In the dynamic world of business, it is often the case that changing operational requirements will necessitate structural changes to the workforce. Where these changes give rise to a redundancy, it is important that employers understand their legal obligations and follow the correct procedures when making employees redundant in order to avoid an unfair dismissal claim.
In particular, it is essential to ensure that the redundancy is genuine. A genuine redundancy has specific characteristics and elements. Where these elements are not satisfied your business may be subject to an unfair dismissal claim.
What is a genuine redundancy?
There are two components to a genuine redundancy. The first relates to how a genuine redundancy is actually defined:
A genuine redundancy is where an employer no longer requires an employee’s job to be performed by anyone because of changes in the operational requirements of the employer’s enterprise.
Note that the redundancy refers to the job or role, rather than the actual person filling the position. As such, it will not be a genuine redundancy where, for example, an employer hires someone else to do the original job or the employee is dismissed for reasons relating to their performance.
The second component to genuine redundancy is compliance with obligations to consult about the redundancy.
What are the consultation obligations?
All awards and registered agreements will have a consultation process in place for redundancies that sets out certain obligations that the employer must undertake as soon as possible after the decision to make changes to the business. These obligations are contained in the Fair Work Act 2009 (Cth) and include:
- Notifying the employees who may be affected by the proposed changes;
- Providing the employees with information about these changes and their expected effects;
- Discussing steps taken to mitigate adverse effects on the employees; and
- Considering ideas or suggestions made by employees about the changes.
Essentially, a consultation needs to provide employees with a genuine opportunity to learn of the proposed changes and to influence the decision.
Is there an obligation to redeploy employees?
Yes, it is also essential that an employer makes efforts to redeploy employees to another role within their business or an associated entity before making them redundant. Employers are obliged to redeploy employees where it would have been reasonable to do so in all the circumstances, or else it will not be considered a genuine redundancy.
When will redeployment be considered reasonable?
Whether redeployment is considered reasonable will depend upon the particular circumstances of the case. Nonetheless, the case of Ulan Coal Mines Limited v Honeysett [2010] FWAFB 7578 provides some guidance on what matters are considered most relevant in deciding what is or isn’t a reasonable effort.
In the Ulan Coal case, 10 mineworkers were made redundant following a company restructure. Fair Work Australia found that it was reasonable for Ulan Coal to redeploy six out of the ten mineworkers to associated entities. Further, it was held that it was not enough to merely assist employees in finding an alternate position, but that the employer must identify and effect the transfer.
It was found that the other four workers could not have been redeployed reasonably, owing to injury and unwillingness to travel to other available roles.
In coming to these conclusions about what was reasonable, the Commissioner found the following matters to be of particular relevance:
- the qualifications required to perform the job
- the employee's skills and experience
- whether the employee could be retrained within a reasonable period
- the location of the job in relation to the employee's residence
- the remuneration offered
Any vacant role which the employee is qualified to perform should be open for consideration, regardless of whether the job is in the same location, at a different level of seniority or less well renumerated. It is the responsibility of the employer to identify these potential redeployment opportunities and put them to the employee.
Can an employee’s duties be changed?
When operational requirements change, rather than making an employee redundant, you may instead want to change their duties to better fit your new business structure.
If this is the case, employees may claim that rather than a simple change to their duties, what has actually occurred is a redundancy of their previous role. If they are successful, then they may be entitled to redundancy pay and the employer will have to ensure they follow their genuine redundancy obligations to avoid an unfair dismissal claim.
The case of Gundi v Sensis Pty Ltd [2017] FCCA 1438 provides a good example of this. Mr Gundi was working as a Media Sales Advisor when he was informed that, as a result of a company restructure, his duties would be dispersed to other staff. He was also told that three new roles would be created in place of his position and he was redeployed into one of them. This new role was much more junior than his previous role and significantly curtailed his ability to make commissions. The court found that, in this context, Mr Gundi’s position had effectively been made redundant. As such, the employer was obliged to offer a ‘reasonable alternative position’. Because his previous role was significantly more senior than his new role, it was found that this obligation had not been satisfied and he was entitled to 30 weeks’ worth of redundancy pay.
What about redundancy pay?
Employees whose positions have become redundant are entitled to redundancy pay based on how long they have served in a continuous period with their employer. The amount is calculated in accordance with the employee’s base rate of pay for ordinary hours worked, with no allowances for incentive based payment, bonuses, loadings, monetary allowances, overtime or penalty rates.
The table below sets out the amount payable according to an employee’s continuous period of service.
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Period of continuous service
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Redundancy pay
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At least 1 year but less than 2 years
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4 weeks
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At least 2 years but less than 3 years
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6 weeks
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At least 3 years but less than 4 years
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7 weeks
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At least 4 years but less than 5 years
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8 weeks
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At least 5 years but less than 6 years
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10 weeks
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At least 6 years but less than 7 years
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11 weeks
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At least 7 years but less than 8 years
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13 weeks
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At least 8 years but less than 9 years
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14 weeks
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At least 9 years but less than 10 years
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16 weeks
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Note that once a worker has 10 years of service, the minimum payment falls down to 12 weeks’ pay. This reflects the fact that in most jurisdictions an employee with 10 years of service is entitled to long service leave of 2 months.
The redundancy pay will be in addition to any outstanding wages, notice payment, leave entitlements or other payments agreed to in the employment contract (such as commissions or bonuses) that also need to be paid upon dismissal.
Are there any exceptions to redundancy pay requirements?
Redundancy pay does not necessarily apply to all employees. Types of employees that will not receive redundancy pay include:
- Employees whose period of continuous service with the employer is less than 12 months;
- Employees specifically employed for a particular period of time, a particular task or a particular season;
- Employees of small businesses (a business with fewer than 15 employees).
Employers may also be able to apply for an exemption or reduction in redundancy pay where they have provided the employee with ‘other acceptable employment’ under the Fair Work Act. What constitutes ‘other acceptable employment’ will be assessed according to the particular circumstances of a case, though factors likely to be relevant will be how similar the work, pay and level of seniority are to the original role held by the employee.
Do any other obligations apply?
Some obligations are particular to the modern award or enterprise agreement that is relevant to the industry that the employee works in. Examples of obligations arising from redundancy that may only be found in the relevant award or agreement include obligations to give a period of notice or to give time off work.
For this reason it is important that employers check what awards or agreements apply to their employees and ensure they are meeting their obligations, especially when seeking to make a role redundant.
Summing up
Though it may seem a relatively simple concept, redundancy brings with it a number of important obligations for employers thinking about restructuring their business. Making sure you have a strong grasp of what these obligations are will be key to keeping your business running smoothly and avoiding an unfair dismissal claim.
