How to deal with redundancies as an employer

While the Fair Work Act 2009 considers redundancy a legitimate reason for the termination of an employee’s employment, employers cannot simply use it as a reason to remove an employee from the business.

When making employees redundant, employers must ensure that the redundancy is a genuine redundancy and complies with the requirements of the Fair Work Act. If a redundancy is not genuine, the business may be exposed to legal liability if an employee brings a claim of unfair dismissal.

Is the redundancy a ‘genuine redundancy’?

Prior to making an employee redundant, an employer should consider whether the redundancy is genuine or whether it is simply an excuse to terminate an employee. If the termination falls into the latter category, an employer should consider whether such termination could result in the employee claiming they were unfairly dismissed. Genuine redundancies provide limited scope for claims from an employee and will minimise the business’ exposure to legal risk.

A genuine redundancy will arise if an employer no longer requires the job of the employee to be undertaken by anyone and it would be unreasonable to deploy that employee within the employer’s company or the company of an associated entity.

For the redundancy to be genuine, an employer does not have to prove that the decision is necessary. For example, the redundancy may be justified on the basis that that business merely wishes to increase the profit margins by making a position redundant despite already being profitable.

Another requirement of a genuine redundancy is that the employee could not reasonably be redeployed. When making an employee redundant, employers must not only consider alternative positions within their business, but also within the businesses of any associated entities. The managerial interaction and integration between any associated entities will be a relevant consideration in determining whether redeployment of the employee is reasonable. Other circumstances that will determine whether redeployment is reasonable will include:

- the location and any costs of relocation;

- the qualifications of the position and the qualifications, skills and experience of the employee; and

- remuneration of the other position.

If a redundancy is genuine, it will suppress any argument an employee may make that he or she was unfairly terminated. Consequently, in selecting which employees to make redundant, an employer does not have to take into consideration the employee’s capacity to perform the role or their conduct at work. However, selection of employees for redundancy is not entirely irrelevant as even under a genuine redundancy an employer may be subject to claims from employees on other grounds under the Fair Work Act. For example, if the employee was selected for redundancy for having exercised a workplace right, undertaking industrial activities or for reasons that amount to workplace discrimination, the business may have taken adverse action against the employee and incur liability for breaching the general protections afforded to employees under the Fair Work Act.

Is a variation in the employee’s current role considered a redundancy?

As redundancy considers the position of the employee rather than the employment of an employee, it is necessary to always consider whether variations to an employee’s current position is considered a redundancy even if the employee’s employment with the business is not terminated. When variations to the duties and responsibilities associated with the position are changed so substantially to the employee’s detriment that the original position no longer exists, the position will have been made redundant and the employee will be entitled to redundancy pay.

What steps must an employer take when making an employee redundant?

If a redundancy is a genuine redundancy, the employer must firstly provide the employee with written notice of the redundancy or alternatively make payment to them in lieu of notice. The length of the notice period will depend on the length of service of the employee and their age, and will range from one to six weeks of notice.

The employer must also pay the employee redundancy pay. The amount of redundancy pay that an employer will be liable to pay to an employee will also depend on the length of the employee’s employment within the business. Redundancy pay is calculated by multiplying the employee’s base rate of pay they receive for working ordinary hours with the redundancy pay period.

The redundancy pay period is determined by the length of an employee’s continuous service and ranges from four weeks to 16 weeks. An employer’s liability to make redundancy payments based on the employee’s continuous service means that any unpaid leave that an employee has taken will be deducted from the overall total length of employment. Additionally, any service that an employee undertook with any entity associated with the business may count towards calculating the redundancy pay period.

Do the redundancy requirements apply to all employers and employees?

Employers are not required to make redundancy payments to all employees whose positions have been made redundant. There are a number of exemptions under the Fair Work Act which mean that not all employees are entitled to redundancy payments when made redundant, including employees who:

- are employed by small businesses of less than 15 employees;

- are casual staff;

- have been employed by the business for less than 12 months; and

- are employed only for a specific task or period of time.

For employees that do not have the right to a redundancy payment under the Fair Work Act, they will only be entitled to redundancy payments if they are afforded the right to such payments under an enterprise agreement, award or employment contract.

However, employers must be wary of making casual staff redundant as whilst such employees may be labelled as casual employees, they may in reality be a permanent employee. Before making a casual employee redundant and denying them redundancy pay, employers should double check whether the employee is in actual fact casual.

Can the redundancy pay be reduced?

If an employer cannot redeploy an employee within the business or the business of an associated entity, they should consider sourcing a position for the employee with an alternative employer. If an employer is able to obtain acceptable employment elsewhere for the employee, the employer is entitled to apply to the Fair Work Commission to have the amount payable reduced.

Obtaining alternative employments essentially mandates that the employer must procure an offer of employment from another employer. Merely sourcing the employment opportunity will not be sufficient. Whether the alternative employment is acceptable is objectively assessed and will take into consideration factors including:

- whether the work is similar;

- whether the alternative employment is essentially a demotion;

- location;

- salary, pay structure and any benefits;

- expected hours of work and workload;

- seniority of the position; and

- job security.

Ann Thomas, lawyer, MistryFallahi Lawyers & Business Advisors