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If a redundancy is not genuine, it will be unfair dismissal. If you run a business or manage people, chances are you’ll have to implement a redundancy at some point – but you need to be careful. Not only does the choice you make affect the life and livelihood of the employee involved, it can also be a treacherous legal area if you don’t go about things the right way. That’s why it’s essential that you’re fully aware of your employees’ entitlements and that you understand the many workplace laws that apply when it comes to redundancies and retrenchment.

By treating the issue with sensitivity and good strategy, you can lessen the impact on your employees and protect your business from costly legal disputes.

A redundancy occurs when an employer no longer requires a particular job to be performed by anyone due to changes in the operational requirements of its business. Retrenchment occurs when an employee’s employment is terminated because their job has become redundant. Simply put, an employee may be retrenched when their job is made redundant.

If the reasons for terminating the employee’s employment are not due to the employee’s role being redundant, the dismissal will not be a genuine redundancy and will not be exempt from unfair dismissal laws. A redundancy must meet the requirements of a ‘genuine redundancy’ as defined in the Fair Work Act 2009 (Cth).

Under the FW Act, a genuine redundancy occurs when:

  • a business no longer requires anyone to perform the employee’s role due to operational changes;
  • the employer has met its consultation obligations with the employee; and
  • it would not be reasonable to redeploy the employee.

A business may no longer require anyone to perform a role due to operational requirements, such as restructuring, downsizing, closing down and outsourcing.

Operational changes may result in a job being made redundant and the functions, or some of the functions, being restructured, e.g. the redundant role being given to another employee or split up between multiple employees.

Downsizing occurs when a business reduces its overall employee head count, usually to reduce labour costs. If an enterprise closes down part of its business, the jobs in that part of the business will become redundant. Those employees will be retrenched unless the employer can redeploy them. If a business closes down completely, all jobs in that business become redundant and the employees in those jobs are retrenched.

Outsourcing occurs when an employer decides to contract out a function of its business to a third-party provider. Jobs will be made redundant if a business outsources the work performed in those jobs.

Certain steps need to be taken to ensure the redundancy process is carried out effectively and legally, including to:

  • be clear about the case for redundancy, e.g. the operational reasons;
  • consider all alternatives to redundancy;
  • identify the employees who will be affected and determine your obligations to them;
  • consult affected employees about the redundancy – this is a legal requirement;
  • consider offering redeployment to vacant or newly created positions elsewhere in your business;
  • implement the retrenchment process – you must meet your legal obligations when implementing retrenchments, e.g. consultation, notice, etc.;
  • organise any payments and other benefits that you are legally obliged to give to retrenched employees.

All modern awards require an employer covered by the award to consult employees where a definite decision has been made to introduce major workplace changes that are likely to have significant effects on employees, including triggering redundancies. This requirement means that an employer must do the following two things as early as practicable after it has made a definite decision to make the changes:

  • provide written information about the changes; and
  • discuss redundancy and redeployment.

In consultation with the employee who an employer is considering retrenching, it must consider the possibility that the employee can be redeployed somewhere else within the business. Employers are legally required to redeploy the retrenched employee if redeployment is reasonable.

Employees who are retrenched may be entitled to redundancy pay and other pay entitlements – some of this payment may be tax-free.

The laws relating to redundancies can be tricky and need to be fully understood before an employer chooses to go down this path. 

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Employee retrenched for poor sales not unfairly dismissed: FWC

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In a recent Fair Work Commission (FWC) hearing, an employee who was retrenched for not meeting his sales targets argued that the termination of his employment was not a genuine redundancy and he was unfairly dismissed. The sales and marketing […]

By Portner Press on August 2nd, 2019

Your questions answered: Are we obligated to offer redeployment to a retrenched employee?

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Your questions answered: How should we select employees for retrenchment?

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Q To remain financially viable, we need to implement redundancies. The ‘last on, first off’ approach to selecting which employees to retrench has been suggested, as it will allow us to retain employees with the most experience. Is this lawful? […]

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Q: How do we make an underperforming staff member redundant?

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Your questions answered: Can we rehire into a position we previously made redundant?

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Q: Can we rehire into a position we previously made redundant?

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  Q One of our medical practices had a practice manager working for them for 16 years. However, the manager has been underperforming in their role for a long time. Unfortunately, this employee hasn’t been performance managed due to lack […]

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Your questions answered: Must we pay redundancy if an employee resigns before we advise about the redundancy?

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Q: Must we pay redundancy if an employee resigns before we advise about the redundancy? My opinion is that he resigned, so it is not payable.

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Your questions answered: Is an employee’s refusal to relocate reasonable?

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Your questions answered: Maximum redundancy pay

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Q: If we are going to make an employee redundant, is there a threshold/maximum amount that we need to pay when the employee’s salary is over a certain level?

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