A genuine redundancy occurs when an employer lawfully terminates an employee’s role because that role is no longer required to be performed by anyone. The employer must comply with legal processes and consult with the employee regarding options for redeployment.
Redundancies are an option for employers looking to downsize their workforce and reduce labour costs. However, redundancies are not without legal risks. Employers must consider the legal requirements for a ‘genuine redundancy’ to mitigate the risk of a successful unfair dismissal claim and the associated costs with these claims.
Similarly, employees must be alert to potential dangers to their jobs. Employers cannot use redundancy as an excuse to get rid of their employees.
In this article, we explain what genuine redundancy means, the legal requirements for redundancy, and answer some extra questions about redundancy.
Author: Farrah Motley, Legal Principal of Prosper Law and an employment contract lawyer.
A genuine redundancy means the dismissal of an employee by the employer because they no longer need the position in question. Usually, a genuine redundancy arises due to a change in the operational needs of the business, or because the business becomes insolvent.
Generally, for a redundancy to be genuine, the employer must consult with the employee in accordance with the terms of the applicable award or registered agreement. More importantly, there must be no other job within the company or an associated company that the employee could reasonably perform.
Some common scenarios in which a redundancy may occur:
- the company restructures and no longer needs the job in question
- new technology can meet the requirements of the job, e.g., automation
- the business is relocated or closed
- a prolonged and significant decline in business requires an increase in operational efficiencies. This might occur through reductions in the workforce
Section 389 of the Fair Work Act 2009 (Cth) (FW Act) sets out the three requirements for a ‘genuine redundancy’:
- The employer no longer required the employee’s job to be performed by anyone because of changes in the operational requirements of the employer’s enterprise.
- The employer has complied with any obligation in a modern award or enterprise agreement that applied to the employer to consult with the employee about the redundancy.
- The employer has considered if it would have been reasonable in all the circumstances for the person to be redeployed within the employer’s enterprise or an associated entity.
Let’s break down each of these three terms further.
The job is no longer required to be performed by anyone because of operational requirements of the employer’s business
For it to be a genuine redundancy, an employee’s job must become redundant as a result of a change in the employer’s operational needs. The focus is on the job itself that must be eliminated, not the employee. In other words, a simple renaming of the position that retains most of the duties does not constitute a redundancy.
Some kinds of changes that commonly impact operational requirements are:
- restructuring or reorganisation
- technological change, including automation
- a decrease in demand
- completion of a particular project
- closure of the business
If redundancy is made following a workplace change and is challenged by an employee, the Court will consider the employer’s operational needs. This will involve considering the necessity of the employee’s job in light of the employer’s operational needs, including its management and performance, any measures to improve efficiency or productivity, and the current market.
The employer has complied with any obligation in a modern award or enterprise agreement to consult about the redundancy
Most employees and employers are covered by an Award or an Agreement that sets forth their rights, entitlements, and obligations. Many Awards and agreements contain a requirement that employers consult employees before deciding whether to make them redundant. The law requires that the consultation to be genuine and meaningful and that employees cooperate.
If an employer is required by the Award or agreement to consult with the employee about redundancy, and it fails to do so, it is not a genuine redundancy. You should contact an employment contract lawyer if you are uncertain regarding the consultation requirements.
What is reasonable in all the circumstances to redeploy the employee?
If an employer does not offer redeployment to redundant employees, it may be legally exposed. The question of whether redeployment is reasonable depends on a number of circumstances.
First, employers should be able to justify why they did not offer options for continued employment in alternative roles if they were laid off.
Second, for a transfer to be reasonable, there must be a vacancy for which the employee has the requisite skills and competencies and can perform either immediately or after a reasonable period of retraining.
Third, the position must also be suitable in terms of compensation, duties, seniority, location, and any other factors that make it substantially different from the role being made redundant.
While redeployment will ideally involves a transfer to a role with similar pay and status, employers should not assume that an available role with lower pay or less seniority would be undesirable to the employee facing redundancy. Unless there is a very large pay or status between the available role and the role being made redundant, it makes the most sense to offer the employee the option of a transfer, which he or she may decline at his or her discretion.
