What You Need to Know about Redundancy

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  • What is Redundancy?

    In simple terms, this is where the position itself is no longer required. It implies no criticism of the worker. The needs of the company have changed, perhaps due to technological change, or a downturn.

  • What happens when a position is made redundant?

    Usually an employer is legally required to consult with their staff before making a decision to make a position redundant. Depending on the circumstances, this may not always be practicable.

    An employer must advise the worker of their redundancy in writing, usually in the form of a letter handed to them at the time that they are notified. In some cases the employer will require the employee to work through their notice period, in other instances, particularly where the employee may have contact in their job with important clients, or access to confidential information, the employer may require the employee to finish up straight away.

    The employer should give to the worker a Separate Certificate, which will assist the employee to apply for Centrelink benefits whilst they look for other work.

  • When is a redundancy not a true redundancy?

    Just because an employer says that a particular situation is a redundancy, this does not always mean it really is a redundancy. Sometimes, sadly, employers may take advantage of a downturn in business to “get rid of the dead wood”, meaning that they target those who are least well liked in the business rather than those whose positions are no longer needed. This may result in a sideways shuffle of other staff. In some instances, ex-employees will be distressed to find their old position advertised within weeks of their departure!

    Under the Fair Work Act 2009 (Cth), in order for there to be a bona fide redundancy, 3 criteria must exist:

    1. The position must no longer be required to be performed by anyone. This does not mean that the various roles required to be performed by that position must no longer exist. These can be dispersed amongst various other positions, or be given to a more junior employee if that is more suitable.
    2. The employer must comply with any requirements under an applicable Award, to consult. That is, where an employee is covered by an Award, the employer must inform the employee prior to making their position redundant and afford them an opportunity to provide any input on ways in which the redundancy may be avoided.
    3. Having regard to the employee’s qualification and experience, the employer must consider whether there are any comparable alternative roles within the organisation (or any of its subsidiaries) that the employee could perform. Where any such position exists, it must be offered to the employee.
  • What is payable when someone is made redundant?

    The Fair Work Act sets out the minimum amounts which must be paid. The amount depends on the period of service of the employee.

    There are two components to the payment:

    1. An amount in lieu of notice, which ranges from one week to five weeks depending on the period of service. This is not payable if the employee works through their notice period; and
    2. A lump sum redundancy amount, which ranges from four weeks to sixteen weeks depending on the period of service. An employee must work with a company for at least one year to be eligible for a redundancy lump sum.

    Some small businesses are not liable to pay redundancies. Small businesses and their employees should get specific advice on this to see if they are covered.

  • Payments above the Minimum

    Historically more senior employees, especially in larger companies, receive far more generous redundancy entitlements. It is not uncommon, for example, for an employee to be eligible to a lump sum calculated by reference to a number of weeks in lieu per year of service. Under that scenario, an employee of 15 years’ service, with a right to 4 weeks for every year of service, could receive more than one year’s redundancy pay. Some government and larger corporate employees still offer entitlements like this. If a person’s contract, or the HR policy of their company provides for more generous redundancy pay like this then this is a bonus. It is not open to an employee to say that it is unfair if they are only entitled to the statutory minimum.

    Executives who understand this area of the law will be careful to negotiate a general redundancy package as part of their contract of employment. This may be necessary because there are fewer jobs available in the marketplace at senior levels, and executives can often be unemployed for many months between positions, and may be heavily geared so far as their person’s financial commitments are concerned.

  • Tax concessions

    Termination in a redundancy context attracts a generous tax concession. Advice should be sought from an accountant as to how this applies. For some employees, the payment will be completely tax-free.

  • Consequences if an employer gets it wrong

    Where an employee is dismissed on the grounds of an alleged redundancy and the employer has failed to comply with the above criteria, the redundancy may be a sham and an employee may bring an Unfair Dismissal claim. You can find out more about Unfair Dismissal here.

  • We can help you

    If you have any questions about redundancy as it affects you or your business, we have decades of experience advising in this area. We can assist employers to develop an appropriate policy in this area, and help parties to interpret what may often seem conflicting policies and procedures. Please call us on (02) 9411 4466.


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