In the ever-changing business world, though undesirable, redundancy is sometimes necessary to restructure the workforce. Once a position is deemed redundant, the employer has two main options: redeploy the employee into a different role or terminate their employment due to redundancy.
The latter process is sometimes referred to as retrenchment.
If you are in a position where termination due to redundancy is the only option, you must adhere to specific procedures to avoid a claim of unfair dismissal or other types of employment claims.
Here’s what you need to know.
What Does Redundancy Mean?
In Australia, “redundancy” generally refers to termination of employment due to the position no longer being required by the employer.
In some situations, the term “redundancy” will be specially defined under an applicable award, enterprise agreement or employment contract.
What Triggers Redundancy?
Redundancy might occur for various reasons, such as a downturn in business, technological changes, or restructuring, which makes certain jobs redundant. The decision to make a position redundant is usually unrelated to the employee’s performance or conduct.
If a company is financially underperforming, it may need to scale back its operations and cut overheads by reducing a portion of its staff. Alternatively, a company may restructure its workforce to implement operational changes, without downsizing, to improve productivity or generate efficiencies.
For example, a commercial landscaping company has lost a large customer and no longer needs the same number of landscape workers. It therefore decides to make some of the workers’ positions redundant.
Another example would be if a business determines to reduce costs by relocating its call centre overseas. This means the local employees are no longer required to perform their roles.
A redundancy may also occur where a decision is made to disperse the functions within an employee’s role to other employees or contractors. Although the various functions are still being performed, the role doesn’t exist any longer.
How To Address Redundancy in a Fair and Lawful Manner
Redundancy should be conducted in a fair manner to minimise the risk of legal claims such as unfair dismissal claims. Addressing redundancy fairly and in compliance with Australian employment law involves a series of steps that focus on adhering to the employer’s legal obligations.
Here’s a generalised guide:
Terminating an employee’s employment for redundancy does not automatically constitute a lawful dismissal. An employee dismissed for redundancy may still be able to bring an unfair dismissal claim. But if the employer can prove it was a “genuine redundancy”, the employee’s unfair dismissal application will be dismissed.
The Fair Work Act 2009 (Act) sets out three requirements to establish the genuine redundancy defence. First, it must be shown that the employer no longer needs the employee’s job to be performed by anyone because of changes in the operational requirements of the business. Second, the employer has to meet its consultation obligations. And third, it was not reasonable to redeploy the employee within the employer’s business or a related company.
Most awards and enterprise agreements require the employer to engage in consultation with its employees and, where applicable, their representatives. An employer must genuinely consult with employees about major workplace changes, including redundancy, especially when they are covered by a modern award or enterprise agreement.
Legally, you must notify the employee in writing and provide them with the correct notice period for termination (or payment in lieu of notice). Employers who fail to give adequate notice might breach a modern award, an enterprise agreement, the National Employment Standards (NES), an employment agreement term or common law contract of employment terms.
The length of the notice period can also depend on the employee’s length of service and age.
For example, according to the NES, the minimum notice periods based on the length of continuous service are as follows:
|Period of continuous service||Minimum notice period|
|1 year or less||1 week|
|More than 1 year – 3 years||2 weeks|
|More than 3 years – 5 years||3 weeks|
|More than 5 years||4 weeks|
Additionally, if the employee is over 45 years old and has completed at least two years of continuous service with the employer, they will receive an additional week of notice.
Note: These periods are minimum requirements, and an employment contract, enterprise agreement, or modern award may stipulate longer notice periods. Employers must adhere to whichever provision is most beneficial to the employee.
Where it is allowed by the relevant award or agreement, the employer may provide payment instead of notice, which is typically equivalent to the full pay the employee would have received had they worked through the notice period. This includes incentive-based payments and bonuses, loadings, monetary allowances, overtime, penalty rates, and any other separately identifiable amounts.
When an employee’s job is made redundant, the employer may need to fulfil redundancy pay entitlements (also known as severance pay).
Similar to the notice period, the amount of redundancy pay an employee is entitled to is based on the length of their continuous service with the employer. Continuous service is the total duration for which the business employs them and does not include periods of unpaid leave.
Some awards have industry-specific redundancy clauses, which apply instead of the NES. These clauses may have different rules regarding who the redundancy clauses apply to and what redundancy pay an employee is entitled to.
If an employee is covered by a registered enterprise agreement, the terms of their agreement will contain information about how much redundancy needs to be paid and other entitlements.
Note: As per the NES, redundancy pay is unnecessary in certain scenarios, such as if the employer is a small business or the employee is hired casually.
If the role considered for redundancy is performed by more than one person, ensure the process for selecting which employees will be redundant is fair, unbiased and excludes any discriminatory practices.
Support and Assistance
Offer support services and assistance to the employees whose positions are made redundant, including outplacement services, counselling, or assistance in finding new employment.
