Bona Fide Redundancy: Meaning Under Australian Employment Law

Redundancy is one of the hardest decisions you can make as a small business owner.

Even when the numbers don’t stack up or your business needs to change direction, letting someone go can feel personal - and it can come with legal risk if it’s not handled properly.

That’s where the concept of bona fide redundancy comes in. A bona fide redundancy (often discussed in Australian employment law as a “genuine redundancy”) is essentially a redundancy that is real, necessary, and carried out fairly and lawfully.

In this guide, we’ll break down what bona fide redundancy means, when it applies, and what practical steps you should take to protect your business and reduce the risk of disputes.

What Is Bona Fide Redundancy?

In plain English, a bona fide redundancy is a redundancy that happens because your business no longer needs a particular role to be performed by anyone.

This is different from dismissing an employee because of performance issues, misconduct, or personality clashes. With redundancy, the focus is on the role - not the person.

Bona Fide Redundancy Meaning (In Practical Terms)

A redundancy is more likely to be bona fide if:

• you’ve made a genuine business decision to change your operational requirements (for example, restructure, reduce costs, close a location, or introduce automation);
• the employee’s position is no longer required;
• you’ve consulted with the employee (where required); and
• you’ve considered whether there’s a reasonable redeployment option within your business (or associated entities).

From a small business perspective, the key idea is this: a bona fide redundancy isn’t a “convenient” way to end employment - it’s a necessary one.

When Is a Redundancy Bona Fide Under Australian Law?

Australian employment law often talks about “genuine redundancy” (including within the Fair Work Act framework). In practice, when small businesses use the phrase bona fide redundancy, they’re usually referring to the same core concept: a redundancy that is legitimate and defensible.

While each situation turns on its facts, there are a few core elements that matter in most cases.

1) The Job Is No Longer Required (Not Just the Person)

The starting point is whether the role genuinely disappears or changes so substantially that the original position is no longer needed.

Common examples for small businesses include:

• Downsizing due to reduced revenue or loss of a major client
• Restructuring to merge two roles into one
• Closing a location (for example, a retail store or service area)
• Introducing new systems or automation so fewer staff are needed
• Outsourcing a function you previously did internally

Be careful with “replacement by another person”. If you “make a role redundant” but then hire someone else to do essentially the same duties under a different title, that can undermine the argument that the redundancy was bona fide.

2) Consultation Obligations Are Met (Where Required)

Many modern awards and enterprise agreements include a consultation clause requiring you to talk to affected employees when you’re introducing major workplace change that is likely to result in redundancies.

Consultation is not just telling someone you’ve already decided. It usually means:

• notifying employees of the proposed changes;
• discussing the likely effects of the change;
• genuinely considering any feedback or alternatives raised.

Even where consultation isn’t strictly required (for example, if the employee isn’t covered by an award or enterprise agreement consultation term), it’s still a smart risk-management step. A short, respectful consultation process can make it much less likely the employee will feel blindsided - and more likely you’ll resolve issues early.

3) Redeployment Is Considered

A redundancy is less likely to be considered bona fide if you could have reasonably redeployed the employee into another suitable role (including in an associated entity, where applicable), but you didn’t properly consider it.

In a small business, redeployment might look like:

• moving a staff member to a different location;
• offering a similar role with adjusted duties;
• offering retraining (where reasonable) for another vacancy.

Redeployment doesn’t mean you have to create a role out of nothing. But if there is a realistic alternative and you ignore it, you can increase legal risk.

If you want to understand how this fits into the legal test, it’s helpful to read about section 389 (which sets out the genuine redundancy concept under the Fair Work Act).

Step-By-Step: How To Run a Bona Fide Redundancy Process

If you’re aiming to carry out a redundancy properly, it helps to think of the process as a checklist.

Below is a practical step-by-step approach we often recommend to small businesses. The exact steps may vary depending on your award coverage, enterprise agreement terms, and the seniority of the role.

Step 1: Document Your Business Reasons Early

Before you talk to the employee, make sure you’ve clearly recorded:

• what has changed in your business (financial results, client loss, restructure plan, closure decision, etc.);
• why that change means the role is no longer required; and
• when you made the decision (and who made it).

This documentation can be crucial if you ever need to show the redundancy was bona fide and not just a disguised dismissal.

Step 2: Check the Employee’s Coverage and Entitlements

Redundancy obligations often depend on:

• whether the employee is covered by a modern award or enterprise agreement (especially consultation requirements);
• their length of service and classification;
• whether you are a “small business employer” (generally fewer than 15 employees, calculated in a specific way); and
• any special contract terms.

It’s also important to calculate likely redundancy pay and notice. A quick starting point is a redundancy calculator, but you’ll still want to verify the numbers against the employee’s actual legal entitlements.

Step 3: Consult (If Required) - And Treat It As a Real Conversation

If consultation applies, don’t skip it or treat it as a formality. Set up a meeting and explain:

• the proposed changes;
• the reasons for them;
• the likely impact on the employee’s role; and
• any timelines (to the extent known).

Then, invite feedback. This can include proposals such as reduced hours, job-sharing, different duties, or redeployment.

It’s okay if the redundancy still proceeds, but you need to be able to show you genuinely considered alternatives.

Step 4: Assess Redeployment Options (And Record What You Considered)

In a small business, redeployment options might be limited - but you should still take the step of checking.