An employee may decline an offer of redeployment if the new position is substantially less favourable than his or her current position. However, unless other suitable redeployment options available, the employer has met its redeployment obligations by making the offer. Under these circumstances, the employee is still entitled to redundancy pay unless the employer applies to the FWC to reduce or exclude any redundancy pay on the grounds that the rejected position is an acceptable employment alternative to the redundant position.
‘Fit’ as a relevant consideration
‘Fit’, and in particular the likely impact of redeployment on the cohesiveness of the work environment may also be an important factor in determining whether redeployment is reasonable. Rather than firing an employee, an employer may simply transfer him or her to a new role within the same company (or its associates ). Employers have the opportunity to look at the talent available and see if there is a role that is better suited for the employee than the one for which he or she was hired. However, the impact of a transfer on job cohesion and productivity may be a valid reason for denying a transfer in some cases.
The obligation to offer redeployment to a redundant employee (if reasonable) reflects the fundamental policy underlying job protection, which is that dismissal should be a last resort. However, this does not mean that employers must create vacancies or offer positions that are patently unsuitable. Employers can best protect themselves from unfair dismissal claims by properly weighing the merits of available redeployment opportunities – and documenting those considerations.
If an employee’s job has actually been lost due to redundancy, the employee is entitled to redundancy severance pay (also called genuine redundancy payment). Redundancy entitlements (including to redundancy pay or consultation) arise from applicable legislation, modern award, enterprise agreement or the employment contract (including any contractually binding policies).
Redundancy payments based modern awards are calculated according to the number of years of service the employee has spent with the employer.
Years of Service Pay Period
|Employee’s period of continuous service with the employer on termination||Redundancy pay period|
|At least 1 year but less than 2 years||4 weeks|
|At least 2 years but less than 3 years||6 weeks|
|At least 3 years but less than 4 years||7 weeks|
|At least 4 years but less than 5 years||8 weeks|
|At least 5 years but less than 6 years||10 weeks|
|At least 6 years but less than 7 years||11 weeks|
|At least 7 years but less than 8 years||13 weeks|
|At least 8 years but less than 9 years||14 weeks|
|At least 9 years but less than 10 years||16 weeks|
|At least 10 years||12 weeks|
The entitlement reduces upon attainment of 10 years’ service because at this point employees will have accrued an entitlement to long service leave.
*Keep in mind that small businesses that employ less than 15 employees do not have to give redundancy pay.
Similarly, redundancy payments can be regulated by an employment contract or enterprise agreement as well. In such a case, the contract must be between the employee and the employer, which addresses the issue of loss of employment due to redundancy.
However, there are exceptions where the redundancy entitlement does not apply, for example:
- an employee employed for a specified period of time, for a specified task, or for the duration of a specified season
- an employee whose employment is terminated because of serious misconduct.
- an employee (other than an apprentice) to whom a training arrangement applies and whose employment is for a specified period of time or is, for any reason, limited to the duration of the training arrangement
- an employee prescribed by the regulations as an employee to whom these provisions do not apply
- an employee who is an apprentice
- an employee to whom an industry-specific redundancy scheme in a modern award applies, or
- an employee to whom a redundancy scheme in an enterprise agreement applies if:
- the scheme is an industry-specific redundancy scheme that is incorporated by reference (and as in force from time to time) into the enterprise agreement from a modern award that is in operation, and
- the employee is covered by the industry-specific redundancy scheme in the modern award.
To determine whether a position is redundant and what entitlements may arise, employers must examine the legal source of any redundancy obligations, e.g., employment contracts (and workplace policies where they are legally binding), industrial instruments, and statutes (e.g., for national system employees, the statutory minimum set forth in the Fair Work Act 2009 (Cth) (FW Act)).
Alternatively, you should consult an employment contract lawyer.
An employer should take reasonable steps to retain the employee. However, employees must be alert to subtle incidents in the workplace that may result in loss of employment. Redundancy is not genuine if the employer:
- continues to need the employee’s job
- could have reasonably offered the employee another job within the employer’s (or associated entity) business under the circumstances
- has not complied with the hearing requirements provided in the relevant Modern Award or enterprise agreement.
