Redundancy: Legal Obligations for Employers

A genuine redundancy occurs when an employee’s job position is no longer required because of changes in the requirements of the business and the employer has complied with any obligation imposed by an applicable modern award or enterprise agreement to consult about the redundancy.

Termination of employment is not a genuine redundancy if the employer does not follow the relevant requirements to consult under the applicable award or enterprise agreement or if the position in question is still required and the employer simply hires someone else to work in the same or similar position.

The termination is also not a genuine redundancy if it would have been reasonable in the circumstances to redeploy the person within the employer’s business or the business of an associated entity of the employer.

If your business does require the position to be filled, but it’s simply a case of you don’t think the employee is a good fit – that’s not a genuine redundancy. It must be clearly established that the role itself is no longer required by the business for a genuine redundancy to be established.

Consulting requirements

The consultation process establishes the actions an employer is required to take when there are changes to the business that are likely to result in redundancies.

Once a decision has been made to make an employee’s position redundant, the employer must commence the consultation process as soon as possible.

All award and enterprise agreements have some form of consultation process in relation to redundancies. Even if no award or enterprise agreement applies, it is still best practice to consult a lawyer in order to reduce the risk of an unfair dismissal claim.

Generally, consultation requirements include:

  • Notifying employees who may be affected by proposed changes to the business;
  • Providing employees with information about the above changes and what the effect of the changes is expected to be;
  • Discussing steps taken to avoid and minimise negative effects on the employees; and
  • Taking employees comments or suggestions about the changes into account.

Redundancy notice

If you decide to proceed with making an employee’s position redundant, you must provide the employee with written notice of termination indicating the last day of the employee’s employment. You can either elect to have the employee work throughout the notice period or, depending on the terms of your contract, pay the employee for the length of the notice period. This would be paid at the employee’s pay rate, including loadings, overtime and penalty rates.

The relevant employment agreement should state the amount of notice you are required to provide, but at the very least, it must be no less than the following minimum notice period required under the National Employment Scheme. Keep in mind that employees over 45 years old who have been employed for two years must be given an extra week of notice.

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

 

 

 

Redundancy payment

If your employee’s position is made redundant, unless they fall in one of the categories of employees listed below, the employee will be entitled to receive redundancy pay.

The amount of redundancy pay will be determined by the amount of continuous service the employee has worked for the business. The amount paid will be calculated at the employee’s base rate for the ordinary hours worked.

An employee’s base rate doesn’t include:

  • bonuses
  • overtime or penalty rates
  • monetary allowances

If the employee’s position is covered by an award or enterprise agreement, you will need to review the redundancy pay entitlements noted in the agreement and comply with those requirements. To determine if your employee is covered by an award or enterprise agreement you can conduct a search on the Fair Work Commission website.

If the position is not covered by a registered agreement, then the following applies, regarding calculating redundancy pay.

Period of continuous service Redundancy pay
At least 1 year but less than 2 years 4 weeks
At least 2 years but less than 3 years 6 weeks
At least 3 years but less than 4 years 7 weeks
At least 4 years but less than 5 years 8 weeks
At least 5 years but less than 6 years 10 weeks
At least 6 years but less than 7 years 11 weeks
At least 7 years but less than 8 years 13 weeks
At least 8 years but less than 9 years 14 weeks
At least 9 years but less than 10 years 16 weeks
At least 10 years 12 weeks

There are circumstances where you may be able to reduce the amount of redundancy pay owed to the employee. You can apply to the Fair Work Commission to reduce the amount if you find the employee other employment or if the business can’t afford to pay the full amount of redundancy pay. Evidence of this would need to be provided. The application forms are found on the Fair Work Commission’s website.

Who is not entitled to receive a redundancy payment?

Certain employees are not entitled to receive redundancy payments when their job is made redundant.

These employees include:

  • employees who have worked for a continuous period of less than 12 months;
  • employees of a small business with less than 15 employees;
  • casual employees;
  • apprentices;
  • trainees engaged only for the length of a training agreement;
  • employees terminated for serious misconduct; and
  • employees employed for a specified period of time, for a specified task, or for the duration of a specified season.

Small business exemption to redundancy laws

If your business is classed as a small business, then you are not obligated to pay redundancy pay.

A small business is one that has less than 15 employees.

In accordance with section 23 of the Fair Work Act, 2009, when calculating the number of employees a business has, you should include the following:

  • full-time and part-time employees;
  • the employee to be terminated;
  • any other employees to be terminated;
  • employees of an associated entity of the business, including those based overseas.
  • casual employees are not to be counted unless they are employed on a regular or systemic basis; and

The number of employees of the business should be taken at the time the employee is provided with notice of termination.

Key Takeaways

Making an employee’s position redundant is a difficult call to make, but once you’ve decided it’s necessary, you need to tread carefully and comply with the proper process to reduce the risk of a successful unfair dismissal or general protections claim.

If you are looking at making any of your employees redundant, please contact us today and we can provide you with a guide and checklist setting out the process for making an employee redundant.

We can also provide you with advice on your eligibility to make an employee redundant as well as tips on how to reduce the possibility of a successful claim being made against you.

© Progressive Legal Pty Ltd (2020) All legal rights reserved.

Contact us today if you require any assistance with Workplace Law advice.

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