Your business may want to reduce its workforce due to specific operational requirements or to manage increasing costs. One way to do this is to consider making a particular role or team redundant. However, conducting a redundancy will require you to make the difficult decision of selecting specific employees to terminate. This process can be made simpler by allowing employees to self-select during a period of voluntary redundancy. Importantly, this may come at a higher legal risk concerning unfair dismissal claims. This article explains: 

  • what redundancy is;
  • how to conduct the selection process; 
  • what voluntary redundancy is; and 
  • the associated risks.

What Is a Redundancy?

You can make an employee redundant by terminating their employment. However, this is different from firing them for some fault on their behalf, like poor performance. Instead, it is motivated by conditions that the employee cannot control, such as:

  • a poor economic climate;
  • new technological developments;
  • changing initiatives of your business; and
  • improving business efficiency.

For example, if you might introduce new machinery into your factory that requires half the manpower. Therefore, you can make 50% of your workforce redundant because their position is no longer necessary.

The redundancy must meet certain conditions to be considered genuine, including that:

  • an employee’s role becomes obsolete due to your operational requirements;
  • the award covering the employee’s role mandates redundancy pay and you have complied with its consultation obligations; and
  • you have considered redeploying the employees within your business or other related entities.

Redeployment involves offering employees who would otherwise be made redundant a like for like position within another relevant area of your business.

For example, you may replace the workers in one of your factories with machines. But you might operate another factory that currently requires two new employees of the same or similar skillset. You must offer these positions to the employees you intend to make redundant.

The Risks of Not Satisfying These Conditions

If you fail to satisfy these conditions when you make a worker redundant, you might be vulnerable to an unfair dismissal claim or a general protections claim.

These are legal actions that an employee can take against you if they believe you have mistreated them. An unfair dismissal claim can arise if you: 

  • do not have a valid reason to terminate the employee; and
  • have not treated them fairly in the process of dismissal.

Alternatively, an employee might make a general protections claim if you take adverse action against them because they exercised a workplace right, like taking long service leave or on the basis of a protected attribute (such as their race, gender, age etc).

You should keep a written record of the steps you take to make an employee redundant, with consideration to the factors outlined above. This proof will help protect you if an employee takes legal action.

How to Select Employees?

Certain issues might arise if you plan to make some but not all team members redundant, especially where they are all of the same level with similar qualifications. In these circumstances, your criteria to select redundant employees must be:

  • objective; 
  • measurable; and
  • lawful.

Objective Criteria

Your objective criteria can include any unbiased measure of their value to your business, such as:

  • skills;
  • experience;
  • training; and
  • job performance.

You will also need to ensure to apply these criteria objectively and fairly to your employees.

The benefit of applying selection criteria is that you are being absolutely clear about what factors are being taken into account and how the decision about which employees are being made redundant was reached. It also means that if your employees challenge their dismissal, any such claim will be that much easier to defend.

Lawful Criteria

Additionally, you cannot make an employee redundant based on unlawful reasoning. This includes any violations to state, territory and federal laws, such as:

  • discrimination;
  • for raising a complaint about their workplace rights; and
  • being a member of a union.

What is Voluntary Redundancy?

If you are struggling to select specific employees to make redundant, you can elect to carry out a period of voluntary redundancy. This allows employees to choose redundancy before you conduct a potential selection process, often encouraged by a financial incentive.

You can integrate the voluntary redundancy as part of the consultation process under the relevant award.

For example, an employee may choose to take up the offer of becoming voluntarily redundant if they are:

  • close to retirement; or
  • want to take time off work for personal reasons.

Additionally, opting for voluntary redundancy may leave you with a more engaged workforce. This is because you can allow unhappy or uncommitted workers to leave your business. The employees that remain will be those that are loyal to your business.

What Are the Risks?

Redundancy involves terminating your employees. This means that you may be at risk of an unfair dismissal claim if an employee argues that it was not a genuine redundancy (or that they were forced/pressured into a ‘volunteering’ to be made redundant. However, you can avoid this potential exposure in the process of voluntary redundancy by requiring employees to sign a deed of release.

A deed of release is a legally binding document that will end the employment contract between you and your employee. It will confirm the amount of money owed to the employee in:

  • long service leave;
  • untaken annual leave;
  • redundancy pay entitlements; and
  • incentive for voluntary redundancy.

You should also include a provision that prevents your employee from making any further claims concerning the employment, including the termination.

You may intend for all employees who are being made redundant to sign a deed of release. However, an employee who is made voluntarily redundant is more likely to sign a deed of release if receiving the financial incentive is conditional on signing.

Key Takeaways 

You may choose to conduct a voluntary redundancy to avoid the challenge of selecting specific employees to terminate. By providing an incentive to employees to be made redundant and requiring them to sign a deed of release, you may reduce the risk of an unfair dismissal claim while also creating a more engaged workforce. However, you should always make sure the conditions of a genuine redundancy are satisfied, even when conducting a voluntary redundancy. If you would like legal advice about conducting voluntary redundancy or you need help considering your obligations under industry awards, contact LegalVision’s employment lawyers on 1300 544 755 or fill out the form on this page.

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