A Comprehensive Guide to Employee Redundancy: Rights, Processes, and Entitlements

A Comprehensive Guide to Employee Redundancy: Rights, Processes, and Entitlements

Employee redundancy is a significant concern for both employers and employees alike. 

Maybe you are a business that had to cut down its budget and needs to make some of your employees redundant, or you are an individual recently laid off and trying to understand your legal rights.

Understanding the rights, processes, and entitlements associated with redundancy is crucial to ensure a fair and lawful transition. 

This comprehensive guide will explore the various aspects of employee redundancy in Australia, including different types of redundancies, relevant laws, redundancy entitlements, eligibility criteria for redundancy payments, and more. 

Read along

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Table of Contents

What is redundancy, and what factors contribute to redundancy? 

Redundancy occurs when an employee’s position is no longer required due to factors such as business restructuring, downsizing, or technological advancements. 

Redundancy can be painful for both the employer and an employee but is often required in the modern workplace, and economic factors, changes in market demand, and organisational restructuring are common contributors to redundancy situations. 

What is genuine redundancy? 

A genuine redundancy is when an employee’s job ceases to exist, and the employer has complied with certain legal requirements. To be considered genuine, the redundancy must meet specific criteria, including no replacement for the position and a reasonable attempt to redeploy the employee within the organisation. 

Based on the Fair Work Act 2009, Section 389, genuine redundancy is defined as follows:

  1. A person’s dismissal is a case of genuine redundancy if:
  1. the person’s 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; and
  2. the employer has complied with any obligation in a modern award or enterprise agreement that applied to the employment to consult about the redundancy.

Redundancy can only be genuine if the employer no longer requires the job. A dismissal is not a genuine redundancy if:

  • Someone else is hired to do the employee’s job.
  • The employer has not complied with the relevant requirements to consult with employees about redundancy. Informing an employee of the decision to make their role redundant does not amount to consulting with them. This is because consultation needs to occur before a final decision has been made.
  • The employer could have reasonably given the employee another job in the business. This applies to redeploying the employee within the current enterprise or an associated entity.

What is voluntary redundancy? 

Voluntary redundancy allows employees to control the terms of their departure from a company. When employers offer financial compensation in exchange for employees agreeing to terminate their employment, it creates a voluntary redundancy situation. 

This option is typically chosen by employers who prefer not to make the difficult decision of selecting specific employees for redundancy. 

Often, employees who have served for more than ten years or are senior members of the organisation will be the first to receive voluntary redundancy offers. 

Voluntary redundancy can be particularly attractive for employees who are approaching retirement or seeking a career change. It provides an opportunity to transition into the next phase of life or explore new avenues without the pressures of searching for a new job while still employed.

So, why should an employee consider voluntary redundancy? Firstly, it allows them to leave the company on good terms, avoiding the feeling of being forced out. By voluntarily accepting redundancy, employees can part ways amicably and maintain positive relationships with colleagues and employers. Secondly, financial compensation is provided as part of the package. This compensation can alleviate some of the stress and uncertainties associated with planning the next steps in one’s career.

Voluntary redundancy empowers employees to make choices regarding their career trajectory, exit the company on positive terms, and receive financial compensation. 

What is hybrid redundancy? 

Hybrid redundancy presents an alternative approach combining elements of voluntary redundancy with traditional redundancy methods, aiming to achieve optimal outcomes for employers and employees. 

While this approach may entail certain trade-offs in terms of associated benefits, it also helps mitigate risks. 

What is redundancy consultation with the employee? 

To ensure a fair and transparent redundancy process, consultation is a crucial step in voluntary redundancy. When a business plans major structural changes, including redundancies, it must engage in the consultation process. The specific requirements for consultation are outlined in the applicable award, enterprise agreement, or registered agreement. The general consultation process entails the following:

  • Notifying employees who may be affected by the proposed changes.
  • Providing employees with information about the changes and their anticipated impact.
  • Discussing steps taken to minimise negative effects on employees and avoid redundancy where possible.
  • Considering feedback from employees regarding the proposed changes.

It is important for employers to comply with consultation requirements to ensure that the redundancy is considered genuine. Failure to meet these requirements may expose the employer to claims of unfair dismissal.

What are redundancy laws in Australia? 

According to the National Employment Standards (NES), employers are obligated to give employees a minimum notice period or payment in lieu of notice before terminating their employment. 

