A genuine redundancy happens when an employer legally ends an employee’s job because it is no longer needed. 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 need to follow legal rules for a real redundancy to avoid being sued for unfair dismissal and paying compensation.
Similarly, employees must be alert to potential dangers to their jobs. Employees cannot be dismissed by employers using redundancy as an excuse.
In this article, we explain what genuine redundancy means, the legal requirements for redundancy, and answer some extra questions about redundancy.
A genuine redundancy means the dismissal of an employee by the employer because they no longer need the position in question. A real redundancy happens when a business changes its needs or becomes insolvent.
To ensure redundancy, the employer must communicate with the employee according to the award or agreement rules.
This means that the employer should follow the guidelines outlined in the award or agreement when discussing redundancy with the employee.
By adhering to these rules, the employer can ensure a fair and proper process for redundancy. This includes providing the employee with all necessary information and discussing any entitlements or options available to them.
Overall, following the award or agreement rules is crucial to have a legitimate redundancy process. More importantly, there must be no other job within the company or an associated company that the employee could reasonably perform.
Section 389 of the Fair Work Act sets out the three requirements for a ‘genuine redundancy’:
- the employer no longer needs the employee’s job because the employer’s business needs have changed.
- 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 considered the possibility of moving the person to a different job. The job could be within the company or a related organisation.
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 and not the employee. In other words, a simple renaming of the position that retains most of the duties does not give rise to a genuine 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 an employee challenges redundancy after a workplace change, the Court will consider the employer’s business needs. This will involve considering the necessity of the employee’s job in light of the employer’s operational needs. And it will include 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
An Award or a registered agreement covers most employees and employers, outlining 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 be genuine and meaningful and that employees cooperate.
What is reasonable in all the circumstances to redeploy the employee?
If an employer fails to offer redeployment to redundant employees, it may face legal exposure. The question of whether redeployment is reasonable depends on a number of circumstances.
Employers must explain why they didn’t provide other job options for laid-off workers.
To transfer someone, there needs to be an available position that matches their skills and abilities. They should be able to start right away or with some training.
The new position may have a different salary. It may also have different responsibilities or levels of authority.
Redeployment to a lesser role
While redeployment will ideally involve 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, the role should be offered to the employee. They can then decide whether to accept or decline.
An employee can refuse to move to a new job if it is much worse than their current job. However, unless other suitable redeployment options are available, the employer has met its redeployment obligations by making the offer.
The employee can still receive redundancy pay if the employer does not request the FWC to reduce or eliminate the pay. This is because the rejected job is considered a suitable alternative to the previous job.
‘Fit’ as a relevant consideration
The impact of redeployment on the work environment is an important factor in determining whether redeployment is reasonable. Instead of firing someone, a boss can move them to a different job in the same company or its associated entities.
The fundamental policy of this is underlying job protection. This means that dismissal should be a last resort. However, employers are not required to create vacancies or offer positions that are clearly unsuitable. Employers should properly weigh up available redeployment opportunities – and document how they have considered them.
How much redundancy pay
|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 of service. This is because at this point employees will have accrued an entitlement to long service leave.
*Keep in mind that small businesses that employ fewer than 15 employees do not have to give redundancy pay.
However, there are exceptions where the redundancy entitlement does not apply. For example, if an employee employed for a specified period of time, for a specified task, or for the duration of a specified season.
An employer should take reasonable steps to retain the employee. However, 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 consultation requirements provided in the relevant Modern Award or enterprise agreement
- has dismissed the employee in a way that is harsh, unjust or unreasonable
- has dismissed the employee for a prohibited reason
What are the legal consequences if redundancy is not genuine?
Redundancy can pose a risk to the employer if there is doubt the redundancy is genuine. If the dismissal is not genuine, a worker may succeed in an action for unfair dismissal.
The employer may need to provide financial compensation to the worker for various reasons. These reasons include being fired, losing their job, having unused vacation days, and possibly for their long tenure at the company.
Let us discuss these points in detail.
Unfair dismissal occurs when an employee is dismissed in a harsh, unjust or unreasonable manner. If a worker believes that he or she has been unfairly dismissed, they can sue their employer.
If the employment tribunal determines that a dismissal is unfair, the employer is unable to dispute it. As a result, the worker will be successful in their claim for unfair dismissal. The employer might have to give the worker their job back. They might also have to hire the worker for a different job and give them money as compensation.
The employer may even have to pay a fine.
If an employee has been dismissed for a prohibited reason, a redundancy is not genuine. This may occur when their role is terminated because of their race or religion, as well as other reasons.
There is no limit to the amount of compensation an employee can request in an adverse action claim.
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 non-taxed 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 following payments must be excluded 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 decisions have provided lessons for employers considering redundancies.
Ms McNichol worked at Shape, a construction company focused on refurbishment and fit-outs, based in Queensland. After her dismissal, she claimed that it was unfair and unjust. Here’s what happened:
COVID-19 hit Shape hard, reducing revenue and projects. To cope, they cut three jobs in Queensland and 25 across Australia. Ms McNichol’s role, as a project manager, was one of the three affected in Queensland.
Ms McNichol argued her job was still needed because her tasks were vital. She also said that past decisions, like internal promotions and secondments, made her job redundant. She had three main points:
If the internal promotion didn’t happen, they wouldn’t have cut her job.
The employees seconded should have returned before cuts.
