Avoiding Redundancy Traps

Redundancy commonly occurs when a business is sold and a new owner offers jobs to the vendor’s existing workforce. Some employees decline the offer of employment by the new owner. In this context, an issue can arise as to whether or not redundancy payments need to be made to an employee who rejects an offer of employment by the new owner.

Employers can easily fall into dispute with their employees by failing to properly handle a redundancy. There is often uncertainty surrounding redundancy, in terms of handling it within the law, as well as cost.

What is redundancy?

Let’s examine what redundancy means. The best way to define redundancy is that the employer no longer wishes the duties the employee has been performing to be undertaken by anyone. Termination of the employee on this ground, therefore, has nothing to do with poor performance or misconduct. Essentially, the work or role is no longer required to be performed by any employee. Redundancy can also happen when an employer becomes insolvent or bankrupt or following a re-structure, in order to increase the competitiveness or profitability of a business.

The employer must meet any requirements under a relevant award or enterprise agreement regarding redundancy. This includes discussions with the employee about the prospect of redundancy in view of operational changes or restructuring.

Some employers fall into the trap of making an employee ‘redundant’ and then immediately afterwards advertising the same position. From an employer’s perspective, it would be prudent to assume the former employee will check your advertised positions.

It is not uncommon for an employer to seek to portray what may, in fact, be wrongful termination of an employee as a “redundancy”, leaving themselves potentially exposed to an unfair dismissal claim.

What is a ‘genuine redundancy’?

If an employee has been made redundant and it is a “genuine redundancy”, then the employer will be able to defend a claim for unfair dismissal.

Under the Fair Work Act 2009 (Cth), a “genuine redundancy” is when:

  • the employer no longer requires the employee’s job to be performed by anyone because of changes in the operational requirements of the employer’s enterprise; and
  • the employer has complied with any obligation in a modern award or enterprise agreement that applied to the employment to consult about the redundancy; and
  • it is not reasonable for the employer to redeploy the employee in the employer’s enterprise or an associated entity of the employer’s enterprise.

It is important that the employer who is making an employee redundant, not only complies with the consultation provisions of any applicable award or enterprise agreement but also makes enquiries to make sure that there is not a suitable alternative position available within the employer’s business or any other “associated entity” of the employer.

More information is available on the Fair Work Ombudsman website.

When should a redundancy payment be made?

When an employee is made redundant then usually a redundancy payment will be required by the employer and this is often called severance pay.

However, the employee is not entitled to redundancy pay under the Fair Work Act if the employee:

  • resigns
  • is terminated other than due to redundancy, e.g. misconduct or performance issues
  • has been employed for less than 12 months
  • is employed in a small business with less than 15 employees
  • was employed for a fixed term and that term has ended
  • is a casual employee

The amount of any payment is calculated by reference to the employee’s years of service as set out in the following table.

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

In conclusion – take care

It is easy to fall into one of these employment law traps and employers should be satisfied as to the circumstances that constitute a redundancy, carefully review payments to be made and comply with the Act’s requirements in relation to a “genuine redundancy”.

If you need more information or if you need assistance or advice please contact us.

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