An employee who is discharged for the following reasons can claim that the loss of employment was the result of discrimination and therefore is not a genuine redundancy:
- Harsh dismissal
- Unreasonable dismissal
- Dismissal based upon any of the following reasons;
- Marital status
- Some form of disability
- Political views or affiliations
- Family care issues
Any employee who loses his or her job because of one of these actions by the employer should file an unfair dismissal application with the Fair Work Commission within 21 days of the layoff. Hiring an employment attorney is the best way to file an unfair dismissal claim.
Depending on the circumstances, the employer may have to pay the employee compensation for dismissal, redundancy pay, annual leave not taken, possibly leave for years of service, etc.
Let us discuss these points in detail.
Unfair dismissal occurs when an employee is dismissed in a harsh, unjust or unreasonable manner. If an employee believes that he or she has been unfairly dismissed, he or she usually sues his or her employer in an employment tribunal. Suppose the court finds that the dismissal is unfair. In this case, the employer cannot defend the claim, and the employee will succeed with the claim. The employer must then reinstate the employee or pay the employee compensation.
More importantly, if the employment tribunal finds a dismissal to be automatically unfair, the employer cannot defend the claim and the employee will automatically succeed with his or her unfair dismissal claim. As a result, the employer may have to reinstate the employee (i.e., give him back his job) or re-hire the employee (i.e., re-employ him in another job) and pay compensation.
The employer may even have to pay penalties of up to 60 penalty units and 5 times that penalty for corporations. If the employer fails to provide redundancy entitlements in a modern award, enterprise agreement or under the law, it may be subject to civil penalties of up to 60 penalty units for individuals and five times that penalty for corporations.
If an employment tribunal finds that an employer has unfairly dismissed a person, the person may claim compensation against the employer. The maximum amount that can be claimed for unfair dismissal is six months’ of the employee’s annual salary (provided their salary is below the high-income threshold).
The consequences of unfair dismissal of an employee are largely borne by the person who made the dismissal. However, this applies not only to employers but also to other persons, such as:
- supervisors and managers who have priority and power over other employees,
- representatives of the Human Resources Department.
Depending on their level of involvement and what occurred, these individuals may be subject to large fines. Employers and managers who are directly responsible for wrongful termination will likely have to bear the cost of any fines.
A genuine redundancy payment is paid to an employee whose job has been eliminated because he no longer has a job. It means that the employer has decided that the employee’s job no longer exists and his employment should be terminated.
A genuine redundancy payment is:
- tax-exempt up to a certain cap based on years of service
- concessionally taxed as an employment termination payment (ETP) above the tax-free limit
- taxed at the normal marginal tax rate for amounts exceeding certain caps.
The tax-free amount of a genuine redundancy is not part of the ETP. Employers must report all lump sum amounts on the employee’s income statement or PAYG payment summary – as an individual, not as a company.
Depending on the terms of the employee’s employment, a genuine redundancy payment may include:
- payment in lieu of notice
- severance payment of a number of weeks’ salary for each year of service
- a gratuity or “golden handshake.”
Similarly, any amount in excess of the tax-free limit is part of the employee’s ETP. Therefore, the employee must exclude the following payments from a genuine redundancy payment:
- salaries, wages, or allowances for work performed or leave already taken for work performed
- lump-sum payments for unused annual leave or leave loading paid upon termination of employment
- lump-sum payments for unused long-term leave paid upon termination of employment under a formal agreement
- payments in lieu of superannuation benefits
Many Fair Work Commission (FWC) decisions have addressed each requirement and provided lessons for employers considering redundancies. We address each of these requirements in detail below.
Ms McNichol, an employee of Shape, a construction company specialising in refurbishment and fit-out, was posted in the Queensland office. After she was dismissed, she filed an unfair dismissal claim against her employer (Shape), alleging that her dismissal was “harsh, unjust or unreasonable.”
Since the outbreak of the pandemic COVID -19, Shape had experienced a decline in revenue and projects won. In response, Shape decided to reduce its workforce by three in Queensland and 25 in the rest of Australia. Ms McNichol’s position as project manager was one of three positions selected for redundancy in Queensland.
Ms McNichol represented that her role as a project manager was still required at the Company because the functions and duties she performed were still needed at the Company.
Further, she claimed that a number of prior business decisions had deprived her of the opportunity to take on another role or had resulted in her position becoming redundant, including:
- another employee was promoted internally to the same project manager position;
- three employees were seconded from New South Wales to Queensland; and
- the construction manager and graphic designer positions were filled externally.
