Redundancy basics

What is redundancy?

Redundancy occurs when a role is no longer required due to genuine operational changes in the employer’s business.

Common causes include business restructures or mergers, economic downturns, insolvency, technological changes and relocation of the business premises.

Redundancy can arise not only when a role is no longer required at all, but also when the various tasks and duties of a role are redistributed among other roles or are outsourced.

Often the loss of a role will mean that the employment of the employee performing the role will be terminated, although in some cases, an affected employee may instead be redeployed into a different role.

What redundancy is not

Importantly, redundancy is not about an employee’s performance or conduct in the workplace.

Where poor performance or misconduct is a concern, it is generally advisable for the employer to deal with this directly rather than conducting a redundancy process.

Using a redundancy process to address poor performance or misconduct may increase the risk of an unfair dismissal claim or another termination-related claim.

Redundancy pay entitlements under the National Employment Standards

Definition of redundancy

An employee is entitled to redundancy pay under the National Employment Standards (NES) in the Fair Work Act 2009 (FW Act), if an employee’s employment is terminated:

• by the employer because the employer no longer needs the employee’s job to be done by anyone (with some limited exceptions), or
• because the employer is insolvent or bankrupt.

Redundancy pay

Under the NES, eligible employees may receive up to 16 weeks’ redundancy pay, depending on their length of service. The following table sets out the NES redundancy pay entitlements:

Redundancy pay is calculated at the base rate for ordinary hours.

In addition to redundancy pay, there is an entitlement to notice of termination or payment in lieu of notice where employment ends due to redundancy.

Exceptions to the NES entitlement to redundancy pay

Employees may not be entitled to redundancy pay if they:

• have less than 12 months’ service,

• work for a small business (fewer than 15 employees), or

• are casuals, apprentices, or on fixed-term contracts.

In these cases, employers and employees should check the specific obligations and entitlements applicable to their situation.

Awards, enterprise agreements and employment contracts

It is important to check any applicable awards, enterprise agreements or employment contracts, as these may provide different entitlements and exceptions to those in the NES.

Genuine redundancy and unfair dismissal

An employee is not eligible to make an unfair dismissal claim if their dismissal was a case of “genuine redundancy”. However, a dismissed employee may still be eligible to make other types of claims such as discrimination or general protections claims.

Definition of genuine redundancy for unfair dismissal purposes

To qualify as a genuine redundancy, a dismissal must meet the following criteria in the FW Act:

• The employer no longer needs the employee’s job to be done by anyone due to operational changes in the employer’s business.
• The employer must consult the employee in accordance with the requirements of any applicable award or enterprise agreement.
• Redeployment must not be reasonably possible within the business or any associated entities.

Consultation

Where redundancy is a possible outcome, consultation with affected employees is mandatory under most awards and enterprise agreements. The obligations broadly require employers to:

• meet with affected employees and their representatives (if any) to discuss the changes in the business that may result in the potential need for redundancies,

• provide written information, and

• genuinely consider any feedback given by affected employees.

Redeployment

Employers must consider all reasonable redeployment options within the business and any related entities, even if they require reskilling or are less favourable than the employee’s current role.

Redeployment requires the employer to place the employee into the alternative role without the need for the employee to apply or compete with other candidates for the role.

Refusal of a suitable alternative role by an employee may allow the employer to obtain an order from the Fair Work Commission reducing the amount of redundancy pay payable to the employee.

Key take aways

A best practice redundancy process will include:

• careful planning by employers, including considering whether there are any available alternatives, such as agreed temporary reductions in hours of work or the use of accrued leave entitlements,

• genuine consultation with affected employees about potential redundancies, allowing sufficient time for employees to provide feedback and for the employer to genuinely consider it, and

• consideration of all reasonable redeployment options, including roles that may require additional training, relocation or a reduction in pay or conditions.

The Fair Work Ombudsman’s website has a range of free information about redundancy for employers and employees.