Unfortunately, there are times, especially during this pandemic, where employers will need to consider redundancies within their workplace. It’s important to get the facts and processes around redundancies correct to ensure the best outcome for all parties involved.
What is Redundancy?
Redundancy occurs when an employer decides they no longer want the job an employee has been doing to be done by anyone, and terminates the employment (except in cases of ordinary and customary turnover of labour).
The job itself, not the employee, becomes redundant.
When does Redundancy Occur?
Redundancy may happen when an employee is terminated because:
- The job someone has been doing is replaced due to the employer introducing new technology (i.e. It can be done by a machine);
- Staff reduction for a particular task occurs due to a downturn in business ;
- A merger or takeover happens and the position is no longer required ;
- The business restructures or reorganises and the position is no longer required (this may include where tasks performed by a particular employee are distributed between several other employees); or
- Of the insolvency or bankruptcy of the employer.
Note: It is unlawful to make a job redundant for discriminatory reasons. Refer to our Information Sheet on Discrimination for further information.
Redundancy (Severance) Pay
Under the National Employment Standards and/or the award or agreement, employees may be entitled to redundancy payments. Contracts of employment and workplace policies can also include redundancy entitlements which must be complied with. For more information, see our fact sheet on Notice of Termination and Redundancy Pay.
Redundancy pay is NOT payable to any of the following:
- An employee employed by a Small Business Employer (see definition below);
- An employee whose period of continuous service with the employer is less than 12 months ;
- An employee employed for a specified period of time, for a specified task, or for the duration of a specified season ;
- An employee whose employment is terminated because of serious misconduct
- A casual employee ;
- An employee (other than an apprentice) to whom a training arrangement applies and whose employment is for a specified period of time or is, for any reason, limited to the duration of the training arrangement ;
- An apprentice ;
- An employee to whom an industry-specific redundancy scheme in a modern award applies;
- An employee to whom a redundancy scheme in an enterprise agreement applies if:
- The scheme is an industry-specific redundancy scheme that is incorporated by reference (and as in force from time to time) into the enterprise agreement from a modern award that is in operation; or
- The employee is covered by the industry-specific redundancy scheme in the modern award.
An award that is in operation may include a term specifying other situations in which redundancy pay does not apply to the termination of an employee’s employment.
Small Business Employers
Employers with fewer than 15 employees are known as Small Business Employers and are exempt from having to pay redundancy pay. When calculating the number of employees employed at a particular time, the following factors are to be taken into account:
- All employees employed by the employer at that time are to be counted;
- A casual employee is not counted unless, at that time, he or she has been employed by the employer on a regular and systematic basis;
- Associated entities are taken to be one entity; and
- The employee being terminated and any other employees being terminated at that time are counted.
Small Business Employers must follow the Small Business Fair Dismissal Code when terminating an employee’s employment on the basis of redundancy.
Other Business Exemptions
An employer can apply to the Fair Work Commission (FWC) for an exemption from paying Redundancy Pay, on the following grounds:
- The employer has obtained other acceptable employment for the employee; or
- The employer cannot pay the amount.
The FWC may determine that the amount of redundancy be reduced to a specific amount (which may be nil) or an amount that the FWC considers appropriate.
Consultation Regarding Major Workplace Change
Many Modern Awards and Enterprise Agreements place obligations on employers to consult with employees in relation to redundancy where an employer has made a decision to introduce major changes that are likely to have significant effects on employees.
- the employer must notify the employees who may be affected;
- the employer must discuss the changes with the affected employees and consider any matters raised by the employees as soon as possible after a decision has been made to initiate redundancies; and
- The employer must provide information about the changes in writing to the employees for the purposes of the discussions.
The factors which will be used to determine which employees will be selected for redundancy and how they will be weighted should be communicated to all employees. Criteria should be objective, measurable, valid, fair and non-discriminatory and refer to:
- Productivity levels; and
- Performance of individuals compared to current and future organisational needs.
Where employees are assessed as relatively equal, length of service and domestic circumstances may become relevant. Also check relevant Modern Awards/Agreements as they may stipulate a clear procedure for selecting employees, such as ‘last-on first-off’.
During the consultation process employers may also choose to jointly explore and evaluate with employees optional factors such as:
- timing of the process;
- method of implementation;
- outplacement and job seeking assistance;
- possible referrals to other employers; and
- retraining assistance and financial planning.
It is important that the redundancy process implemented, particularly in regards to procedures used to consult with employees, is appropriately documented. This will help to demonstrate that the selection and implementation process was justifiable and fair should an employee make a claim for unfair dismissal.
For additional detail, or to save this information for future reference, download our employer fact sheets here.
*This is general information only and doesn’t take your specific circumstances into account.