Making an Employee Redundant?

What should an Employer Do Before and After Starting the Redundancy Process?
  1. I have made that person redundant; why have they lodged an unfair dismissal application?

Properly making an employee redundant is not as simple as deciding that the employee’s position is no longer required, even if there are strong business grounds indicating that is the case. This is because terminating an employee due to the position no longer being required is and of itself not a defence to an unfair dismissal claim. Rather, it must be shown that the redundancy was a “genuine redundancy” within the meaning of the Fair Work Act for an employer to protect themselves from an unfair dismissal claim.

A “genuine redundancy” is defined in the Fair Work Act as follows:

  • a person’s employer no longer requires the person’s job to be performed by anyone because of changes in the operational requirements of the employer’s enterprise; and
  • the employer has complied with any obligation in a modern award or enterprise agreement that applied to the employment to consult about the redundancy.

Further, that section also provides that the termination of an employee is not a case of genuine redundancy if it would have been reasonable, in all the circumstances, for the person to be redeployed within:

  • the employer’s enterprise; or
  • the enterprise of an associated entity of the employer.

Failure to adhere to even one of the above steps is likely to render a termination not a genuine redundancy, despite the satisfaction of all the other required steps.

  1. What are changes in the operational requirements of my enterprise?

Generally speaking, a change in the operational requirements of an employer’s enterprise would be, for example, the introduction of machinery, downturn in business, outsourcing or the business being moved overseas.

  1. Can I make someone redundant even if some of that person’s duties are being performed by other employees?

Yes. A “genuine redundancy” will occur if a person’s “job” is no longer required, rather than the duties or tasks of that job no longer being. For instance, the Commission has found that there will be a genuine redundancy if an employee is terminated and the associated duties are assigned to other employees for the employer.

  1. What is my obligation to consult before I make someone redundant?

An employer is required to consult only if a modern award or enterprise agreement contains a requirement to consult about redundancy. It should be said though that nearly all modern awards and enterprise agreements contain a requirement to consult in relation to redundancy or the more generic “major workplace change”, in which redundancy would almost certainly fall within. In any event, if an employer is unsure about whether they need to consult, it is always best practice to consult with effected employees prior to making any decision to make redundancies.

It is crucial that an employer makes sure they properly follow the consultation clause in the applicable modern award or enterprise agreement, as the consultation clause may vary between instruments. Generally though, there is an obligation to notify an employee of a major workplace change, such as looking at making redundancies, and an obligation to discuss the redundancy with the affected employee(s) before an irreversible decision is made to make an employee(s) redundant. Consultation should occur in order to allow the effected employee(s) to an opportunity to be heard about the proposals before a decision is finalised.

  1. When will it be reasonable to redeploy an employee to another part of my business?

In our experience, sometimes employers fail to consider redeploying an employee in other parts of their business before making them redundant. Therefore, consideration is never given as to whether it would be reasonable to redeploy the redundant employee to perform another job in the business.

Far too often, employers fatally presume that a redundant employee will not accept a lower paid, lower responsibility job or lower hour job, and therefore do not offer the redundant employee redeployment into that position.

  1. I can just select whoever I want to make redundant, right?

No, even in circumstances where there is only 1 position out of 10 being made redundant. Some lawful, logical, sound or defensible selection process must be relied on by the employer in making a decision as to whom should be made redundant. If the selection process is not lawful, it may give rise to a claim by an employee for a breach of a general protection or a claim under an anti-discrimination law.

Conclusion

Before embarking on making an employee redundant, an employer must implement a proper procedure in order to minimise exposure to litigation in the form of an unfair dismissal claim, as well as consider all entitlements that will need to be paid to an employee on redundancy. However, if you need assistance in relation to conducting the redundancy process, contact our lawyers who have expertise in employment law.

For more information please contact Matthew Bridger

p: +61 2 6206 1300 | e: mbridger@elringtons.com.au

Getting Redundancy Right – A guide for Employers

Most employers are aware what redundancy is. However, time and time again, employers do not understand or do not implement the proper process for making a position redundant.

  1. What is redundancy?

Practically speaking, redundancy occurs when an employer no longer requires an employee’s job to be performed by anyone. Common examples of redundancy include the introduction of new technology, a downsizing of a business due to decreased sales or production, restricting following a merger or business takeover, or the employer decides to relocate the business overseas.

  1. What is not redundancy?
  • the dismissal of an employee on the basis that the employer no longer requires or wants that specific employee, rather than no longer requiring that position to be performed;
  • the transfer of an employee’s duties to another employee, rather than a distribution of an employee’s duties to a number of other employees; or
  • the replacement of an employee by a more qualified or experienced person.
  1. What do employers need to pay someone who they have made redundant?

Most employers are aware that they must pay to an employee at the end of their employment, be it by way of dismissal or redundancy, their salary or wages up until and including their last day of employment, as well as all accrued leave entitlements, including annual leave and any long service leave. However, an employer is not required to pay to an employee at the end of the employment relationship any accrued sick leave entitlements, unless otherwise provided for.

It is too often the case that employers disregard other entitlements that need to be paid when making a person redundant. Most importantly, employers must pay redundancy pay in accordance with a modern award, enterprise agreement or pursuant to the provisions of the National Employment Standards (NES). In most cases, but not all, an award or enterprise agreement will reflect the NES.

Another entitlement that most employers overlook is the requirement that if an employee is made redundant effectively immediately, that is they are not provided with notice that their position is being made redundant, an employer must also pay to the employee payment in lieu of notice. Most awards or enterprise agreements would provide for the amount of pay in lieu of notice is required, but is usually again a reflection of the NES.

It is also important that an employer be aware that if an employee is over 45 years of age and has completed 2 years of continuous service with an employer, that employee must also be provided with 1 week additional payment in lieu of notice.

Note:    if an employee in the ACT has served for 5 or more years and they are made redundant, an employer will also be obliged to pay to the employee their pro rata long service leave entitlement.

For more information please contact Matthew Bridger

p: +61 2 6206 1300 | e: mbridger@elringtons.com.au