There are a number of reasons why the operational requirements of your business may change and why you may no longer require the services of an employee. It might be that you dismiss an employee due to a downturn in business, an internal restructure or as a result of introducing new technology that streamlines your operation. If you choose to make an employee redundant you need to understand the process and know your obligations to avoid litigation.
This article explains the meaning of redundancy; sets out the process of terminating an employee lawfully by way of redundancy; and explains what to do if you have an employment law or industrial relations concern.
What is Redundancy?
Redundancy is a situation where something or someone is no longer required because it is more than is needed. An employer need to decide a position is no longer required to be done by anyone and will become redundant.
What is a Genuine Redundancy?
In order for a redundancy to be lawful, it needs to be genuine. The Fair Work Act 2009 (Cth) states that a genuine redundancy occurs when:
the employer no longer requires the person’s job because of changes in operational requirements.
the employer has complied with the obligations of the relevant award, or enterprise agreement, to consult with the employee about the redundancy
Operational requirements
Businesses undergo constant change and operational change is the most common reason to make an employee redundant. Examples of operational change include:
Business restructuring
Downsizing
Outsourcing
Business closure
When is redundancy not genuine?
A dismissal is not a genuine redundancy if:
After an employee is dismissed, someone else is hired to do the same job.
The employer has not complied with the relevant requirements to consult with an employee 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.
If the dismissal of an employee is deemed not to be a genuine redundancy, they may be liable to a claim for damages for unfair dismissal.
The Process of Lawful Redundancy
Step 1: Communicate changes to the employees affected
Most awards and registered agreements require employers to consult with their employees regarding changes, including changes to production, organisation, structure or technology.
As an employer you should:
inform employees about changes within the business that may affect their working arrangements
provide employees with an opportunity to ask questions and provide input, and
consider all options and alternatives to redundancy, such as redeployment, job sharing and reduced hours.
Step 2: Find out about notice periods and redundancy entitlements
You are required to give an employee a notice of termination if you wish to make them redundant and your employee would also be entitled to certain entitlements. It is your obligation to get these details right and they can be complex. If you would like help with working out the correct notice periods, entitlements and support with the process related to making an employee redundant contact us.
NOTE: Redundancy does not occur because of the performance or conduct of the employee.
Step 3: Inform Centrelink
If you decide to end the employment of 15 or more employees and it is for reasons of an economic, technological, structural or similar nature (or if the reasons include any of these things) you must provide Centrelink with written notice of the dismissals.
Step 4: Create your letter of termination of employment
If an employee’s position becomes redundant you need to give the employee written notice of the termination of their employment.
The letter of termination should specify:
the reason for the termination of the employee’s employment
the notice period and whether the employee will be paid in lieu of notice
the date of the employee’s last day of work
details of the employee’s redundancy pay entitlements
any other entitlements to be paid (like annual leave and long service leave), and
that redundancy pay will usually result in waiting periods for any applicable Centrelink payments.
Step 5: Meet with the employee to provide notice of termination
Meet with the employee to inform them that they are being made redundant. You should carefully explain the reason(s) why the position has been made redundant and provide them with the opportunity to ask questions or provide input. Ensure the employee understands what redundancy means to them.
Step 6: Final Meeting
You should hold a final meeting with the employee to confirm the outcome of redundancy and issue a formal termination letter. This letter should confirm that the employee is being made redundant and set out the date from which the redundancy takes effect and the entitlements payable upon termination.
Key Takeaways
As a business owner or manager, you might have to make incredibly difficult decisions regarding your employees – and making an employee redundant is one decision that could change an employee’s life.
The decision to make an employee redundant can also involve complex legal issues and creates an increased risk of litigation for your business. If a court finds your dismissal of an employee as not being a “genuine redundancy,” or it is otherwise unfair, your employee might bring an action against you for unfair dismissal and this can be very costly.
As such, it is important that you seek legal advice in respect of any redundancy or severance situation which may arise in the context of your business. If you would like professional legal advice regarding redundancy, entitlements or any employment law or industrial relations matters, contact us.
This information is of a general nature and is not intended to substitute for legal advice. Should you require legal advice about any employment law or industrial relations matter please contact us.