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In the current economic climate, organisations are looking to streamline operations and this often means making positions redundant. There are a number of important legal aspects to be aware of:
1. Redundancy is a type of termination of employment Redundancy occurs where an employer does not require a job to be carried out. This can either mean the complete abolition of the duties of the position or their redistribution either in whole or part amongst other existing positions. Put simply, redundancy is about the job rather than the person doing the job. Employers who take the easy option of telling under performing employees that their position has been made “redundant” rather than undertake the onerous task of performance management run a significant risk of legal action, particularly if they later employ someone else to do the job. 2. There is no automatic right to redundancy pay There is a widespread misconception that all employees have a right to redundancy pay (otherwise known as severance pay) if their job is made redundant. While this will be true (at least for federal system employees earning less than $100,000 pa) when the new National Employment Standards take effect at the beginning of 2010 (and even then the introduction will be gradual), it is not the case at the moment. The only current legislative requirement for federal system employees is that employers are required to notify Centrelink and consult with employees and unions if they intend to retrench 15 or more employees for economic, structural, technological or other reasons. 3. Check the legal documents Whilst there are currently minimal legislative requirements, it is important for employers to check whether a particular position is governed by an industrial award or a collective agreement or an AWA. Industrial awards commonly contain redundancy provisions both in relation to severance pay but also in relation to consultation with employees prior to a decision about redundancy occurring. If there is no industrial award, collective agreement or AWA with redundancy provisions, it is then necessary to consider the terms of the common law contract between the employer and employee and any policies the employer has about redundancy. These policies do not necessarily have to be in writing because legal arguments can be made where an employer has a record of making redundancy payments but does not do so for a particular employee. 4. Redundancy best practice If an employer is to withstand an unfair dismissal claim from a disgruntled former employee, it is important that it is able to show that it has conducted a transparent process. This includes: a. Consulting with the employee/s – this is more than a rubberstamp process. It generally means providing information to employees about the necessity for the redundancy, how the redundancies are to proceed and what other options for employment within the organisation there might be. A good process will go further than this and include a discussion with employees about proposed redundancies before a final decision is made; b. Having a defensible selection process – unfair dismissal claims are excluded if the employer can show the redundancy was a genuine one. This means that the employer should be able to explain the process that was adopted for deciding to make positions redundant and show its decision making paper trail. Whilst this does not mean the employer has to explain why each position is no longer needed, it does mean that the employer must be able to show the financial reasons behind the redundancy and why a particular area is no longer needed. It is also important that discriminatory grounds such as age are not relied on. It is also advisable to consider whether redundancies can be avoided in the first place, such as by wage reductions or freezes, cutting bonuses and the taking of annual leave. Be aware, however, that these matters need to at the very least be agreed with the employee, in writing. However, this may not be enough if there is an award or collective agreement in place which may need to be varied to achieve this outcome. 5. Pay the right amounts on termination Lastly, an employer should make sure that it is paying all amounts to which the employee is entitled whether by notice or by redundancy/severance pay and that the appropriate tax rates are applied. Even where there are no strict redundancy payment entitlements, employers should give consideration to making ex gratia payments in appropriate cases. |
Employers