Bona Fide Redundancy in Australia: What Employers Need to Know

Restructuring your team is never easy, but sometimes it’s the right call for the future of your business.

If you’re considering redundancies, it’s critical to understand when a dismissal will count as a bona fide (genuine) redundancy under Australian law. Getting this wrong can expose your business to unfair dismissal claims, civil penalties, and reputational damage.

In this guide, we’ll step through what a bona fide redundancy is, how to run a compliant process, what to pay, and the common pitfalls we see small businesses make. We’ll keep it practical and focused on helping you manage risk while treating your people fairly.

What Is A Bona Fide Redundancy In Australia?

Under the Fair Work Act 2009 (Cth), a dismissal is a “genuine redundancy” if three key conditions are met.

• Your business no longer needs the person’s job to be done by anyone because of changes in operational requirements (for example, a restructure, closure of a site, new technology, or merging roles).
• You complied with any consultation obligations in an applicable modern award or enterprise agreement.
• It was not reasonable in all the circumstances to redeploy the person within your business or an associated entity.

These elements come from Section 389 of the Fair Work Act. If all three are satisfied, the employee generally cannot bring an unfair dismissal claim (although other risks, like adverse action, may still be relevant).

Importantly, redundancy is about the job disappearing - not about performance or conduct. If the role still exists (and someone else will do it), that typically won’t be a bona fide redundancy.

When Is A Redundancy “Bona Fide” (And When Is It Not)?

Operational Change Must Be Real

You need a legitimate business reason for the change. Common examples include restructuring to cut costs, adopting new software that automates tasks, consolidating two roles into one, outsourcing functions, or relocating operations.

Keep records of the business case: budgets, board/owner decisions, org charts before-and-after, and the options you considered. This evidence will help if your decision is later questioned.

Consultation Is Not Optional

If a modern award or enterprise agreement applies, you must consult affected employees. This usually means notifying them of the proposed change, providing relevant information in writing, and genuinely considering their feedback (including ways to mitigate adverse effects).

Skipping or rushing consultation can undermine the “genuine” nature of the redundancy, even if your operational reasons are sound.

Redeployment Must Be Considered

Before finalising a redundancy, assess whether there is a suitable alternative role for the employee in your business or associated entities. Suitability is judged case-by-case: consider the employee’s skills, seniority, pay, location, and whether reasonable training would make the role viable.

Document what you searched, who you spoke with, and why roles were or weren’t suitable. The more thorough your redeployment search, the safer your position.

What About Unfair Dismissal?

If a dismissal is not a genuine redundancy, a former employee may bring an unfair dismissal claim. The Fair Work Commission will consider factors in Section 387 (such as procedural fairness). Ensuring your redundancy is bona fide - and your process is fair and well documented - is your best defence.

Step-By-Step: How To Run A Compliant Redundancy Process

Every business is different, but a structured process helps you make defensible decisions and treat people respectfully.

1) Build Your Business Case

• Identify the operational need: restructure, technology, cost pressures, closure, or role consolidation.
• Map the proposed structure and affected roles, and consider alternatives (retraining, natural attrition, contractor changes).
• Prepare evidence: financials, forecasts, and before/after org charts.

2) Check Consultation Duties

• Confirm whether a modern award or enterprise agreement applies to the employee(s).
• Prepare written information about the proposed change, the reasons, the likely effects, and proposed measures to mitigate those effects.
• Invite feedback and allow time for a genuine discussion before making final decisions.

3) Create Objective Selection Criteria

• If multiple employees hold similar roles, use transparent, business-related criteria (skills, qualifications, future needs, compliance requirements).
• Apply criteria consistently and keep assessment notes. Avoid criteria that could appear discriminatory (e.g., age, disability, pregnancy).

4) Explore Redeployment

• Search for vacancies in your business and associated entities (including different locations, if reasonable).
• Consider whether training would make a role suitable. Document offers and responses.

5) Communicate Clearly And Compassionately

• Hold meetings with affected staff, share the rationale, and outline next steps.
• Follow up in writing with proposed redundancy, consultation details, and timeframes.

6) Finalise The Decision And Issue Documentation

• Provide a formal termination letter, setting out notice (or Payment in Lieu of Notice), the last day of employment, redundancy pay (if applicable), and other entitlements.
• Attach any required documents (e.g., separation certificate, statement of service) and explain when final payments will be made.

7) Process Final Payments

• Calculate notice, redundancy pay, accrued annual leave (and leave loading, if applicable), and long service leave (per state/territory laws).
• Confirm tax treatment and superannuation obligations for each component.

Tip: Consider Alternatives First

Redundancy is a blunt tool. Before you pull that lever, consider reasonable alternatives that might preserve capability and reduce risk - for example, reducing hours by agreement, reassigning duties, or short-term changes to rosters. If these options are on the table, a thoughtful exploration can help show your decision was measured and fair. If you are negotiating shorter hours, this piece on reducing employee working hours sets out the legal steps.

What Payments And Entitlements Apply On Redundancy?

Entitlements will vary depending on the National Employment Standards (NES), any applicable award or enterprise agreement, and the employee’s contract. Here are the common components.

Notice Or Payment In Lieu

Employees are generally entitled to written notice of termination (or payment instead of notice). Notice periods depend on service length and age, and may be extended by contract or award.

If you’re working out timing, this guide to Notice Periods and when you can make a lawful Payment in Lieu of Notice is a helpful reference.

Redundancy Pay

Most permanent employees (not casuals) are entitled to redundancy pay based on their continuous service (the NES sets a sliding scale). Common exceptions include:

• Small businesses with fewer than 15 employees (generally exempt from redundancy pay under the NES).
• Employees with less than 12 months’ service.
• Some fixed-term, seasonal, or training arrangements.