All employees who fall under the jurisdiction of Commonwealth workplace laws have the right to receive redundancy or severance payments, with a maximum limit of 16 weeks’ pay under the NES, if the following conditions are met:

  • The employee has completed a minimum of 12 months of continuous service.
  • The employer has a workforce of 15 or more employees.

It is crucial to follow the proper consultation process before making employees redundant. The best practice process typically includes:

Notification

Initiate a meeting with the employee to discuss the proposed changes and their potential impact on their employment. Subsequently, provide a written notice outlining the redundancy proposal and invite the employee to a second consultation meeting, ensuring sufficient notice and offering the opportunity to have a support person present.

Consultation

During the consultation meeting, allow the employee to express concerns, provide feedback, and suggest alternatives to redundancy. Alternatives may include reducing work hours or utilizing accrued leave to mitigate the impact of a business downturn. 

Employers must also discuss reasonable opportunities for re-employment within the organisation. If re-employment is not feasible, communicate this to the employee while genuinely considering their input.

Outcome

Conduct a final meeting with the employee to confirm the redundancy decision. Issue a formal termination letter that clearly states the outcome of the redundancy and the entitlements to be provided upon termination.

How is the final pay and notice period during redundancy calculated? 

According to the National Employment Standards, employees (excluding casual employees) who have continuously served for more than one year are eligible for redundancy pay. 

The amount of payment they receive depends on the duration of their continuous service and their base rate of pay. However, it’s worth noting that a modern award, enterprise agreement, employment contract, or workplace policy may provide for a higher redundancy pay compared to the National Employment Standards.

To calculate your employee’s redundancy payment, you can use the formula 

Base Rate of Pay x Redundancy Pay Period = Redundancy Pay.

The base rate of pay refers to the rate that is payable to your employee for their regular working hours. It does not include additional components such as incentive-based payments, bonuses, loadings, monetary allowances, or overtime and penalty rates.

It’s important to consider that continuous service only encompasses the period in which you have employed the worker. It does not include any instances of unauthorised absence, unpaid leave, or unpaid authorised absence.

Period of continuous serviceMinimum notice period
1 year or less1 week
More than 1 year – 3 years2 weeks
More than 3 years – 5 years3 weeks
More than 5 years4 weeks

If you are still unsure about calculating redundancy pay, you can learn more here.

How are redundancy entitlements calculated in Australia? 

In terms of entitlements, when an employee is made redundant, they may be eligible for a redundancy payment, also known as a severance package. However, there are certain exceptions to consider. 

A redundancy payment typically includes compensation based on the employee’s years of service, payment for unused sick, annual, and long-service leave, and potentially payment in lieu of the notice period.

The period for which an employee works for an employer can help determine their redundancy pay. Here is a guide on how to calculate redundancy pay for employees based on their tenure:

Period of continuous serviceRedundancy pay 
At least 1 year but less than 2 years4 weeks
At least 2 years but less than 3 years6 weeks
At least 3 years but less than 4 years7 weeks
At least 4 years but less than 5 years8 weeks
At least 5 years but less than 6 years10 weeks
At least 6 years but less than 7 years11 weeks
At least 7 years but less than 8 years13 weeks
At least 8 years but less than 9 years14 weeks
At least 9 years but less than 10 years16 weeks
At least 10 years12 weeks*

*There is a reduction in redundancy pay from 16 weeks to 12 weeks for employees with at least 10 years continuous service. This is consistent with the 2004 Redundancy Case decision made by the Australian Industrial Relations Commission.

Are all employees eligible for redundancy payments? 

Certain exemptions apply to the obligation of paying redundancy pay. Small businesses with fewer than 15 employees are generally exempt, but this may be influenced by factors such as modern awards, enterprise agreements, contracts of employment, or company policies. Other exemptions include employees with less than 12 months of continuous service, employees under ceased fixed-term contracts, casual employees, and apprentices/trainees. 

However, it’s essential to review any industry-specific redundancy schemes. In summary, employees who are not eligible for redundancy pay include:

  • Casual employees
  • Employees employed for a specific period, task, or season duration
  • Employees whose employment is terminated due to serious misconduct

What happens when an Employee accepts a redeployment offer?

In the event that an employee accepts a redeployment offer for another position within the business or its related entities, the following conditions apply:

  • The employee will not be terminated
  • The employee is not entitled to receive redundancy pay.

Conclusion 

This article provides the required information to gain a thorough understanding of your rights and ensure a fair and lawful transition during redundancy. However, this process can be complex and time-consuming. If you would like to talk to an expert, you can hire one of our qualified lawyers today!

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