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Big or small, all businesses may undergo changes – whether it be in size, structure, operations, or something else. While this may result in improvements and better outcomes for your business, it could also lead to some tough calls.
Introducing new technology or machinery, changing locations or restructuring your business may result in an employee’s role becoming redundant.
As an employer, it is important to know what your obligations are if you are looking to make your employees redundant. This article will take you through what your employees are entitled to when they are made redundant.
When Is A Redundancy A Genuine Redundancy?
An employee may be made redundant in two scenarios:
- When their employer no longer needs the employee’s job to be done
- When their employer becomes insolvent or bankrupt
The Fair Work Act 2009 defines “genuine redundancy” as:
(1) A person’s dismissal was a case of genuine redundancy if:
- the person’s employer no longer required the person’s job to be performed by anyone because of changes in the operational requirements of the employer’s enterprise; and
- the employer has complied with any obligation in a modern award or enterprise agreement that applied to the employment to consult about the redundancy.
(2) A person’s dismissal was not a case of genuine redundancy if it would have been reasonable in all the circumstances for the person to be redeployed within:
- the employer’s enterprise; or
- the enterprise of an associated entity of the employer.
Before you make someone redundant, you should make sure that the employee’s job doesn’t need to be done by someone else and you have followed the appropriate consultation processes required by an award of enterprise agreement.
What Is Not A Genuine Redundancy?
A dismissal will not be a genuine redundancy in the following circumstances:
- The job or role performed by the employee made redundant still needs to be done by someone. For example, you hire someone else to complete their job.
- You haven’t followed the relevant consultation requirements provided for by an award or agreement.
- It would have been reasonable to redeploy or relocate the employee to another job within your business.
It’s important to follow fair processes when making an employee redundant and ensure that any redundancy is a genuine redundancy. If not, the employee made redundant may take legal action against you for an unfair dismissal. If you find yourself in this situation, it is best to seek advice about what your options are from a lawyer.
What Is A Consultation Requirement?
Industry modern awards and other registered agreements provide for certain consultation processes to be followed where a business undergoes major changes, particularly if they are likely to result in redundancies. As a business owner, you should carry out these consultation processes as soon as possible after you decide to make these changes.
Consultation requirements may include:
- Notifying any employee who may be affected by the proposed changes
- Providing your employees with information about what kinds of changes your business will be making and the potential effects they have on their employment
- Having discussions with your employees about the actions that can be taken to avoid or minimise any negative consequences the changes may have on their employment
- Considering any ideas or suggestions your employees have in relation to the changes
Notice Of Termination
Most employees in Australia will be covered by the National Employment Standards (NES) contained in the Fair Work Act. This is in addition to any other award, agreement or contract.
For all permanent employees (that is, permanent part-time and full-time employees, but not casual employees), the NES sets out the minimum notice periods, or payment in lieu of notice, that an employer must give to an employee when ending employment. In addition to this, the NES outlines the redundancy pay employees are entitled to at the end of their employment.
Under the NES, you will not able to dismiss an employee without either:
- Providing them with the minimum period of notice; or
- Paying them in lieu of notice. This payment is equal to what the employee would normally be entitled to if they had worked the minimum notice period.
In most cases, you will need to give notice in writing. So, it is best practice to provide your employee with a letter stating their last day of employment in line with the notice period.
The minimum notice period an employee is entitled to is determined in accordance with how long they have been an employee:
| Period of continuous service on termination | Minimum notice period |
| 1 year or less | 1 week |
| Between 1-3 years | 2 weeks |
| Between 3-5 years | 3 weeks |
| 5 years or more | 4 weeks |
Note: If your employee is over 45 years old, they will be entitled to an additional week of notice if they have completed at least 2 years of service.
There are certain situations in which you will not need to provide any notice of termination to an employee, such as where:
- your employees are casual employees
- your employees have been employed for a specified period of time, task or season (such as with employees on a fixed-term contract or seasonal workers)
- you are firing an employee for serious misconduct
- there is a training arrangement in place and the employee is employed for a set period of time, or for the length of the training arrangement
- your employees are daily hire in the building and construction industry or meat industry
- your employees are weekly hire in connection with the meat industry and whose termination depends on seasonal factor
How Much Redundancy Do I Need To Pay?
Employees facing genuine redundancy are entitled to receive redundancy pay. The amount they are entitled to will depend on their continuous period of service with you, and is paid at their base pay rate for ordinary hours worked. As such, redundancy pay does not include any incentive-based payments and bonuses, loading, allowances, overtime or penalty rates.
| Period of continuous service on redundancy | Redundancy pay |
| Less than one year | Nil |
| Between 1-2 years | 4 weeks |
| Between 2-3 years | 6 weeks |
| Between 3-4 years | 7 weeks |
| Between 4-5 years | 8 weeks |
| Between 5-6 years | 10 weeks |
| Between 6-7 years | 11 weeks |
| Between 7-8 years | 13 weeks |
| Between 8-9 years | 14 weeks |
| Between 9-10 years | 16 weeks |
| 10 years or more | 12 weeks |
Who Doesn’t Get Redundancy Pay?
Some employees won’t be entitled to redundancy pay if their job is made redundant. You will not need to give redundancy pay to any employees you have made redundant if:
- They have less than 12 months of continuous service
- They have been employed for a specified period of time, season, task or project
- They are casual employees
- They are an apprentice or trainee
There are also some additional scenarios where you will not need to pay redundancy pay if you are a small business.
Do Small Businesses Need To Pay Redundancy Pay?
Most small businesses won’t have to. But certain industries will require even small businesses to pay redundancy under the relevant modern awards.
Are you a small business? Small businesses are businesses that employ less than 15 employees. Employees include all permanent part-time and full-time employees employed at the time of the redundancy.
Casual employees are not counted unless they are employed on a regular and systematic basis.
Modern Awards
Some industry modern awards create an obligation for small businesses to pay their employees redundancy pay. These includes:
- Black Coal Mining Industry Award 2010
- Building and Construction General On-Site Award 2010
- Joinery and Building Trades Award 2010
- Manufacturing and Associated Industries and Occupations Award 2010
- Mobile Crane Hiring Award 2010
- Plumbing and Fire Sprinklers Award 2010
- Textile, Clothing, Footwear and Associated Industries Award 2010
- Timber Industry Award 2010
You can use the Fair Work Ombudsman’s Redundancy Pay Calculator to work out if, and how much, you need to pay your employees if you make them redundant.
What If An Employee Brings An Unfair Dismissal Claim Against Me?
Generally speaking, if a redundancy is a genuine redundancy, then you will be in a good position to defend an unfair dismissal claim brought against you.
It is a good idea to keep written records of the processes taken when you have made an employee redundant, as they may assist in proving that you have treated the employee fairly.
If you are facing an unfair dismissal claim, it is always best to seek professional legal advice that is specific to your circumstances.
Need Help?
If you’re looking for advice around taking care of your employees when your business encounters change, speaking to a lawyer will help you explore your options and make sure you are meeting your obligations as an employer.
Get in touch with our team of expert lawyers on 1800 730 617 or team@sprintlaw.com.au for a free no-obligations consult.
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