Getting redundancy right
HR IN PRACTICE When an employee is made redundant, there are legal obligations with which their employer has to comply. It’s important that these are well understood by both employers and employees.
A redundancy, while sometimes a confronting topic, can often be important for a business to remain operationally viable.
Employers have a range of legal obligations to consider throughout the redundancy process and these help ensure that a procedurally fair and respectful process is provided to staff while minimising business exposure.
What is a redundancy?
A redundancy situation occurs when an employer decides that a role performed by a particular employee or employees, through no fault of their own, no longer needs to be performed by them or by anyone else or that these duties, if some or all still need to be fulfilled, can be redistributed among other employees.
The position itself ceases to exist.
According to the Fair Work Act 2009*, businesses can be exposed to an unfair dismissal claim (among other legal claims) if a redundancy is not considered to be genuine.
Reasons for a genuine redundancy include:
• a machine or technology replaces the job performed by the employee
• there is a downturn in the business or the economy is generally affecting the business’s operational requirements
• the business is overstaffed—for example, the employer only needs three people to do a particular task or duty instead of five
• certain tasks will be outsourced
• the business will be relocated or sold.
A redundancy should not be used simply to terminate an underperforming or misbehaving employee and it is important to keep in mind, as a general principle, that in a redundancy, it is the job that is redundant, not the employee.
*Note: for unincorporated business entities in Western Australia that are covered by their state system, the same general provisions apply under Western Australia’s Minimum Conditions of Employment Act 1993.
Consulting with the affected employee
Even if there is a bona fide reason for the redundancy, under the Fair Work Act 2009, an employer must ensure that they are meeting their consultation obligations for the termination of employment to be considered a genuine redundancy.
This means that prior to notifying the employee that their position will be made redundant, an employer must consult with the employee about the nature of the changes the business is considering making and inform them that there is a possibility that their position will be made redundant.
The employee must then be given the chance to provide their own feedback about the changes and how they will affect them as well as to discuss any alternative solutions that will either minimise the effects of the redundancy (such as delaying the termination date) or avoid redundancy altogether.
The employer is then obligated to reasonably consider any feedback provided by the employee before making the final decision to terminate their employment.
Can the employee be redeployed elsewhere? Prior to making an employee redundant, an employer must try as hard as reasonably possible to provide an alternative position for
them elsewhere in the business or in another associated entity.
This redeployment should be to a role that is equal or extremely similar (in both remuneration and status) to their original position.
Failure to redeploy an employee to an available position can expose the business to an unfair dismissal claim.
While it is possible to redeploy an employee to a less favourable position, this can still call into question the genuine nature of the redundancy unless the employee agrees and the employee may still have an entitlement to redundancy pay.
Notice of termination and redundancy pay Regardless of any entitlement to redundancy pay, an employee will still be entitled to notice of termination.
Taking into consideration the circumstances of the redundancy, an employer can choose to pay this notice in lieu or require the employee to work out the notice period.
An employee’s entitlement to redundancy pay is afforded under the National Employment Standards within the Fair Work Act 2009.
The amount the employee is entitled to will depend on their length of service—an employee with less than one year’s service will not be entitled to redundancy pay and the entitlement amount increases progressively until the employee has reached 10 years of continuous service.
This is paid at their base rate of pay for their ordinary hours and doesn’t include loadings, allowances or penalty rates.
However, under certain circumstances—for example, if the employee is a casual employee or the employer is operating a small business (with 14 or fewer employees, including regular casual employees)—the employer is not obligated to provide this redundancy pay.
As with any termination of employment, an employee is also entitled to payment for any untaken annual leave and long service leave, if applicable.
Some awards provide employees with additional entitlements in the event of a redundancy and it is recommended that an employer check their employee’s modern award (if one applies to them).
An employer must adhere to a number of obligations during the redundancy process and failure to do so can expose the business to legal claims, even when a genuine reason exists for the redundancy.
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