Redundancy arises when an employer no longer requires a particular role to be performed due to operational changes.
In many cases, employers attempt to minimise redundancy payments by offering a suitable alternative role to an employee whose position has become redundant.
This updated guide, by our employment lawyers, explains:
what constitutes a genuine redundancy under the Fair Work Act
how to determine whether a suitable alternative role has been offered
when redundancy pay is required
when an employer can apply to reduce or eliminate redundancy pay
Key Takeaways
If all requirements for a genuine redundancy are met, the employee may be entitled to redundancy pay.
To reduce redundancy pay, the employer must find and offer a suitable alternative role.
A suitable alternative role must be comparable in nature, workload, pay, hours, location, and security.
If an employee rejects the role, the employer may still apply to the Fair Work Commission (FWC) to reduce or eliminate redundancy pay.
Rejecting a role does not automatically entitle an employee to redundancy pay, the role must be reasonably unsuitable under the Fair Work Act.
Redundancy
Redundancy occurs when an employee’s position is terminated due to structural or economic changes—such as business reorganisation, insolvency, closure, or downsizing.
Redundancies may be either voluntary or involuntary:
Involuntary redundancy: the business decision is compulsory and the employee is not given choices.
Voluntary redundancy: the employee agrees to leave, often receiving financial incentives or alternative position options.
A “genuine redundancy” requires three things as outlined by the Fair Work Act 2009 (Cth):
- The position itself is no longer required for the ongoing operation of the business.
- The employer complies with any consultation obligations in relevant awards or enterprise agreements.
- The employer makes a reasonable effort to redeploy the employee into a suitable alternative position within the organisation (or associated entities).
In short, a redundancy must be about the job, not the employee.
Genuine Redundancy Requirements:
1. The position is no longer necessary
If the position is no longer required for the continued function of the business and will not be taken up by another employee, it fulfils the first requirement of a genuine redundancy.
2. The employer has communicated
The employer must also communicate the redundancy and related information to the employee, including the reason for the redundancy and any options for redeployment.
3. The employer has made an effort
The employer must undertake a reasonable effort to find a suitable alternative role for any employees being made redundant. If no effort is made, it is not a genuine redundancy and the employee may be entitled unfair dismissal.
If all three factors are fulfilled by the employer, the redundancy is genuine and the employee may be entitled to a redundancy payment.
Small businesses may also be required to pay redundancy in some instances.
Redundancy Payments
Redundancy pay is available to employees who fit the following criteria:
- The company employs at least 15 employees including any being made redundant
- Their position was part-time or full time
- They have been employed with the company for at least 12 months.
It’s important for an employer to pay the correct amount of redundancy pay.
The Fair Work Ombudsman outlines the redundancy pay as follows. You’ll see that after 10 years of service it decreases due to the employee becoming eligible for long service leave which will be paid out upon leaving their role.
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 |
Learn more about when a company has to pay redundancy in our article.
Reducing Redundancy Payments
Not all employees qualify for redundancy pay. For example, employees engaged for a fixed term or specific project are generally excluded.
In cases where the employee is eligible, the employer may want to reduce or eliminate the amount of redundancy they are required to pay. Employers are able to apply to the Fair Work Commission (FWC) using a form F45A to request a reduction in the amount of redundancy pay if the employer:
- has found a suitable alternative role for the employee; or
- is unable to afford the full redundancy amount.
The first avenue an employer can explore to reduce a redundancy payment is to have redeployed the employee to a suitable alternative roIe. This is explained further below.
The other way a redundancy payment can be reduced is if the employer cannot afford the full redundancy amount. This circumstance typically occurs when the redundancy is due to bankruptcy, business closure or business downsizing for financial reasons. In these circumstances,
Some modern awards and enterprise agreements also have their own industry-specific redundancy clauses which apply instead of the clauses within the National Employment Standards (NES). If the redundancy entitlements come from an industry-specific agreement, the FWC is unable to assist an employer in reducing the payment.
Suitable Alternative Role
A central requirement of a genuine redundancy is that the employer makes reasonable efforts to identify a suitable alternative role.
The role does not have to be identical, but must be broadly comparable. The following must not be significantly worse in the new position:
duties and nature of work
workload
salary and benefits
hours of work
job location
seniority and status
required skills
job security
entitlements or accruals
If the role would place the employee at a substantial disadvantage, it is unlikely to be considered suitable.
Employees may decline redeployment if the role is unsuitable. However:
saying “no” does not automatically guarantee redundancy pay
the FWC will consider whether the refusal was reasonable
employers can apply to the FWC to reduce or remove redundancy pay if they believe the role was suitable
For a recent update on how suitability is assessed, see our article: High Court Redefines Genuine Redundancy in Australia.
Frequently Asked Questions
Do I have to work a notice period if I was made redundant?
Even when your position has been made redundant, you might still be required to work during a notice period, which can be used to prepare for the transition, manage finances, and arrange replacements.
Alternatively, your employer may provide payment in lieu of notice, allowing you to leave immediately but still receive all salary and benefits for the notice period.
Is redundancy legal in Australia?
Yes, redundancy is legal in Australia. It is governed by the Fair Work Act 2009 (Cth) and the National Employment Standards (NES).
What is redeployment?
Redeployment means offering an employee a different role to avoid termination (through redundancy).
For instance, if a retail store in Sydney CBD is being shut down, but another branch in Paddington remains operational, the employer could offer the affected employee a position at the Paddington store, assuming it is a reasonable proposition.
Can restructuring lead to redundancy?
Yes, structural changes are a common reason for genuine redundancy.
Is redundancy pay required in all cases?
No, the payment of redundancy pay is not required in all cases in Australia.
Who is not entitled to receive a redundancy pay?
Employees who have worked for less than 12 months, employees employed for a stated period of time, an identified task or project, or a casual, trainee or apprentice are not eligible to receive a redundancy pay in Australia .
To know more, visit: Who doesn’t get redundancy pay? – Fair Work Ombudsman
When can a redundant position be filled?
Only if the business genuinely requires the work again – otherwise it may signal an unfair dismissal.
