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Effective dismissal of an employee and genuine redundancy can be quite confusing terms for employers and employees. As an employer, it is crucial that you only make an employee redundant when it is legal to do so. If not, you could face a claim of unfair dismissal. This article will compare the differences between employee dismissal and genuine redundancy.
What is Dismissal?
Dismissal occurs when the employer terminates an employment relationship. If you are an employer, you will likely need to dismiss an employee at some stage of running your business. If an employee has unfair dismissal protection, you must think carefully before dismissing them and follow the correct process. This process involves a number of key steps:
Know the Reason for Dismissal
Employers must have well-founded grounds for dismissing an employee. This includes something the employee has done (their conduct) or the employee’s ability to do the job (their capacity).
Written Notice
If the reason is related to unsatisfactory employee conduct, you must warn the employee in writing that their performance needs to improve. The warning should describe how the employee can better their performance and the timeframe to make these changes.
The warning should state that dismissal may occur if changes to conduct are not made. The employee must be given a reasonable time to respond to the employer’s concerns.
Communicate Your Decision
You must communicate your decision to dismiss the employee in a face to face meeting. You should come prepared to the meeting with a termination letter ready to present to the employee. This letter should outline the employee’s final working date and final pay.
Understand Your Notice and Payment Obligations
You can allow the employee to work through the notice period, or you can pay the employee in lieu of notice. You must also ensure you pay the employee any entitlements, such as accrued annual leave.
As an employer, you should take note of other laws which prohibit termination of employment for unlawful reasons like instances of:
- victimisation; or
- discrimination.
What is Genuine Redundancy?
A redundancy occurs when a business no longer needs a particular role performed, or if the business becomes insolvent or bankrupt. When a position disappears or is divided between other employees, that job has become redundant.
It is essential that you ensure any redundancy is a ‘genuine redundancy’. This way, if an employee brings a claim of unfair dismissal, you will be able to defend it.
You must meet three criteria for the redundancy to be ‘genuine’. These are that:
- the person’s job is no longer required because of changes in business operations or a downturn in business revenue;
- you have complied with consultation obligations as required by the employee’s applicable modern award or enterprise agreement;
- you have thought through any possible roles the employee could be redeployed into within the business. This might include considering appropriate interstate or overseas associated entities or retraining the employee to perform an available position.
When a role becomes redundant, it does not necessarily mean the employee who performed that role should be terminated.
Examples of genuine redundancy include:
- a new machine or technology means you not longer require human labour;
- business sales or production suffer from a downturn;
- a change in management or takeover results in a business restructure;
- where a business relocates interstate or overseas; or
- a business shuts down.
Redundancy Pay
Redundancy payments are calculated based on the length of time the employee has worked for the employer. Employees may not be eligible for redundancy pay if they:
- have not worked continuously for the business for at least 12 months;
- have worked on a contract, project or season basis; or
- are a casual, trainee, or apprentice.
Businesses with fewer than 15 employees (including across related entities) are exempt from making redundancy payments.
You should refer to the Fair Work Ombudsman to help calculate redundancy payments.
Key Takeaways
Ending an employment relationship is a challenging experience for most employers. You need to make sure that you act fairly and that comply with your obligations under the Fair Work Act. It is important to follow the rules about:
- dismissal;
- redundancy;
- notice; and
- final pay.
You must undertake the dismissal or redundancy process carefully and correctly. If you fail to comply with your obligations, your employee might bring an unfair dismissal claim against your business. If you have any questions about making an employee redundant, contact LegalVision’s employment lawyers on 1300 544 755 or fill out the form below.