The grounds for Ms. McNichol’s allegations were:
- that if the internal promotion had not occurred, there would not have been termination of her position,
- that these employees should have returned to NSW before their position was eliminated,
- that if these positions had been filled internally, there would have been an opportunity for her redeployment.
The FWC reviewed all the facts of the case and determined that Ms McNichol’s dismissal was a case of “genuine redundancy.”
Regarding Requirement 1, whether the employer no longer required the job performed by the employee to be performed by anyone because of changes in the employer’s operational requirements, the FWC made the following comments in the case of Ms McNichol’s dismissal:
- the FWC rejected Ms McNichol’s claim that her job still existed because her duties continued to be performed, even though the duties of her role were performed by other employees.
- the FWC rejected Ms McNichol’s claim that another employee was promoted internally to the same project manager role because an employer is not required to find other cost savings or other job retention measures before considering redundancies. It also noted that an employer is “not obligated to remove valuable employees from their valuable work simply because they are seconded.”
With respect to Requirement 2, namely that Shape comply with all consultation obligations under an applicable modern award or enterprise agreement, The FWC was satisfied that Ms McNichol was not covered by a modern award or enterprise agreement. Accordingly, Shape did not have a consultation obligation with which it should have complied.
With respect to Requirement 3, that there were no reasonable redeployment options for Ms McNichol within Shape or any of its associates, the FWC concluded that, under all the circumstances, it would not have been reasonable to redeploy Ms McNichol within Shape’s business unit or any of its associated entities.
The FWC held that whether redeployment was reasonable was an assessment to be assessed at the time of the dismissal, and does not require identifying a specific job or position. The FWC had to be satisfied that, based on the evidence, there was a job or position or other work where the redeployment of Ms Mc Nichol would have been appropriate at the time.
The FWC also considered the hiring freeze that was in place at the time of the dismissal and Shape’s information about its business operations at the time of the dismissal and concluded that redeployment of Ms McNichol would not have been appropriate.
Takeaway for Employers
Employers can redistribute the duties of an employee’s role to other roles in his or her organisation. The relevant test for determining whether the role has become “redundant” is whether the employee still has any duties to perform.
An employer is not required to restructure its business or operations to create duties for an employee whose function would otherwise have become redundant. However, if other jobs or duties continue to exist, the question is whether it would be appropriate at the time of the redeployment to continue to employ the employee in that capacity.
Mr Sharma, a customs clearance broker, filed a claim for unfair dismissal against his employer, GTS Australia Pty Ltd (GTS), after his employment was terminated.
In 2020, GTS was experiencing financial difficulties, exacerbated by the COVID -19 pandemic. GTS undertook a review of its operations and identified a number of cost savings, including a reduction in salaries and hours, and identified two functions that were no longer required for the business. Specifically, GTS decided it no longer needed two broker functions and decided to reduce the number of brokers to one. Mr Sharma was the broker selected for redundancy, in part because he was responsible for only 19% of GTS’s brokerage and the other broker covered the rest (81%).
After GTS made its final decision, GTS’s CEO notified Mr Sharma by telephone of his decision to terminate his employment due to redundancy. Mr Sharma then filed a claim for unfair dismissal, alleging, among other things, that the decision to dismiss him was “not a genuine redundancy.”
The FWC examined all the full facts of the case and determined that Mr Sharma’s dismissal was “not a genuine redundancy” because GTS had failed to consult Mr Sharma in accordance with the applicable modern award.
With respect to Requirement 1, the FWC determined that GTS met Requirement 1 as Mr Sharma was terminated because GTS no longer needed someone to perform his role due to changes in operational requirements. Specifically, the FWC believed that GTS had suffered a downturn and had identified cost savings, including the fact that another broker could take over all of the duties performed by Mr Sharma, leaving no duties for Mr Sharma.
With respect to Requirement 3, the FWC also noted that it was satisfied because it had considered options for redeployment of Mr Sharma but could not find a suitable redeployment option.
