Build for 2021 – Redundancy – what Employers need to know

The COVID-19 pandemic and the associated economic crisis are creating enormous challenges for employers. It is likely that many employers may need to consider restructuring their business, including making positions redundant, particularly with the JobKeeper Scheme ending, at this stage, at the end of September 2020.

Recent decisions of the Fair Work Commission are a clear reminder to employers that despite the current economic environment, employers are still required to comply with their legal obligations when making positions redundant. 

This Employment Update outlines how employers can minimise the risks associated with redundancy.

What is Redundancy?

A position is redundant when an employer no longer requires an employee’s job to be carried out by anyone.

Unfair Dismissal and Redundancy?

Many employees still bring unfair dismissal applications following a termination for redundancy.  The key to the defence of such a claim is that the dismissal is for genuine redundancy reasons.

What is Genuine Redundancy?

A genuine redundancy is where an employer no longer requires the person’s job to be performed by anyone because of changes in the operational requirements of the employer’s enterprise.

Employers should note that there is no problem with existing employees (or owners) absorbing the remaining duties of a redundant position.

Employers should note there are other considerations that may also call into question the genuineness of a redundancy.

What is NOT a Genuine Redundancy?

A redundancy may NOT be considered genuine:

  • if an employer cannot prove that the redundancy was due to necessary operational requirements or in some circumstances for the overall survival of the business; and/or
  • where an employer fails to comply with the consultative provisions in a modern award or enterprise agreement; and/or
  • if it would have been reasonable in all the circumstances for the person to be redeployed within the enterprise or associated entities of the enterprise.

Genuine Redundancy Steps

Step 1 – Business Case

Firstly, an employer should establish whether the position is one for potential redundancy.  This assessment should be supported by a prepared business case which clearly demonstrates the reasons why the position may no longer be required.

The business case should be prepared in writing, with a copy to be provided to the employee during consultation (although there is no obligation to provide commercial in confidence information).

Step 2 – Consultation

An employer must consult with the employee.  In doing so, the Employer must comply with any relevant provisions in any modern award or enterprise agreement that applies to the employee.

What is generally recommended is a two-step process of consultation and this usually involves two meetings with the employee.  In the first meeting the employer will explain to the employee the business case which supports the proposed or decided redundancy. The employee will then be given time to consider the proposed redundancy decision and/or how the employee considers their employment might be retained.  The employee is then usually informed of a second meeting where they will be given an opportunity to respond to the proposal and a discussion on retention of employment.  It should be clearly identified at this first meeting, that no final decision on termination of employment has been made.

At the second meeting, employees will often ask questions about the redundancy, but may also offer alternatives to redundancy or suggestions on other roles they may fulfil.  The employer must then genuinely consider the employee’s responses before moving to confirming any final decisions.

If there are no opportunities for reasonable redeployment, or the employee rejects any offer of redeployment, then an employer may move to confirming termination for genuine redundancy reasons.  The termination should then be confirmed in writing after the meeting.

Please note that this is a brief summary of the process. As a summary it is not comprehensive nor is it a substitute for proper and detailed advice on contemplated restructures and then how to conduct a redundancy consultation process.  Every redundancy situation is different, and employers should seek legal advice before undertaking this process. The same applies for the steps that follow.

Step 3 – Redeployment

It is an essential part of the redundancy process, that the employer considers whether there are any available positions within the employer’s business (or an associated entity of the employer) that the employee could reasonably be redeployed to.

Relevant matters for consideration include:

  • the nature of the available alternative position;
  • the qualifications required to perform it;
  • the employee’s skills experience and qualifications;
  • the location of the position in relation to the employee’s residence; and
  • the remuneration offered.

Employers could be at risk on the question of genuine redundancy if they do not offer employees any available alternate role the employees could reasonably fulfil (even for lesser paid roles, less senior roles or casual/part-time roles) before terminating an employee for redundancy reasons.

Notice of Termination

Once a decision to terminate employment for redundancy reasons is confirmed, the employer needs to address the employee’s notice period, and whether the employee:

  • is required to work out their notice period;
  • will not be required to work their notice period and instead will be paid a payment in lieu of the notice period; or
  • a combination of working out part of the notice period and payment in lieu of the balance of the notice period.

This should be confirmed with the employee verbally but then included as part of a termination letter following the consultation process.

Payments on termination for redundancy reasons

A critical part of confirming a termination for redundancy reasons, is making sure that the employee’s final entitlements are confirmed with them.

Redundancy Pay

An employee may be entitled to be paid a redundancy payment where the employee is terminated due to:

  • genuine redundancy; or
  • the business becomes bankrupt or insolvent

Redundancy pay is provided for under section 119 of the Fair Work Act 2009 (Cth) (‘the Act’) which is based on the employee’s period of continuous service with the employer.

The following are general exclusions to an employer’s obligation to pay redundancy pay under the Act:

  • the employee’s period of continuous service with the employer is less than 12 months; or
  • the employer is a small business employer (less than 15 employees);
  • Modern awards and enterprise agreements stipulate redundancy pay provided for in the Act do not apply;
  • Modern awards and enterprise agreements provide for alternate redundancy pay provisions / schemes.

Employers should note that some modern awards do provide for more generous redundancy entitlements than what is provided for under the Act (and some less).  In particular, some will provide that small business employers are obligated to make a redundancy payment, and / or some awards may provide redundancy payment entitlements to employees with less than 12 months service.  It is an essential step that employers check any relevant award for its redundancy provisions.

In certain circumstances an employer may apply to the Fair Work Commission for a variation to redundancy pay (including to nil). Legal advice is strongly recommended before considering such an application.

Other Entitlements

The employer must also pay to the employee:

  • Any outstanding wages / salary up to the final day of employment; and
  • Any untaken accrued annual leave entitlements;
  • Any untaken accrued long service leave (or pro rata long service leave) where the employee is eligible.

Potential Risks

With any termination of employment employers are faced with risk.  The most common claims made by a terminated employee are:

  • Unfair dismissal;
  • General protections; or
  • Discrimination (though much more rarely than the first two claims).

In April 2020, there was a 60% increase in unfair dismissal claims, which is clearly attributable to the swathe of redundancies in March at the onset of COVID-19.  We expect this trend to continue through to October 2020.

Contact Aitken Legal for assistance

If you are considering restructuring your business or making positions redundant, please contact one of our experienced employment law specialists to help minimise the risk of potential claims.

Disclaimer: The information contained this article is general and intended as a guide only. Professional advice should be sought before applying any of the information to particular circumstances. While every reasonable care has been taken in the preparation of this update, Aitken Legal does not accept liability for any errors it may contain. Liability limited by a scheme approved under professional standards legislation.