Avoiding redundancy traps

Employers can easily fall into dispute with their employees by failing to properly handle redundancies. There is often uncertainty surrounding redundancy, in terms of handling it within the law, as well as cost.

Redundancy commonly occurs when a business is sold and a new owner offers jobs to the vendor’s existing workforce. Some employees decline the offer of employment by the new owner. In this context, issues can arise as to whether or not redundancy payments need to be made to an employee who rejects an offer of employment by the new owner. Often this will be a question of whether the new job offered has substantially similar terms and conditions that are no less favourable overall to the redundant job.

Redundancies can also arise when an employer becomes insolvent or bankrupt, or following a re-structure, in order to increase the competitiveness or profitability of a business.

Notice of Termination and Redundancy Pay distinguished

Notice of termination and redundancy (or “severance”) payments should not be confused. The period of notice provides the employee with a chance to get their affairs in order, and seek other employment while a redundancy/severance payment is intended as compensation for the loss of future entitlements to long service leave and accrued sick leave.

Redundancy

In Australian employment law, a redundancy is where an employer seeks to terminate an employee’s position because the employer no longer requires the person’s job to be done by anyone. Termination of the employee on this ground has therefore nothing to do with poor performance or misconduct.

Genuine redundancy

To avoid such a redundancy termination being an unfair dismissal, a redundancy must be a “genuine redundancy”, as defined in the Fair Work Act 2009 (“the FW Act”). That means not only that the employer no longer requires the person’s job to be done by anyone, but that:

  1. the employer has complied with all obligations to consult about the redundancy that might apply under an award or an enterprise agreement; and
  2. it would not have been reasonable in all of the circumstances to redeploy the person within:
    1. the employer’s enterprise; or
    2. the enterprise of an associated entity of the employer.

It should also be appreciated that a redundancy does not remove the need to provide for notice of the termination, or payment in lieu of that notice.

Some employers fall into the trap of going through a ‘redundancy’ and then immediately afterwards advertising the same position. From an employer’s perspective it is prudent to assume the former employee will check your advertised positions.

It is not uncommon for an employer to seek to portray what may in fact be, an unfair or wrongful termination of an executive, as a “redundancy”.

The employer needs to ensure that, on examination of the facts, whilst the employee may have no statutory claim to a severance payment, there is also no basis for a common law claim.

When should a redundancy payment be made?

When an employee is made redundant usually a redundancy payment will be payable by the employer under the Fair Work Act 2009. This is called severance pay.

The employee may not be entitled to redundancy pay under the Fair Work Act if the employee:

  • resigns
  • is terminated other than due to redundancy, e.g. misconduct or performance issues
  • has been employed for less than 12 months
  • is employed in a small business with less than 15 employees
  • was employed for a fixed term and that term has ended
  • is a casual employee

The amount of any redundancy payment is calculated by reference to the employee’s years of service. By way of illustration if the employee has worked for a period greater than one year but less than two the redundancy period payable would be 4 weeks. If the term was between 9 to 10 years the period would be 16 weeks.

An employer may not be required to pay the redundancy for the full length of service if the employee did not have any redundancy entitlements with the employer in question prior to 1 January 2010. In those circumstances the period from which redundancy payments are calculated is from 1 January 2010 rather than the full length of service.

In conclusion – take care

It is easy to fall into one of these employment law traps and employers should be satisfied as to the circumstances that constitute a redundancy, carefully review payments to be made and comply with the Act’s requirements in relation to a “genuine redundancy”. Regardless if you are an employer or employee, call us if you feel you need assistance.

If you need more information or if you need assistance or advice on how to proceed please call us on 02 8325 1520 or email info@cappellorowe.com.au