Internal filling of positions would have saved jobs and allowed her to move.
The Fair Work Commission (FWC) looked at everything and decided Ms McNichol’s dismissal was a “genuine redundancy.”
On the first point, FWC disagreed with Ms. McNichol. Others did her tasks, but that didn’t mean her job was still needed.
On the second point, FWC said Shape didn’t have to bring back seconded workers just to save jobs.
For the third point, FWC looked at if other work was available. They decided it wasn’t reasonable to move her within Shape or its partners.
FWC also thought about a hiring freeze when making the decision. It said Ms McNichol’s redeployment wasn’t right given the situation.
In conclusion, FWC saw that Shape had valid reasons to cut Ms. McNichol’s job due to changing needs and business circumstances.
Mr Sharma, a customs clearance broker, took legal action against his employer, GTS Australia Pty Ltd (GTS) after he was let go. Here’s the situation:
GTS had money troubles in 2020, made worse by COVID-19. They reviewed things and found ways to save money, like cutting salaries and some roles. Two broker roles weren’t needed anymore, so they kept only one broker. Mr Sharma’s job got cut because he handled just 19% of the work while the other broker managed the rest (81%).
The CEO of GTS called Mr Sharma and told him he was let go due to job cuts. Mr Sharma filed a complaint, saying his dismissal wasn’t fair, especially because they didn’t consult him.
The Fair Work Commission (FWC) looked at everything and said Mr Sharma’s dismissal wasn’t a real job cut because GTS didn’t talk to him like they should have.
Requirement 1: FWC agreed that GTS didn’t need Mr. Sharma anymore because another broker could do everything he did.
Requirement 3: FWC thought about other jobs for Mr. Sharma but couldn’t find a suitable one.
But there was a problem with Requirement 2. GTS had to talk to Mr. Sharma about the decision, but they didn’t follow the rules. FWC said GTS should’ve told him and let him give his thoughts.
Since GTS didn’t meet the rules for a “real job cut,” FWC had to figure out if the dismissal was unfair.
Mr Phillips worked at Boeing Aerostructures Australia Pty Ltd (Boeing) as a material handler. Boeing, an aeroplane maker, got hit hard by COVID-19. Here’s the situation:
Redundancies were happening at Boeing. They said 12 material handler jobs would become nine. Mr. Phillips got a paper about leaving, pay, and how they’d rank employees. Mr. Phillips ranked third-lowest.
Boeing had a “mix-and-match” plan. If a person got cut, they could swap with a volunteer who matched them. Mr Phillips tried for this but didn’t fit the new job. The person picked for that job also declined, and Boeing cut it too.
Mr Phillips suggested a job, “pin cleaning,” but Boeing said no. He claimed his firing wasn’t a “genuine redundancy” because he could’ve done “pin cleaning” or the “mix-and-match” job.
The Fair Work Commission (FWC) looked at it all. They stated that Mr Phillips couldn’t do “pin cleaning” because it was outsourced and not available at the time. Even if it wasn’t outsourced, there wasn’t enough work for him.
FWC was uncertain whether he would be chosen for the “mix-and-match” job, even if the job remained available. FWC agreed Boeing met Requirements 1 and 2 (job changes and talking to employees). So, Mr Phillips’ firing was a “genuine redundancy.”
A commercial manager’s job was affected by company changes. Here’s what happened:
The employee was told about the changes. The company wanted to keep him, so they planned tasks for him in the restructuring.
But the employee said he didn’t want those tasks. He believed the law and his agreement didn’t force him into a new role. He thought his job was over due to the changes and left the company.
Later, he asked for a redundancy payout under the company’s agreement, which matched the law. This was because his job ended because of the company’s move.
Here’s the twist: His contract allowed changes in his job and location. He didn’t say that the company firing him meant his contract was over.
He kept going to work and getting paid after his job ended. The company still wanted him and had tasks for him. He didn’t say the new jobs were bad.
So, the court said the employee ended the contract. He didn’t get a redundancy payout under the law or the agreement.
Broadlex Services Pty Ltd was taken to court by the United Workers’ Union over redundancy pay. The court denied the employer’s appeal. The appeal was to avoid paying redundancy to an employee. The employee had switched from full-time to part-time without formal agreement.
Broadlex and Ausgrid reduced the cleaner’s working hours. Broadlex explained that due to an “operational requirement,” her status changed to part-time. As a result, her weekly hours went from 38 to 20, and her pay decreased by around 40%.
First, the court thought her old contract ended, and she started with a new one as part-time.
But, the employer said Section 119 of the law didn’t apply here. They argued “employment” meant the work relationship, not just the contract. They thought the worker’s employment kept going even if the contract ended.
In this case, the employee’s work ended under Section 119 when Broadlex ended her full-time contract. Since Broadlex did this because they didn’t need the work anymore, she got redundancy pay under Section 119.
Lesson for Employers
If you change an employee’s hours and they end up leaving, they might still be eligible for redundancy pay.
When thinking about job changes, consider work available “at the time.” Also, look at positions in your business or related ones. But an employer doesn’t have to bring outsourced work back into their business.
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 worker still has any duties to perform.
An employer is not required to restructure its business or operations to create duties for a worker 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 worker in that capacity.
How can Prosper Law help?
If you are unemployed or looking to downsize and save money, contact our employment contract lawyer for help. Our lawyer can assist you if you have lost your job or want to reduce your workforce and save money.
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