A helpful internal process is to list:

• current vacancies (even if informal);
• roles likely to become vacant soon;
• roles that could be restructured to fit the employee;
• any training that would make redeployment realistic (and whether it’s reasonable).

If you decide redeployment isn’t reasonable, record why (for example, no vacancies, the employee lacks required licences, or the role would involve a significant pay cut the employee wouldn’t accept).

Step 5: Confirm the Redundancy in Writing

Once consultation is complete and redeployment has been considered, you’ll usually provide a written letter confirming:

• the redundancy decision;
• the employee’s last day of employment (or notice period);
• their redundancy pay (if applicable);
• any payment for unused annual leave and other entitlements; and
• the arrangements for returning company property and a handover (if relevant).

If you’re planning to pay out the notice period instead of having the employee work it, make sure you understand payment in lieu of notice and what it should include.

Step 6: Pay Final Entitlements Correctly (And On Time)

Final pay issues are a very common trigger for disputes - even when the redundancy itself was legitimate.

Your final payments may include:

• outstanding wages up to the termination date;
• accrued but unused annual leave (and sometimes leave loading, depending on the employee’s arrangements);
• redundancy pay (unless an exception applies - for example, under the National Employment Standards, small business employers are generally exempt from redundancy pay, although awards, enterprise agreements, or contracts can still create obligations);
• notice or payment in lieu of notice;
• superannuation (which is typically payable on ordinary earnings, and may be payable on some termination-related payments like payment in lieu of notice, but is not usually payable on redundancy pay or unused annual leave - the correct treatment depends on what each component is).

If you’re not sure what needs to be included, it’s worth getting advice early so you don’t end up paying twice (once to the employee and again in time and legal costs dealing with a claim).

Common Risk Areas (And How To Avoid Unfair Dismissal Problems)

A bona fide redundancy can be a strong defence to an unfair dismissal claim, but small mistakes can quickly cause problems.

Here are some of the most common risk areas we see for small businesses.

Choosing “Who Goes” Without Objective Criteria

If multiple employees do similar work and you only need to reduce headcount by one, you should be careful about how you select the redundant role.

Good practice is to use fair, business-based criteria (and document it), such as:

• which duties are genuinely no longer needed;
• skills and qualifications required for remaining roles;
• business needs (for example, coverage across specific shifts or locations).

Be very cautious about criteria that could overlap with protected attributes (like age, pregnancy, disability, or family responsibilities). If the process looks discriminatory, you can face additional claims even if you call it a redundancy.

Using Redundancy To “Exit” a Performance Issue

This is a big one. If the real issue is performance or conduct, redundancy is usually not the right pathway.

Where possible, keep your HR processes distinct:

• Performance management is about capability and expectations.
• Redundancy is about business changes and the role no longer existing.

If you’re restructuring and the employee also happens to be underperforming, you’ll want to be extra careful with documentation and consultation so the redundancy doesn’t appear pretextual.

Not Having Clear Employment Documentation

When redundancies happen, misunderstandings about pay, notice, and role requirements often come back to what was (or wasn’t) agreed at the start of employment.

A well-drafted Employment Contract won’t remove redundancy obligations under Australian law, but it can help clarify practical details like duties, reporting lines, location flexibility, and notice provisions (where lawful).

Forgetting That “Small Business” Rules Can Differ

Many small business owners assume the rules are the same for everyone. In reality, some entitlements and processes can differ depending on your headcount, the employee’s coverage, and the reason for termination.

For example, under the National Employment Standards, a “small business employer” (fewer than 15 employees) is generally not required to pay redundancy pay. However, other obligations still apply (like notice and paying out accrued entitlements), and unfair dismissal and general protections claims can still arise if the process is poorly handled.

If you want tailored guidance, redundancy advice early in the process can save you a lot of stress later.

What Documents Should You Have Ready?

A bona fide redundancy is much easier to run (and defend, if needed) when your documentation is organised.

Depending on your business and the employee’s situation, you may want to prepare the following.

• Restructure/redundancy business case: a short internal note explaining the business reasons for the change and why the role is no longer required.
• Consultation notes and correspondence: meeting notes, emails, and any written feedback from the employee.
• Redeployment assessment: a record of roles considered and why redeployment was or wasn’t reasonable.
• Redundancy confirmation letter: a clear termination letter setting out dates and entitlements.
• Updated role descriptions/organisational chart: this helps show the restructure is real and supports the “role no longer required” position.
• Employment contracts and policies: so you can quickly confirm notice, duties, and any workplace procedures that apply.

If your redundancy forms part of a broader change (like updating duties, classifications, or work patterns), it may also be relevant to think about changing employment contracts carefully and lawfully.

Key Takeaways

• Bona fide redundancy means the role is genuinely no longer required due to business changes - it’s not about removing a particular person.
• A redundancy is more likely to be bona fide when you can show real operational reasons, you’ve met any consultation obligations, and you’ve considered redeployment options.
• Documenting your decision-making process early (business reasons, consultation, redeployment assessment) can significantly reduce legal risk.
• Final entitlements matter - underpaying notice, redundancy pay, or leave is a common reason disputes escalate.
• Mixing redundancy with performance management can create problems, so it’s important to choose the right pathway and follow a fair process.

If you’d like help running a bona fide redundancy process the right way (and reducing the risk of disputes), you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.