What Is Redundancy?
A redundancy occurs when a business no longer requires anyone to do the employee’s job, or because the employer is insolvent or bankrupt. There are many reasons why a redundancy may occur. Some examples include introducing an automated process to do the job or the business relocating or closing down. The result is that the employee, who no longer has any work to do, may have their employment terminated. A redundancy is not considered genuine if it occurs because of an employee’s performance or conduct, as the role is being made redundant, not the employee. It is important that employers follow a fair procedure for redundancy, including consultation with the relevant employee as to why the role is being made redundant and exploring options to keep the employee in the business. Failing to comply with these requirements makes it difficult to defend an unfair dismissal claim.
Genuine Redundancy
A redundancy is only exempt from unfair dismissal when the redundancy is genuine. A redundancy is genuine when:
the employer no longer requires an employee’s job to be performed by anyone because of changes in the operational needs of the employer’s business
The redundancy is made in compliance with the terms and conditions of a Modern Award or enterprise agreement that applied to the employment to consult about the redundancy. A redundancy is not genuine in circumstances where the employer:
hires someone else to do the same job as the employee who was dismissed
has not properly communicated with the employee and given fair notice under the Modern Award or agreement
has not made a reasonable effort to replace the staff member to another position in the company or explored other alternatives to redundancy
If an employer is unsure whether the redundancy is genuine or not, they should seek expert advice from a qualified practitioner or work relations specialist. To ensure a business not only satisfies its obligations, but avoids unnecessary disputes by troublesome employees, it is recommended that a formal consultation process is undertaken, which should be documented accordingly. An employer should not tell an employee that they have made a definitive decision until consultation has been completed.
Redundancy Payment
When an employee’s role becomes redundant, they may be entitled to a payment in lieu of their service being no longer necessary. The National Employment Standards (NES) usually set out a minimum redundancy or severance payment for permanent employees based on their length of service, though some awards or registered agreements may have Industry Specific Redundancy Schemes that set out different entitlements. Although not all employees are entitled to redundancy pay, if they are it usually depends on how long the employee has been employed with the business, even though it may have changed hands during their employment. Generally, for an employee to be eligible for redundancy payment, they have to had been working with the business for at least one year and the business needs to have fifteen or more employees at the time including the employees whose roles are being made redundant.
However, it is important that you check for any exceptions in the applicable Award or registered agreement as sometimes the employee will get redundancy pay irrespective of their length of service and regardless of the size of the business. Redundancy is paid at the employee's base rate of pay for the ordinary hours they would otherwise have worked over that period. This does not include any incentive-based payments or bonuses, loadings, allowances, overtime or penalty rates.
Period of continuous service. | Weeks of pay. |
At least one year but under two years | 4 |
At least two years but under three years | 6 |
At least three years but under four years | 7 |
At least four years but under five years | 8 |
At least five years but under six years | 10 |
At least six years but under seven years | 11 |
At least seven years but under eight years | 13 |
At least eight years but under nine years | 14 |
At least nine years but under 10 years | 16 |
At least 10 years | 12 |
You should also know that if an employee started work prior to the introduction of the NES on 1 January 2010, then their period of service for purposes of redundancy payment calculation will begin from January 2010, even though they may have been employed in the business before that date.
Redundancy – Notice on Termination
For a redundancy to be genuine there are some specific requirements which you need to stick to, specifically a consultation process. This is to try and encourage a positive relationship with the employee despite their imminent departure, but may also be necessary to comply with the Fair Work Act 2009, as awards and registered agreements require consultation with the employee before ending their employment. You must notify the employees of the proposed change to their employment, invite them to a meeting to further discuss the matter and take any suggestions the employee might offer to keep their job into consideration before making a final decision. As part of the consultation process you must offer the employee any vacant job within the business or an associated entity that the employee can reasonably do.
If ending employment because of redundancy, you need to give the employee written notice of the day of termination. An employer is required to give the employee a certain amount of notice, depending on how long the employee has been employed in the business. The employee can either work during the notice period or alternatively the employer must make payment of the notice in lieu, which is to be included in their final pay as well as any redundancy pay owing. Notice is paid at the employee's full pay rate as if they had worked the minimum notice period, so the notice can include incentive-based payments and bonuses, loadings, allowances and overtime or penalty rates. The minimum notice period in the NES is based on how many years your permanent employee has worked in the business continuously (continuous service).
Period of employment. | Minimum notice period. |
Less than one year | One week |
One – three years | Two weeks |
Three – five years | Three weeks |
Over five years | Four weeks |
You should take note at this point that if particular agreement or contract with an employee stipulates a longer notice period, then that is the notice period which needs to be applied. On top of this, it is important to know that if an employee becoming redundant is over 45 years old and has worked within your business for at least two years, they are generally entitled to an extra week’s notice, depending on the applicable award or registered agreement.
Who Does Not Receive Redundancy Pay?
Not all employees who are made redundant are entitled to redundancy pay. In some instances, redundancy payment is not necessary due to the nature of the employee’s employment arrangement or type. Instances of employment ending where redundancy payment is not required are outlined below:
Termination of employees whose period of continuous service with the employer is less than 12 months;
employees terminated because of serious misconduct;
employees employed for a specific period of time or for the duration of a project or season;
termination of trainees engaged only for the length of the training agreement
termination of casual employees
termination of apprentices
employees of a small business (depending on the circumstances).
If you are running a small business with less than 15 employees, you may find that you are exempt from redundancy payments. However, it is best to seek professional advice as there can be relatively significant business consequences for not handling redundancies properly.
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