to employees to end their employment. An award, enterprise agreement or employment contract may set out longer notice period requirements than the NES.
If an employee is being terminated due to redundancy, the employer must provide written notice to the employee. The minimum notice period required by the NES is based on the period of continuous service the employee has with the employer. Employees over 45 years old who have worked for the employer for at least two years are generally entitled to a further one week’s notice (in addition to the minimum notice period).
When Is Redundancy Pay Necessary?
Redundancy payments apply to employees covered by the national workplace relations system. Section 119 of the Fair Work Act 2009 provides that an employee is entitled to receive redundancy pay in circumstances where the employer terminates the employee’s employment because:
- the employer no longer requires the job done by the employee to be done by anyone, except in the case of ordinary and customary turnover of labour; or
- the employer becomes insolvent or bankrupt.
However, this provision does not extend to most employees with “small business employers” (those businesses with fewer than 15 employees) or to employees whose period of continuous service with the employer is less than 12 months. There are other exceptions to redundancy payments, including most casual employees and employees who are employed for a specified period or season.
Employers must also have regard to any termination entitlements (for example, accrued leave, long service leave, etc.)
How Much is Redundancy Pay?
The amount of redundancy payment (of up to 16 weeks) due to an employee is contingent upon the length of an employee’s continuous service with the employer.
Redundancy pay is calculated by using the employee’s base rate of pay for ordinary hours of work. It does not include incentive-based payments and bonuses, loadings, other monetary allowances, or overtime and penalty rates.
Note, that industry-specific awards or enterprise agreements may have different schemes and set out different entitlements for redundancy.
Conclusion
Employers should approach redundancies with diligence and transparency and use clear, written policies and procedures for managing redundancies. These policies should align with all relevant laws, processes, awards, and workplace agreements.
Non-compliance may result in claims of unfair dismissal, discrimination, or breach of contract, exposing employers to costly legal battles and reputational fallout. Moreover, regulatory bodies tasked with overseeing labour practices may impose sanctions or enforcement actions against non-compliant employers, further exacerbating the consequences of non-compliance.
If you or someone you know wants more information or needs help or advice, please contact us on (03) 9600 2768 or email [email protected].