Making employees redundant is another legal minefield with dangers for the unwary. As an example, in a recent case, failure to consult with award covered employees before redundancy based termination meant they could still pursue an unfair dismissal case.



It is important to remember that redundancy is a type of termination of employment. Redundancy occurs where the job itself no longer exists, for instance, because of technical obsolescence (remember toll gate operators) or where the duties of a job are redistributed amongst other existing staff. Redundancy is given special treatment by the law (it is a complete defence to an unfair dismissal claim) because the termination relates to the job itself, not the employee’s performance of that role.


However, several requirements must be met to obtain this protection from unfair dismissal claims and other legal action:


  1. The termination must be a “genuine” redundancy and not just a sham or cover for unrelated reasons (which may be unlawful);
  2. If employees are covered by an industrial award, then they must be consulted as soon as practicable after an employer has made a definite decision to make major change. For award covered employees, the employer must:
    1. discuss the nature of the changes with affected employees, likely effects and measures to avoid or lessen the effects;
    2. give consideration to any issues raised by the employee; and, for all employees
    3. consider whether there are any other suitable positions open for the employee in the organisation (including other companies in a group) including positions of a lesser nature.
  3. If there are no alternatives to termination, an employee will be entitled to notice (either worked out or paid in lieu) and a separate severance/redundancy payment either under the Fair Work Act, award/enterprise agreement, contract of employment or employer policies (whichever is the higher). They may also be entitled to other benefits such as time off to look for other work.


Redundancy pay is not payable where an employee has less than 12 months service or where the employer has less than 15 employees, but this does not free an employer of the requirements to consult and consider redeployment. An employer can also apply to Fair Work Australia to reduce or cancel its financial obligation to pay redundancy where it obtains other acceptable employment for the employee or cannot pay the redundancy pay.


It is important to remember that since 1 January 2010, all employees are entitled to redundancy pay separate to their notice. As a general rule, the whole service of an award employee is counted for calculating redundancy pay whereas it is only service since 1 January 2010 that counts for non award employees for redundancy purposes.


Of course, these are minimum requirements only and it is often good business practice to exceed them by conducting best practice consultation, paying more than the minimum termination pay and helping the employee with things like outplacement services and counselling. It is also advisable to consider whether redundancies can be avoided in the first place, eg by wage reductions or freezes, cutting bonuses and the taking of annual leave. Be aware, however, that these measures need to be agreed in writing with the employee and are subject to award/enterprise agreement requirements.


In summary:


  1. Check the legal requirements before starting the redundancy process;
  2. Comply with the requirements to consult and consider redeployment; and
  3. Pay the right amounts on termination.