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Businesses can go through all sorts of obstacles and changes. While these challenges may lead to improved outcomes, they can also force tough decisions. Whether you’re relocating, downsizing, or introducing innovative automated processes as we move into 2025, you might be considering making an employee redundant.
Employers might choose either voluntary or forced redundancy if the employee’s role is no longer needed or if a strategic business restructure is required. It’s never an easy decision, 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 explain the difference between voluntary and forced redundancy and highlight key considerations before taking your next steps.
What Is A Voluntary And A Forced Redundancy?
Voluntary redundancy occurs when an employer offers an employee the option to be made redundant – typically with a financial incentive to encourage acceptance. This often happens when a business no longer requires the employee’s services, so they are given the choice to resign amicably.
Forced redundancy, on the other hand, leaves the employee with no choice. In this scenario, the employer terminates the position not because of any fault on the employee’s part, but due to circumstances beyond both parties’ control. The upside is that the affected employee generally receives severance pay, with the amount determined by their period of service (more on this later).
There may be instances where forced redundancy could be contested as unfair dismissal. Employees can claim unfair dismissal if they believe their termination was unjust. In such cases, they can report unfair dismissal to the Fair Work Commission under current 2025 guidelines and pursue legal remedies. Generally, you can defend against these claims if you follow a genuine redundancy process.
What Is A Genuine Redundancy?
Many employers face the challenge of having to make their employees redundant, and a common question is whether that redundancy is considered “genuine.” A genuine redundancy means that:
- The employee’s role has become obsolete due to structural, technological, or market changes
- The employer has engaged in a formal consultation process with the employee regarding the proposed changes
- There is no reasonable opportunity for the employee to be redeployed to another role within the business
- All reasonable measures have been taken to minimise the likelihood of redundancy
If your redundancy process does not satisfy these criteria, it may be deemed not genuine, thereby increasing the risk of unfair dismissal or general protections claims.
Can Employees Refuse Voluntary Redundancy?
Yes, employees have the right to refuse an offer of voluntary redundancy. This may prompt employers to consider forced redundancies instead, but you must ensure that any redundancy is genuine and complies with all legislative requirements in line with 2025 standards.
If you need to discuss your options regarding redundancy, 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 review what employers need to do when proceeding with a redundancy process in 2025.
Award or Registered Agreement
The National Employment Standards (NES) outline the minimum redundancy and severance pay an employee is entitled to upon redundancy. However, additional provisions may be specified in the relevant award or enterprise agreement, so it’s essential to review the award that covers your employee. For further insights, you might also review our Modern Award Analysis to ensure compliance with 2025 standards.
The amount an employee receives will also depend on their period of service with your business.
However, be aware that not all employees are entitled to redundancy pay – for instance, casual employees typically do not receive severance. If you’re unsure whether your employees qualify, you can read more here.
Lawful Criteria
Before deciding which employees to make redundant, you must establish an objective and lawful set of criteria. This approach ensures that the redundancy is genuine and reduces the risk of facing claims of unfair dismissal.
Consider asking yourself the following questions about each employee:
- What specific skills do they bring to the business?
- What measurable value have they contributed?
- How extensive is their experience?
- How has their performance been to date?
Once you have thoroughly evaluated these factors, it becomes easier to determine which roles are truly redundant. Objectively deciding which positions to eliminate will help your business move forward while minimising legal risks.
However, it is important to ensure that redundancies are not pursued for unlawful reasons, as doing so could lead to claims of unfair dismissal. Unlawful reasons include discrimination, retaliation against employees for raising workplace rights complaints, or targeting an employee due to their union membership.
Consultation
If you have reviewed your employee’s award or enterprise agreement, you may have noticed specific requirements regarding the consultation process. When you decide to make an employee redundant, it is essential to formally consult with them about your decision. This fair process is key to defending against potential claims.
As the employer, you should:
- Notify the employee about the proposed changes, even if the chance of redundancy is minimal
- Explain the steps you have taken to minimise the impact of the redundancy
- Invite and listen to the employee’s suggestions regarding the changes
Failing to adhere to a fair consultation process can leave your business vulnerable to unfair dismissal claims.
Given the dynamic nature of employment law and the evolving economic landscape in 2025, it is crucial to regularly review and update your redundancy policies. Consultation with legal experts, such as those at Sprintlaw, can help ensure that your procedures align with the latest Fair Work standards and best practices. This proactive approach not only reduces the risk of legal challenges but also supports a respectful and transparent transition for affected employees. For additional guidance, explore our insights in our Legal Requirements for Starting a Business resource.
Deed of Release
A Deed of Release (or Deed of Settlement) formally terminates the employment contract. It is good business practice to have the employee sign one during a voluntary redundancy, as this document details redundancy payments, entitlements, and releases both parties from any future claims. We’ve written more about what a Deed of Settlement should include here to ensure your process is robust and compliant with 2025 regulations.
Redundancy Payments
Employees are entitled to receive a redundancy payment, the amount of which is usually stipulated in their award or enterprise agreement. It’s important to verify these figures using Fair Work’s Notice Redundancy Calculator, which has been updated for 2025. Remember, the payment is generally based on the length of service with your business.
So, when is payment not required?
- If the employee has been with you for less than 12 months
- If you are a small business (fewer than 15 employees)
- If your business is undergoing a substantial restructuring due to market challenges, resulting in adjusted redundancy obligations
- If your business is being acquired and the new owner retains the employee
In some cases, if your business is facing financial hardship, you may apply to the Fair Work Commission to reduce the redundancy payments accordingly. It’s advisable to seek legal advice if you find yourself in such circumstances.
Can An Employee Take Legal Action Against Me With Redundancies?
As mentioned earlier, there is a possibility that employees might pursue legal claims, such as unfair dismissal based on discrimination or procedural unfairness. However, by ensuring you follow a genuine redundancy process – including executing a Deed of Release – you significantly reduce the likelihood of facing legal action.
If there is no Deed of Release and an employee takes legal action, your ability to defend your decision will depend on whether you carried out a genuine redundancy, complied with consultation requirements, and applied objective criteria in selecting employees for redundancy.
Next Steps
- Should I opt for voluntary redundancy, or is forced redundancy unavoidable?
- How can I ensure that the redundancy payments meet or exceed the award requirements?
- What are the implications if my business is undergoing an acquisition or significant restructuring?
Managing redundancies effectively can be challenging, particularly as employment law continues to evolve into 2025. Ensuring compliance with current legislation and maintaining a fair process is crucial for mitigating risks. For more detailed guidance, you may refer to our Legal Requirements for Starting a Business guide and explore additional employment law insights on Unfair Dismissal.
If you’d like to discuss your situation further or need personalised legal advice on managing redundancies, please don’t hesitate to contact us at team@sprintlaw.com.au or call us on 1800 730 617 for an obligation‐free chat.
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