However, with respect to Requirement 2, the FWC found that GTS had not complied because Mr Sharma was covered by the Clerks-Private Sector Award 2020 (Award) and GTS had failed to consult with Mr Sharma in accordance with the terms of the Award. In particular, the FWC emphasised that GTS’s primary failure was that it had not advised Mr Sharma of the potential decision and had not given him an opportunity to comment.
Since GTS did not meet the requirements for a “genuine redundancy” the court held that it was necessary to determine whether the dismissal was unfair.
Takeaway for employers
Employers considering redundancies should ensure that all consultation requirements of the applicable modern award or enterprise agreement have been met so that they can rely on the defence of genuine redundancy to an unfair dismissal claim.
As the decision discussed under Requirement 1 indicates, this requirement need not be met if there is no modern award or enterprise agreement that applies to the employee.
The decision in this section has shown that failure to consult in accordance with a modern award or enterprise agreement will result in a finding that the dismissal is not a genuine dismissal for the purposes of the unfair dismissal claim. Employers must then convince the FWC that the dismissal is not otherwise “harsh, unjust or unreasonable.”
Failure to consult in accordance with the consultation requirements of an applicable modern award does not automatically result in a finding that a dismissal is unfair. An important consideration in determining whether a failure to consult results in a finding that a dismissal is unfair is whether consultation could have affected the outcome for the employee, such as the opportunity to find an alternative role and mitigate the need for dismissal.
Nonetheless, a failure to consult under a modern award or enterprise agreement violates Section 45 of the FW. This is a civil penalty provision and employers may expose themselves to the risk of penalties arising from failure to consult. Employers should therefore consider their obligations under a modern award.
Mr Phillips was employed by Boeing Aerostructures Australia Pty Ltd (Boeing) as a material handler. Boeing, an aircraft manufacturer, was significantly impacted by the COVID -19 pandemic. Boeing had announced four rounds of redundancies by January 20, 2021.
Mr Phillips was told that the number of material handler positions would be reduced from 12 to nine. Mr Phillips was given a voluntary redundancy form, a guideline for severance payment figure, and details about the Knowledge, Skill and Attribute (KSA) evaluation process Boeing used to rank employees whose positions were up for redundancy. Of the 12 employees who held material handler positions, Mr Phillips received the third-lowest KSA. Mr Phillips was advised that his position was to be eliminated.
Boeing operated a “mix-and-match” program in which an employee who had been selected for redundancy was given the opportunity to apply for and swap positions with an employee who had volunteered for retrenchment, provided the company agreed to the swap and evaluated his skills. Mr Phillips applied for another position in the program but was deemed unsuitable for the job. The employee who had been selected for the position under the program declined the job, and Boeing ultimately decided that this position would also be made redundant.
As background, Boeing contracted out the “pin cleaning” work to an outside company in 2016. Mr Phillip requested that the “pin cleaning” work be contracted to an outside company and that he be redeployed to that role. Boeing informed Mr Phillip that this was not possible.
Mr Phillips filed a claim for unfair dismissal, alleging, among other things, that his dismissal did not meet the requirement 3 of a “genuine redundancy’, as he could have been redeployed if:
- the company had contracted to clean pins; or
- he had been placed in the “mix-and-match” role.
The FWC considered both arguments raised by Mr Phillips. Ultimately, however, it rejected Mr Phillips’ contention that it would have been reasonable to deploy him to clean pins or to use him in the “mix-and-match” position.
The FWC found that “pin cleaning” could not be considered work “within the employer’s enterprise” and held that work eligible for redeployment must be available “at the time” of the redundancy. Therefore, work that has been outsourced and is performed by a contractor cannot be considered “within the employer’s enterprise” or work available at the time of the dismissal.
Further, it was held that even if the ‘pin cleaning” work had been not outsourced, there would not have been sufficient work for Mr Phillips to be redeployed to on a full-time basis at the time of the dismissal. The court also found that it would not have been reasonable to redeploy Mr Phillips in one of Boeing’s “affiliated companies.”
The court found no merit to Mr Phillips’ claim that it would have been reasonable to redeploy him to a “mix-and-match” position for the following reasons: First, the “mix-and-match” position was eventually eliminated, and second, it could not be assumed that Mr Phillips would have been redeployed to the position than any other employee selected for redundancy. In fact, it was held that Boeing satisfied Requirement 3 – that there were no reasonable redeployment opportunities for Mr Phillips at Boeing or any associated enterprise.
