Businesses can go through all sorts of obstacles and changes. While this may lead to better outcomes, it can also sometimes lead to tough decisions. Whether you’re relocating, closing down or simply introducing automated processes, you might be considering making an employee redundant.
Employers might choose either voluntary or forced redundancy if their employees’ services are no longer needed, or if it is simply practical for the business’ future. It’s never an easy decision to make, which is why it’s important to understand all the details around redundancy packages and payments.
If you’re an employer looking to make your employees redundant for any reason, this article will cover the difference between voluntary and forced redundancy and what you’ll need to consider before taking next steps.
What Is A Voluntary And A Forced Redundancy?
Voluntary redundancy is when an employer gives an employee the option to be made redundant. Usually this will also come with a financial incentive (we’ll cover this shortly). This might happen when the business no longer needs the employee’s services, so they are given the choice to resign.
Forced redundancy, on the other hand, doesn’t leave the employee with an option. In other words, the employer terminates the employee, but it isn’t their fault. Rather, it’s due to something beyond the employee’s (and the business’) control.
The bright side is that the employee receives severance pay (although the amount they receive will depend on how long they’ve been employed by the business – we’ll talk more about this later).
There may be situations where employers choose forced redundancy, but it is actually Unfair Dismissal. Employees can make this claim if they believe that you’ve terminated their employment unfairly. If this is the case, employees can report unfair dismissal to the Fair Work Commission and take legal action against their employer. Generally speaking, you can defend yourself against these claims if you undertook a genuine redundancy.
What Is A Genuine Redundancy?
Lots of employers are faced with the reality of having to make their employees redundant, but a question that often comes up is whether that redundancy is considered ‘genuine’. A genuine redundancy would mean that:
- The employee’s role is obsolete due to changes
- The employer has consulted the employee about these changes
- There was no reasonable chance that the employee could undertake another position in the business
- Everything was done to minimise the risk of redundancy
If your redundancy process does not satisfy the above criteria, it may be considered ingenuine and you could face an unfair dismissal or general protections claim.
Can Employees Refuse Voluntary Redundancy?
Yes, employees have the right to refuse an offer of voluntary redundancy. This might encourage employers to turn towards forced redundancies, but you’d need to be sure that it is a genuine redundancy and that all the requirements are complied with.
If you need to talk to a lawyer about your options around this, feel free to reach out to the team at Sprintlaw for Redundancy Advice.
What Do I Need To Take Into Consideration When Proposing Redundancy Packages?
Now that we’ve covered the basics of voluntary redundancy, let’s go through what employers actually need to do when they’ve decided to go through with their decision.
Award or Registered Agreement
The National Employment Standards (NES) sets out how much redundancy (or severance) pay an employee will get following redundancy. However, this varies with each award or agreement, so it’s good practice to check the award your employee is covered by.
The amount they receive will also depend on how long they have been working for you.
However, be wary that not all employees are actually entitled to redundancy pay (for example, if you’re a casual employee you would not receive severance pay). If you’re not sure whether your employees are entitled to severance pay, you can read more here.
Before you decide which employees to make redundant, you need to consider an objective and lawful criteria. This way, the redundancy process will be genuine and there is a lesser chance of facing unfair dismissal claims.
Before you decide, ask yourself the following questions about the employee:
- What skills do they have?
- What value do they bring to the business?
- What is their level of experience?
- How have they performed in their position up to this point?
Once you’ve considered all these factors, it’ll be easier to decide which employees to let go. You’d need to be objective in considering which employees will actually help your business move forward.
However, it’s important to note that you cannot make an employee redundant for unlawful reasons, as these could lead to unfair dismissal claims against you. These include:
- Employee raising a complaint about their workplace rights
- Employee being a member of a union
If you’ve checked your employee’s award or enterprise agreement, you may have noticed some requirements about a consultation process. Put simply, when you decide to make an employee redundant, you need to make sure you formally consult them about the decision you’ve made. This way, you’re following a ‘fair process’.
So, what exactly does a fair process look like?
As the employer, you’ll need to do the following:
- Notify the employee of the changes you’re proposing (even if there is only a slight chance of them being affected)
- Tell them the steps that you took to minimise the effect of redundancy
- Listen to employees’ suggestions about the changes
If you don’t follow the consultation process correctly, this could leave you vulnerable when faced with any unfair dismissal claims.
So, how can I reduce the chance of unfair dismissal claims from the outset?
Deed of Release
A Deed of Release, or Deed of Settlement, formally terminates the contract between an employer and employee. So, it’s good business practice to sign one during voluntary redundancy since the employee will be leaving the business.
Generally, it should set out the details around redundancy payments and other entitlements. This termination will also provide protection against potential legal action on you following redundancy, since your employment relationship is now non-existent. In other words, you’re releasing each other from any future claims (we’ve written more about what a Deed of Settlement includes here).
As we mentioned, employees will need to receive some money when you make them redundant. While this amount is usually set out in their award, it’s a good idea to double check using Fair Work’s Notice Redundancy Calculator.
So, when is payment not required?
You may not need to pay your redundancy payments in any of the following situations:
- If your employee has been working for you for less than a year
- If you are a small business (which means you have less than 15 employees)
- If you are an SME that has been affected by JobKeeper termination
- If your business is being bought and the new owner is keeping the employees
Some businesses find themselves in a difficult financial situation and therefore unable to pay the correct redundancy amount. If this is you, don’t stress. You can contact the Fair Work Commission and make an application to reduce the amount of redundancy payments to be made to your employees.
Proposing redundancy packages requires careful consideration of a number of things. To ensure all the requirements are met, and to better defend yourself in case you are faced with any unfair dismissal claims, it’s worth checking advice written by Fair Work about what employers need to do.
Can An Employee Take Legal Action Against Me With Redundancies?
Like we mentioned, there is a chance that some of your employees will make claims against you such as unfair dismissal on the basis of discrimination. As long as you both sign a Deed of Release prior to the redundancy, they cannot take legal action against you (but it’s worth checking the agreement to ensure this is covered).
If there is no Deed of Release, and your employees take legal action against you, you’d be well equipped to defend yourself if you:
- Executed a genuine redundancy
- Complied with the formal consultation process (as set out in the relevant award or agreement)
- Used the objective criteria when deciding which employees to make redundant
Put simply, you can maintain that you followed a fair process in making your employees redundant and that there was no unlawful or unfair dismissal. However, these kinds of claims can get tricky depending on the circumstances. If you do find yourself in this situation, it’d be best to speak to a lawyer regarding your best options.
- Should I choose voluntary redundancy or forced redundancy?
- Can I pay less than what their award requires for redundancy payments?
- What if my business is being bought by someone else?
Managing voluntary redundancies can be a handful if you’re not aware of all the legal requirements and risks. If your business is in a situation where redundancy is the best solution, it’d be best to speak to a lawyer about how you can manage the process.
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