What is Redundancy?
Redundancy occurs when an employer terminates an employee’s position due to factors such as organisational restructuring, bankruptcy, business closure or downsizing due to financial difficulty. A genuine redundancy requires three things as outlined by the Fair Work Act:
- The position is unnecessary for the continued operation of the business.
- The employer must fulfil any obligations regarding communication with the employee in any applicable awards or enterprise agreements.
- The employer must make a reasonable effort to find a suitable alternative position for the employee within either their own or a related organisation.
In short, the employer must be making a position redundant, not the employee. 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. The employer must also communicate the redundancy and related information to the employee, including the reason for the redundancy and any options for redeployment. 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 to action for 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.
Redundancies can fall into two categories: voluntary or involuntary. A redundancy is involuntary when it is compulsory for the role to be made redundant and there are no options given to the employee. Voluntary redundancies occur when the employee agrees to their role becoming redundant. In these circumstances, the employer will often offer alternative role options and financial compensation to the employee/s becoming redundant.
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.
Employees who fit these criteria may be entitled to a redundancy payment. It is important for an employer to pay the correct amount of redundancy pay, calculated on their base rate for a specified period of time, increasing with their tenure up to 10 years. After 10 years 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
At least 2 years but less than 3 years
At least 3 years but less than 4 years
At least 4 years but less than 5 years
At least 5 years but less than 6 years
At least 6 years but less than 7 years
At least 7 years but less than 8 years
At least 8 years but less than 9 years
At least 9 years but less than 10 years
At least 10 years
What are the criteria for reducing a redundancy payment?
An employee is not always entitled to a redundancy payment. If an employee was contracted for a particular task or specified period of time, they are not eligible for redundancy pay. In cases where the employee is eligible, the employer may want to reduce or eliminate the amount of redundancy they are required to pay. They are able to apply to the Fair Work Commission (FWC) using 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
- The employer 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. Whilst the exact definition of a suitable alternative role is subjective, it is generally accepted that the conditions of employment cannot be significantly worse than the original role being made redundant.
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 awards and enterprise agreements 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.
What is a suitable alternative role?
When being made redundant, the employer must make a reasonable effort to find a suitable alternative role. There are several factors which help determine if a proposed redeployment is suitable. While it does not need to be identical to the current role, the alternative role must have comparable or equivalent conditions of employment. Simply put, the alternative role cannot put the employee at a significant detriment when compared to their original role. The alternative role must not contain a significant negative change in the following factors:
- The nature of the work
- Work load
- Expected pay
- Hours worked
- Job location
- Skills required
- Job security
- Any entitlements/accruals
The employee is able to reject the alternative role if they do not believe it is suitable as it does not fit the criteria above. Rejection of the alternative role offered does not automatically entitle an individual to redundancy pay; the role must be deemed an unsuitable offer under the Fair Work Act in order to decline the offer and receive a redundancy payment. If the employee does not believe that the alternative role is suitable they are able to decline the redeployment. The employer can then choose to pay redundancy to the employee, or if they believe that the alternative role was suitable they can apply to the Fair Work Commission to reduce or eliminate the redundancy payment to the employee.
- Redundancy is the termination of an employee’s position due to factors like organizational restructuring, bankruptcy, business closure, or downsizing.
- A genuine redundancy, as per the Fair Work Act, requires the position to be unnecessary for the business’s continued operation, the employer to fulfill any communication obligations with the employee, and the employer to make a reasonable effort to find a suitable alternative position for the employee.
- If all requirements for a genuine redundancy are met, the employee may be entitled to a redundancy payment.
- To reduce redundancy payment, the employer must find a suitable alternative role for the employee
- Suitable alternative role is determined by the nature of the work, work load, expected pay, hours worked, etc.
- If the employee declines the redeployment, the employer can either pay redundancy or, if they believe the alternative role was suitable, apply to the Fair Work Commission to reduce or eliminate the redundancy payment.
- Rejecting an alternative role does not automatically qualify an individual for redundancy pay; the role must be considered unsuitable under the Fair Work Act for the employee to decline the offer and receive redundancy payment.
Frequently Asked Questions
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 for benefits. If placed on ‘gardening leave’, you’ll serve your notice period at home, with the specifics of your activities and communications subject to your employer’s policies.
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, although immediate departure may limit your ability to retrieve personal materials from work devices.
Yes, redundancy is legal in Australia. It is governed by the Fair Work Act 2009 (Cth) and the National Employment Standards (NES).
Redundancy refers to the situation where an employer terminates an employee’s employment because the job the employee was hired to do is no longer required. This can occur due to various reasons such as technological advancements, changes in market conditions, or restructuring of the business. However, employers must follow certain procedures and meet specific requirements, including providing redundancy pay based on the employee’s length of service and age at the time of termination. Failure to comply with these requirements could lead to claims of unfair dismissal.
In Australia, redeployment refers to the act of transferring an employee, who is affected by redundancy, to a different role within the same organization. This typically occurs when a particular role or position is no longer required, but the company still values the employee’s skills and contributions.
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.
The feasibility of redeployment largely depends on the qualifications needed for the new role and whether the employee possesses them. While redeployment might not always be a viable option due to various factors such as location, job role, and employee skills, it is crucial for employers to consider it as part of their redundancy processes. This not only helps in retaining valuable staff but also in maintaining morale and productivity among remaining employees.
Yes, it may cause, however, not all the time.
Business restructuring in Australia can lead to redundancy, where certain roles filled by current employees become obsolete and are subsequently eliminated. However, the Fair Work Act provides several legal avenues for employers to avoid or lessen redundancy payments. These include offering voluntary redundancy, applying for a redundancy pay waiver if the employer has found alternative employment for the employee or cannot afford the redundancy pay. Employers can also be exempt from redundancy payments if they can redeploy the employee to a suitable alternative role, considering the employee’s skills, job nature, location, and remuneration.
No, the payment of redundancy pay is not required in all cases in Australia.
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
If there’s a change in your business situation needing a role you had earlier declared redundant, it’s advisable to wait at least three months before filling that role again. While there’s no legal requirement for a specific timeframe, a longer gap can demonstrate that your business’s circumstances have significantly changed.