Redundancy might seem like a good alternative to keeping on a worker. However, there are some serious pitfalls if redundancy is not done correctly. Redundancy occurs when a business no longer needs a specific job to be performed, or the business becomes insolvent or bankrupt. However, if the Fair Work Commission (FWC) decides a redundancy is not genuine, the employer will be liable for unfairly dismissing the employee. Hence, this article explains what you need to know about redundancy as a small business owner.
As an employer, understand your essential employment obligations with this free LegalVision factsheet.
What is a Genuine Redundancy?
To avoid an unfair dismissal claim, the employer must show the termination was a “genuine redundancy”. The Fair Work Act explains that a genuine redundancy is where:
- an employer no longer requires the employee’s job to be performed by anyone because of changes in the operation or requirements of the employer’s enterprise;
- the employer has complied with any obligation to consult the employee per the applicable modern award or enterprise agreement; and
- it would not be reasonable for the employer to redeploy the employee in the business or an associated entity.
Practically speaking, a “genuine redundancy” will include circumstances where the employer is restructuring their business to improve efficiency. For example, the tasks the person was performing within the company may still exist and may now be done by other employees. However, the actual job or role previously performed by the employee cannot exist for it to be considered a genuine redundancy. When an employee’s dismissal is genuine redundancy, the employee cannot claim unfair dismissal.
By contrast, the FWC will not consider a redundancy “genuine” if:
- the business’s operational requirements have not changed; and
- the employer wants someone else to complete the employee’s job in its entirety.
What Are “Changes in the Operation or Requirements of the Employer’s Enterprise”?
The Fair Work Act provides the following as possible examples of a change in the operational requirements of an enterprise. These examples include:
- replacing the job or position due to introducing new technology (for example, a machine is developed or available to do the job the employee performed);
- business downturn due to poor sales and production, which reduces the number of employees required;
- a site or business closure;
- the completion of a project;
- outsourcing; and
- restructuring a business to improve efficiency and redistributing the tasks done by a particular employee between several other employees.
Redundancy Consultation Requirements
All modern awards and registered agreements will have a consultation process for major workplace changes, such as redundancies. Even if your employees are not under modern awards, you must consider holding redundancy consultations to ensure you are not subject to unfair dismissal claims.
If you are in the process of making redundancies within your business, it is essential to ensure you get the consultation period right to avoid unfair dismissal claims.
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Can I Place the Person in Another Role Within My Business?
An employer must make all reasonable efforts to place the employee in another job before making them redundant. Hence, you should consider all available vacancies to see if there are any suitable jobs for the employee. Nevertheless, you are entitled to consider the practicality and cost of doing this in making your decision. Additionally, it is okay to offer the person a position with a lower income and less responsibility.
Do I Have to Pay-Out Redundancy Entitlements?
If your business and related entities have fewer than 15 employees, you are exempt from paying any redundancy payments. However, there are other exemptions to the general rule. Hence, it is essential to seek advice from a lawyer to determine if any of these exemptions apply.
Otherwise, redundancy payments are calculated based on the amount of time the employee has worked with your business. Generally, this is four weeks’ pay for service between one and two years, with smaller progressions for each year thereafter.
It is also important to consider the relevant notice period you must give your employees. The notice period depends on how long your employee has worked with your business. Additionally, redundancy payments are also calculated based on the time the employee has worked with your business.
Key Takeaways
There are many factors to consider and steps to take to ensure making your employees redundant is genuine. If you are a business going through some changes and considering making employees redundant, seeking legal advice on this process is important.
If you are making a redundancy, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
If the Fair Work Commission decides a redundancy is not genuine, the employer will be liable for unfairly dismissing the employee.
Unfair dismissal is where you terminate employment in a way that is harsh, unjust or unreasonable. Whilst redundancy is a legitimate reason for terminating employment, you could be subject to an unfair dismissal claim if you fail to comply with any applicable consultation obligations.
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