What is a Redundancy?
A redundancy is considered a ‘no fault termination’ because it does not arise as a result of any personal act or default by an employee. An employee’s termination will be characterised as a redundancy where is occurs by reason of the employer no longer wishing the job or position to be performed by anyone. In this regard, the essential element of a redundancy is the disappearance of a job or position.
Whilst it is common that all the duties and responsibilities associated with the employees’ position will disappear, this is not always the case. It may still be a redundancy where the position is replaced with a new position that is created involving some but not all of the former duties/responsibilities or where the duties are simply divided between existing staff who have the capacity to take on additional workload. In this regard, whilst some (or all) of the duties are still being performed or work being done, the position occupied by the employee ceases to exist and has become redundant.
However, it is not a genuine redundancy where the employee is dismissed, and a position remains in existence that is taken up by someone else that essentially requires the same work or duties to be performed.
Why Are Positions Made Redundant?
There are many reasons why employers make positions redundant, commonly it is because:
- The employer is experiencing financial hardship and is compelled to reduce the size of its paid workforce
- The employer has restructured and that has resulted in certain work being performed in a different manner or in some work no longer being needed
- New technology means the work can now be done without the same human involvement
Employee Entitlements Upon Redundancy
The Fair Work Act mandates a minimum entitlement for National System Employees under the National Employment Standards. The amount of a redundancy payment will depend upon the employee’s years of service. Any redundancy payment made must be calculated at an employee’s ‘base rate of pay’ which typically excludes bonuses, loadings, allowances, overtime, penalty rates and any other separately identifiable amount.
Notwithstanding this, the Fair Work Act provides an exemption from redundancy payments for Small Business Employers subject to satisfaction of a number of requirements. Additionally, redundancy payments are not triggered if the termination is as a result of ordinary and customary turnover of labour which, again, requires satisfaction of a number of qualification tests. Further, where an employer is suffering significant financial hardship, applications may be made to the Fair Work Commission seeking orders permitting an exemption or reduction in redundancy payments.
As with the cessation of most employment arrangements, an employee must also be paid all accrued and untaken entitlements together with (where relevant) payment in lieu of notice.
Key Considerations for Employers
The Fair Work Act, National Employment Standard and most Industry Awards and Enterprise Agreements place various obligations upon employers when making a position redundant. The consequences for an employer for failing to comply with their obligations or getting it wrong can be severe and could result is costly unfair dismissal litigation and other claims and complaints being raised by the employee. In this regard, it is important that employers ensure they consult the relevant and applicable laws, Award or Enterprise Agreement and obtain legal and financial advice before taking steps towards a redundancy.
Some things for employers to consider include:
- That the employee is paid the correct redundancy payment together with all accrued entitlements.
- That all requirements under the Award or Enterprise Agreement have been complied with.
- That the redundancy is a genuine redundancy.
- As redundancy attaches to a position or job and not to a particular employee as a person, a redundant position not does automatically involve a dismissal of the employee and consideration must be given to and discussions had with the employee concerning possible redeployment options.
- A proper process of consultation has occurred, including that the employee(s) have been consulted about any proposed restructure as early as possible in the decision making process and had the opportunity to provide ideas and/or options and that all requirements of written notice of the restructure and proposal is put to employees.
If you are an employer seeking to make a position redundant, or are otherwise an employee seeking assistance, please do not hesitate to contact our Employment Law Team on (02) 4721 6200.
Written by Amelia Hatton.