The Fair Work Act in Australia governs the employment relationship, including redundancy. Individual employment contracts and/or awards and/or enterprise agreements can also dictate an employer’s obligation to pay out a redundancy and the relevant quantum. Noting such a payment can often arise in the instance of a corporate restructure or downsize, and often to a large portion of staff collectively, the obligation to pay can impose a significant financial burden on employers. There are, however, some instances in which employers can avoid such a requirement.

Is the Redundancy Payable?

As a preliminary step, it’s necessary to ensure redundancy is payable. Under the Act, redundancy is generally payable to any permanent employee who has been employed for more than 12 months. Quantum is determined by an employee’s continuous service with his or her employer (length of time employed excluding unpaid leave).

Is Termination a Redundancy?

Next, it is necessary to examine whether the termination of the employment relationship is, in fact, a redundancy at law. A redundancy occurs, in the most general sense, when the employee’s role does not need to be done by anyone moving forward. While the definition is quite simple, things become complicated, for example, when an employer seeks to tweak the nature of the position or location of the work, and the employee declines the new conditions. Here, a comparison will take place as between the new and old role to determine if the requirements of redundancy are satisfied at law.

Do Any Exemptions Apply?

Once you have determined there is an obligation to pay, you should then consider the potential application of the exemptions. Here, there are statutory exceptions to the requirement to pay, which legislative provisions often mirror in applicable awards or agreements. Generally, to evoke such an exemption, an employer makes an application to the Fair Work Commission per section 119 or 120 of the Fair Work Act. Some circumstances where an employer can make an application to avoid redundancy pay include:

  • Where the termination occurred in the ordinary and customary turnover of labor (i.e. when an employer terminates an ongoing contract which was the source of the employment); or
  • Where the employer has obtained reasonable alternate employment for the outgoing employee.

The Commissioner can also consider in an application an employer being unable to afford redundancy pay.

Alternatively, the nature of the employment can also dictate the obligation to pay. If the contract stipulates the contract is for a fixed or maximum term, which has now expired, redundancy pay is generally not payable if the employment relationship is terminated simply by lapse of time.

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If you are an employer and are concerned about the burden of redundancy pay, or believe one of the above exemptions could apply, you should seek legal advice from an employment lawyer. Get in touch with our employment law team on 1300 544 755.

Emma Jervis

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