On the other requirements for a genuine redundancy, the FWC was satisfied that Mr Phillips’ job was no longer needed because of changes in Boeing’s operational needs ( Requirement 1) and that Boeing had complied with its obligation to consult with Mr Phillips under an applicable enterprise agreement ( Requirement 2). Accordingly, it was determined that Mr Phillip’s dismissal was a “genuine redundancy” and that the dismissal was therefore not unfair.
Takeaways for employers
When an employer considers redeployment options within its business, it must consider only the work that is available “at the time” of the dismissal.
An employer must also remember to consider positions available in the employer’s “business or associated entities.” However, the employer is no requirement for employers to insource any work outsourced to an independent contractor.
The position of a commercial manager was identified as part of a business restructure. The employee in question was informed of this. The employer wanted to keep the employee in the company and, as part of the restructuring, determined some tasks for which he wanted to retain the employee’s skills and experience.
After some back and forth, the employee decided that he did not want to take on any of the tasks. He took the position that the FW Act and the relevant enterprise agreement did not require him to accept a different role. He took the view that the conduct of making his position redundant terminated the contract and left the employer’s premises.
The employee initiated proceedings seeking the (based on 32 weeks of service) redundancy pay under the enterprise agreement, which had arisen in the same circumstances as under the FW Act (i.e., termination at the employer’s initiative).
However, the employee’s employment contract allowed for changes in his position and place of work from time to time. The employee did not claim that the redundancy of his job meant that the employment contract had been terminated by the employer. In fact, he continued to show up for work and be paid for a number of months after his position was made redundant. The employer continued to state that it wanted to retain his services and listed some tasks for him. He did not claim that the alternative jobs offered to him were themselves repudiatory.
As a result, the court found that the employee had terminated the contract and no redundancy pay was payable under the FW Act or the enterprise agreement.
The Federal Court of Australia ruled on eligibility for redundancy pay when an employee was moved from full-time to part-time work. Broadlex Services Pty Ltd v. United Workers’ Union was an appeal by United Voice v. Berkeley Challenge Pty Ltd. The Federal Court dismissed the employer’s appeal of a decision that it owed an employee redundancy pay for cleaning after she reduced her hours from full-time to part-time without formal consent.
The employer, Broadlex Services Pty Ltd, provided cleaning services to Ausgrid, an electric distributor. On May 1, 2014, Broadlex entered into an employment agreement with an employee who was employed as a full-time cleaner at an Ausgrid site in Newcastle. In July 2017, Broadlex negotiated a new contract with Ausgrid that reduced the cleaning hours she worked. On August 15, 2017, Broadlex notified the employee that her hours were to be reduced from full-time to part-time due to an “operational requirement.” As a result, her working hours were reduced from 38 to 20 hours per week and her salary was reduced by approximately 40%.
In the first instance, the magistrate took the view that the employment contract had been terminated and that when the employee took up work on a part-time basis, she did so under a new contract.
On appeal, the employer argued that the term “employment” in Section 119 of the FW Act context referred to the employment relationship and not only to the employment contract. Accordingly, he argued that Section 119 did not apply if the employment relationship continued even if the employment contract had been terminated (as allegedly was the case here). The Federal Court held that the phrase “the employment is terminated” in Section 119 was ambiguous. It could refer to the employment relationship, to the employment contract, to both, or to the termination of the job no longer required by the employer. In order to determine the actual meaning of the term, a number of contextual aspects had to be considered.
In this case, the employee’s employment was terminated within the meaning of Section 119 when Broadlex terminated her employment contract as a full-time cleaner. Since it was undisputed that Broadlex did so because it no longer needed this work, the employee was entitled to redundancy pay under Section 119.
Prosper Law is an employment law firm with experience in providing legal advice to employees and employers. We have extensive experience in dealing with employment matters.
If you are an employee whose position has been made redundant or an employer who wants to downsize your workforce and reduce labour costs, contact our employment contract lawyer for help.
Farrah Motley | Legal Principal
PROSPER LAW – Australia’s Online Law Firm
M: 0422 721 121
A: Suite No. 99, Level 54, 111 Eagle Street, Brisbane, Queensland Australia 4000
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