Providing career transition services can be crucial in helping employees navigate the challenges of sudden unemployment. These networks often offer various employment services designed to help individuals re-enter the job market, such as resume writing, interview preparation, and job search strategies.
Employee assistance programs (EAP) are also a helpful way of providing emotional support to employees affected by redundancy and restructure.
Maintain transparent and empathetic communication with the affected workers throughout the redundancy process. Explain the reasons for the redundancy, the selection process, and the available support to those affected.
Providing a reference contact and a copy of any accomplished certificates can also be a valuable support, assisting the employee in their subsequent job search by validating their skills and experience to potential new employers.
Compliance with Awards and Agreements
Ensure compliance with any applicable modern awards, enterprise agreements, or employment contracts that may stipulate additional requirements or entitlements related to redundancy.
Keep detailed records of the redundancy process, including the reasons for redundancy, the selection process, any communication or consultation with the employees to ensure compliance and provide documentation in the event of any future disputes or claims.
- Ensure every step of the redundancy process adheres to Australian employment law, including under the Act, any relevant award, enterprise agreement or employment agreement.
- Provide robust support for employees whose positions are made redundant, including potential outplacement services and emotional support.
- Ensure that the selection process for redundancy is unbiased and equitable.
- Maintain thorough records of all actions and communications during the redundancy process.
Importantly, ensure that you seek specialised legal advice early on in the piece to navigate the complexities of employment law and safeguard against potential legal challenges.
Engaging with a legal professional or a specialist in employment law can provide you with tailored advice, ensuring that your redundancy process is not only compliant with the current legal standards but also conducted to minimise the risk of future litigation.
Contact us today to find out more about how we can support you.
What is the Law around Redundancy in Australia?
In Australia, under the national industrial relations system, the law of redundancy arises from several sources, including the Fair Work Act 2009 (Cth), any applicable modern award or enterprise agreement, and contractual terms. Sometimes, employers have a redundancy policy that provides for redundancy entitlements more generous than legislation.
Employers must adhere to specific procedures, such as consultation, providing notice, potentially redundancy pay, and ensure the redundancy is genuine. Additionally, certain modern awards and enterprise agreements may contain additional rules and entitlements related to redundancy.
What Does the Fair Work Ombudsman Do?
The Fair Work Ombudsman (FWO) in Australia is pivotal in fostering and sustaining equitable, productive, and cooperative workplace relations. It educates employers and employees about their respective rights, obligations, and responsibilities under Australian workplace laws, providing a wealth of resources, tools, and guides to facilitate understanding and compliance.
The FWO also plays a vital role in monitoring and ensuring adherence to these laws, investigating potential breaches, and enforcing relevant legislation and workplace instruments, such as awards and enterprise agreements. Furthermore, it assists in resolving disputes and issues that may arise in the workplace, aiming to create a balanced and fair working environment across various industries and sectors.
Do You Get Paid if Fired in Australia?
In some circumstances, yes. If an employee is fired (i.e., employment terminated due to misconduct or poor performance), they may be entitled to receive notice, any outstanding pay for work performed, accrued annual leave, and depending on their length of service, potentially long service leave.
Redundancy pay, also known as severance pay, is typically provided when an employee is let go due to no fault of their own, such as in a redundancy scenario. This payment is on top of the notice, any outstanding pay for work performed and any accrued and unused annual leave and long service leave.
The specific entitlements can depend on the applicable modern award, enterprise agreement, employment contract, and the NES.
What is the Difference Between Redundancy and Retrenchment?
In the Australian context, “redundancy” and “retrenchment” are often used interchangeably but can have slightly different connotations.
Redundancy usually refers to a position that is no longer required by the employer, often due to operational changes, technological advancements, or economic reasons.
Retrenchment typically refers to the termination of employment that results from a position being made redundant. In simple terms, redundancy pertains to the position being eliminated. Although an employee’s position may be made redundant, it’s possible that termination may be avoided through redeployment into another role, leading to continuity of service. But if the employee is no redeployed, redundancy typically the termination of employment. The term retrenchment is usually used to refer to the termination of employment due to redundancy.
How Much Do You Get Paid When made redundant?
The amount an employee gets paid when made redundant, often called redundancy pay or severance pay, is generally based on their length of continuous service with the employer.
According to the NES, redundancy pay scales from 4 weeks’ pay for 1-2 years of service to 16 weeks’ pay for 9 years of service. There is a reduction in redundancy pay from 16 weeks to 12 weeks for employees with 10 years or more continuous service.
However, specific amounts can vary and may be influenced by modern awards, enterprise agreements, employment contracts, or employer redundancy policies, which may stipulate different entitlements. Always refer to the applicable workplace instruments and the Fair Work Act to determine precise entitlements.
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