As a small business owner, you will have to make incredibly tough decisions regarding your employees – and any one decision could change your employee’s life. Sometimes, those decisions may involve lowering costs by terminating certain positions and further, making an employee’s position redundant. However, making a position redundant can only be done if it is genuine. If it isn’t, then an employee may be able to lodge a claim for unfair dismissal. In this article we’ll look at what genuine redundancy means and what the legal requirements are.
What is a Genuine Redundancy?
In order for a redundancy to be legal, it needs to be genuine. Fair Work Australia defines redundancy as:
- When an employer does not need an employee’s job to be done by anyone; or
- The employer becomes insolvent or bankrupt.
This can happen for many reasons, including the introduction of new technology, the physical relocation of the employer, or even when the employer just can’t run the business anymore.
A genuine redundancy as per the Fair Work Act 2009 (Cth) occurs when:
- The employer no longer requires the person’s job because of changes in operational requirements
- The employer has complied with any obligation in a modern award or enterprise agreement that applied to the employment to consult about the redundancy
Businesses are always changing and it’s understandable that some changes mean that certain jobs are no longer viable. Operational changes are the most common reason for redundancies to occur. These may include:
- Where the business is restructured. This may mean that an employee’s role is reallocated or divided amongst other employees. Sometimes, employers will restructure by combining two jobs into one broader role.
- Downsizing. For businesses in financial trouble, the first option is often to downsize. This means that the business will reduce jobs to reduce costs, and may even determine whether they are able to stay in business.
- Outsourcing, where jobs are moved to externally to reduce internal costs. Moving jobs externally can be significantly cheaper than continuing to employ in-house staff.
- Where a business closes down. This can happen if a business is insolvent or voluntarily on the part of the company’s directors or shareholders. For other businesses, a business owner may simply decide to shut-up shop.
When is redundancy not genuine?
Redundancy can only be genuine if the job is not required by the employer anymore. 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.
Employers need to consider whether an employee is suitable for another role within the business before proceeding with redundancy. This involves considering:
- If there are any available positions
- Whether the employee has the skills, qualifications, and experience to do the job
- Where the job is located
- Remuneration for the role
If there is no genuine redundancy, there may be scope for an employee to claim damages for unfair dismissal.
Giving Notice of Termination of Employment
Thus, if you or your company is in a situation where it is likely that an employee will be made redundant, you need to let them know of the changes that can impact them. Furthermore, you are obliged to consult with the employee where it affects them.
Additionally, if termination of the employment contract is certain, you must provide written notice of the employee’s end of employment. Moreover, this notice must be provided in line with the Fair Work Act 2009 (Cth). The minimum amounts of notice for employees are as follows:
|Employee’s Period of Service with Employer||Minimum Period of Time for Notice|
|Less than 1 year||1 week|
|More than 1 year but less than 3 years||2 weeks|
|More than 3 years but less than 5 years||3 weeks|
|More than 5 years||4 weeks|
If an employee has been made redundant genuinely, an employer is still required to pay:
- Outstanding wages for hours they have worked;
- Accumulated annual leave;
- Redundancy pay; and
- Annual leave loading or accrued leave, if applicable.
The Fair Work Ombudsman have a Notice and Redundancy Calculator on their website. This will allow you to easily calculate the amount of redundancy pay you are required to pay out where redundancy has been genuine.
So, if you would like to know more about your company’s obligations to your employees or would like an existing employment agreement reviewed, you should get in touch with an employment lawyer.