Check the contract and any applicable award/enterprise agreement, as some instruments include more generous redundancy benefits or special rules for calculating service.

Accrued Leave And Long Service Leave

• Accrued annual leave (and applicable leave loading) is paid out on termination.
• Long service leave payout depends on your state or territory legislation and the employee’s service history.

Working through the numbers? Our overview on Final Pay steps through how to calculate and pay entitlements correctly.

Superannuation And Tax

In general, super is payable on ordinary time earnings like notice worked, but not on redundancy pay itself. Tax treatment varies by component (e.g., genuine redundancy payments may receive concessional tax treatment up to a cap). Your payroll and accounting tools - and advice from your tax adviser - should be aligned before you process payments.

What About Sick Leave?

Unused personal/carer’s leave (sick leave) is not paid out under the NES. However, manage health-related issues carefully during any consultation period - and consider whether reasonable adjustments, leave, or redeployment are appropriate in the circumstances.

Common Mistakes That Undermine A Bona Fide Redundancy (And How To Avoid Them)

1) Treating Redundancy As A Shortcut For Underperformance

Redundancy can’t be used to sidestep performance management. If the job still needs doing, removing the person and hiring someone else is not a genuine redundancy. Separate performance processes from structural changes.

2) Poor Documentation

Not keeping records of your business case, consultation steps, selection criteria, and redeployment efforts makes it harder to defend your decision. Create a simple file note after each key step and keep copies of letters, emails, and meeting notes.

3) Rushing Consultation

Consultation is a genuine back-and-forth, not a tick-box. Give employees reasonable time to respond and be open to alternatives, including training or adjusted duties. Even if your decision doesn’t change, showing real consideration matters.

4) Ignoring Redeployment In Associated Entities

Where you have associated entities, you must consider roles across that group if redeployment would be reasonable. Speak with relevant managers and keep a record of what was available and why it wasn’t suitable.

5) Unclear Selection Criteria

When multiple people hold similar roles, make sure you have objective, business-based criteria - and that those criteria were applied consistently. Avoid relying solely on “last in, first out” unless it makes business sense and isn’t discriminatory in effect.

6) Miscalculating Entitlements

Errors with notice, redundancy pay, or long service leave can be expensive. Double-check instruments and contracts, and align your payroll settings with the NES and state-based long service leave rules. If timing is tight and work needs to end sooner, consider a lawful Payment in Lieu of Notice with correct tax and super treatment.

7) Overlooking Unfair Dismissal Risks

Even where redundancy looks genuine, process flaws can elevate risk. Procedural fairness matters: timely communication, clear reasons, and proper records go a long way. If in doubt, review the factors in Section 387 and sense-check your approach.

Practical FAQs For Small Businesses

Do I Have To Offer Voluntary Redundancy First?

No, unless your enterprise agreement requires it. That said, inviting expressions of interest can be a useful way to minimise forced redundancies - just be clear that you’re not obliged to accept volunteers if it doesn’t suit the business.

How Do I Choose Between Employees In The Same Role?

Use objective, business-aligned criteria that reflect future needs: technical skills, qualifications, compliance requirements, productivity, versatility, and customer impact. Consult your award or agreement for any selection rules and document how you applied the criteria.

Can I Reduce Hours Or Pay Instead Of Making Roles Redundant?

Often, yes - if the employee agrees and any applicable award/enterprise agreement allows it. Start with a conversation, consider a trial period, and confirm any agreed changes in writing. For process and legal guardrails, see our overview on reducing employee working hours.

What Should Go In The Termination Letter?

Set out the reason (redundancy), last day of employment, notice (or payment in lieu), redundancy pay (if applicable), payout of accrued entitlements, and when final payments will be made. If an award applies, reference the consultation steps you followed and attach required documents (e.g., separation certificate).

Is There A Minimum Consultation Period?

The Fair Work Act doesn’t prescribe a fixed number of days, but awards and enterprise agreements include consultation requirements you must follow. The guiding idea is to allow a meaningful opportunity for feedback before decisions are finalised.

Next Steps: Set Up Your Process And Get The Numbers Right

Before you announce anything, map the steps, draft your communications, and prepare your calculations. A short planning session can prevent missteps that turn a straightforward restructure into a dispute.

• Line up your timeline and letters (proposal, consultation, outcome, termination).
• Check the applicable award/enterprise agreement for consultation and redundancy rules.
• Pre-draft your termination letter and run the numbers for notice, redundancy pay, and Final Pay.
• If you’re unsure on any step, it’s worth a quick chat about Redundancy Advice to tailor the process to your business.

When in doubt, pause and check your process. A compliant, respectful approach protects your business and supports your people at a tough time.

Key Takeaways

• A bona fide redundancy requires a real operational change, proper consultation, and no reasonable redeployment options under Section 389.
• Follow a clear process: build your business case, consult genuinely, apply objective selection criteria, explore redeployment, and communicate clearly.
• Get payments right: notice or a lawful Payment in Lieu of Notice, redundancy pay (if applicable), accrued leave, and long service leave.
• Common pitfalls include using redundancy to mask performance issues, weak documentation, rushing consultation, and miscalculating entitlements.
• Consider alternatives like agreed reduced hours before proceeding - and document your exploration of options to strengthen your position.
• If you’re unsure about process, awards, or entitlements, a short consultation on Redundancy Advice can help you avoid unfair dismissal risks and navigate timing and payments confidently.

If you’d like a consultation on managing a bona fide redundancy in your business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.