Nobody wants to lose talented, loyal people. But the reality of 2023 is that tech giants and consulting companies have already cut over 10,000 staff, and your business may be about to do the same.
Latest ABS statistics show around one in 10 Aussies face a retrenchment annually as companies downsize.
Not getting it right exposes your business to the risk of an unfair dismissal claim by a disgruntled ex-employee.
Fortunately, you can take clear steps to ensure both parties separate on relatively amicable terms, protecting your business from unnecessary disputes.
(Related: How To Build And Sustain A Positive Work Culture).
What Is A Genuine Redundancy?
A genuine redundancy arises:
- When the position held by an employee is no longer required due to a change in operational requirements in the business, and
- Where the employer’s business is unable to redeploy the person to a different role.
Additionally, for a dismissal to count as a case of genuine redundancy, an employer must meet obligations under the employees’ award or enterprise agreement to meaningfully consult about the redundancy in advance of giving notice.
That means engaging with the employee before you axe the job, and offering them a real opportunity to influence the decision.
Failure to meet consultation requirements in accordance with a modern award or applicable enterprise agreement will contravene Section 45 of the Fair Work Act (which is a civil penalty provision).
What’s an example of a change in operational requirements?
Your business can consider layoffs when restructuring to increase efficiency, scaling down operations, integrating roles, changing direction, or reducing overheads due to a downturn in trade or revenue.
Other scenarios where redundancies may genuinely be on the table include:
- The person’s job can be automated and/or replaced with new technology.
- A major project has been completed.
- The business is relocating or closing operations.
- You determine that outsourced contractors are a better fit for the position.
To verify that the job cut is due to genuine redundancy, ask yourself:
- Is the employee’s job no longer needed due to changes in your business operations or declining demand for your goods/services?
- Have you communicated with your employee/team on awards or enterprise agreements about the fact that a position/s may be made redundant and listened to their feedback before making a decision?
- Have you made an effort to identify a suitable alternative position for the person within your business or a sister company?
One overarching question you need to ask to prevent serious repercussions:
What Is NOT A Genuine Redundancy?
The redundancy may not be viewed as genuine, and the employee’s dismissal can be deemed unfair if you:
- Need someone to perform the employee’s job, or
- Could have given the employee another job within the business.
Remember that redundancy must be focused on the unneeded nature of a person’s job and not the person who holds the job.
(Related: Create A Winning Talent Management Strategy).
Treating staff like they’re disposable will likely land you in hot water. Avoid the temptation to take shortcuts and misuse layoffs for:
- Reducing labour costs without any reduction in workloads.
- Firing problematic staff members.
- Avoiding redesign of jobs to account for workers’ changed needs
- Discriminating against specific people or groups.
Practices like that not only open your business up to unfair dismissal claims, but can also lead to stress claims and, more generally, poor morale among the remaining staff.
Even when implemented properly, layoffs are nearly always a controversial move, and one that is currently playing out in big tech companies, as this tweet from Josh Bersin clearly illustrates:
Your Checklist For Avoiding An Unfair Dismissal Claim.
Defending against dismissal claims is a time-consuming process. Fair Work Commission handles this process in Australia, and it usually takes between 5 weeks and a few months.
Avoid legal issues by:
- Keeping clear records about the changes you’ve made to business operations and the reasons behind them.
- Knowing and complying with obligations to consult with employees before acting, where mandatory under an applicable award or enterprise agreement.
Take the time to explore how you could potentially keep the person employed in an alternative role that:
- Aligns with the person’s skills and competencies. In other words, a job they’re capable of performing even if they needed some retraining first.
- Is comparable to their current role in terms of salary, tasks, seniority, and location.
However, it’s important to note, you should offer any available vacancy across your business or any associated entity that the person could potentially fulfil.
Where you’re still uncertain, seek professional legal advice.
Why Is Making Genuine Redundancy So Important?
A genuine redundancy is your protection against an unfair dismissal claim. As the Fair Work Commission points out:
When your reasons for ending someone’s employment comply with the law, you won’t have a case to answer.
- If an affected employee submits an unfair dismissal application, you can file an objection, claiming it was a genuine redundancy.
- It’s likely the application will be dismissed, and no further action will be taken.
If, however, the job cut is not a case of genuine redundancy, a hearing will be held. If you are unable to defend your dismissal, you may be required to:
- Give the person their old job back, or
- Compensate them financially.
How Much Notice Do I Need To Give To An Employee?
If you’re making a full-time employee redundant, you must either:
- Give an adequate amount of notice, or
- Pay out the notice period (depending on how long the employee has worked for the company).
The notice period is determined based on the number of years of employment. The National Employment Standards (NES) guidelines are below:
|Period Of Employment||Minimum Notice Period|
|< 1 year||1 week|
|1 – 3 years||2 weeks|
|3 – 5 years||3 weeks|
|> 5 years||4 weeks|
The employer must notify the affected employees of the termination date in writing.
How Is Redundancy Pay Calculated?
First of all, let’s establish eligibility for redundancy payments.
Redundant employees are NOT entitled to a severance payment if they:
- Have not worked continuously for at least 12 months.
- Were employed on a specific contract, project, or seasonal basis.
- Worked as a casual, trainee, or apprentice.
- Were terminated because of serious misconduct.
Redundant staff are also ineligible for redundancy pay if your business employs less than 15 people.
If you deem the employee facing redundancy eligible for redundancy pay, calculate the exact amount using the handy tool on the Fair Work website.
The general guidelines are as follows:
|Minimum Service||Weeks Of Pay|
|Over 10 years||12|
How Is Genuine Redundancy Taxed?
According to the ATO, a genuine redundancy payment is tax-free up to a limit depending on years of continuous service. It’s calculated using this formula:
Please consult this ATO page for 2023 base amounts.
Redundancy payments will be concessionally taxed as an employment termination payment (ETP) above the tax-free limit.
How Can I Support the Employee Being Made Redundant?
Emotional stories of layoffs after years of loyal service aren’t hard to find. These have the potential to cast your organisation in an unfavourable light, decreasing your ability to attract star talent.
Conversely, handling an employee’s dismissal with empathy and meaningful support elevates the employer brand in the eyes of past, current, and future employees.
I recommend that employers support outgoing staff with outplacement services to help them rebuild confidence and offer them the best chance to continue building their careers. These typically include:
(Related: What Are Outplacement Services?)
Frequently Asked Questions About Genuine Redundancy.
Learn about severance pay, time limits, consultation obligations and making employment lump sum payments.
Can I Reduce The Redundancy Pay?
Quite simply, no! Only the Fair Work Commission can decide to reduce the amount of redundancy pay based on the circumstances.
Is There A Time Limit For Hiring After Redundancy?
There is no statutory time limit for rehiring after a redundancy.
However, from a legal standpoint, the longer the period between the redundancy and position re-advertisement, the lesser the risk that the original redundancy decision could attract an unfair dismissal application from an employee.
What Is The Difference Between Awards And Enterprise Agreements?
Many of your employees’ employment conditions fall under an applicable modern award or an enterprise agreement.
- Awards describe the employee’s conditions of employment in the employer’s enterprise. Most cover entire industries (e.g., the hospitality industry or legal services). Wages, leave periods, and overtime conditions are typically covered.
- Enterprise agreements are similar to awards, but can be customised to a specific employer’s business. An agreement is a powerful instrument because it overrules an employee’s applicable award. To ensure fairness, Fair Work Commission reviews and approves all enterprise agreements in Australia.
What Is Voluntary Redundancy, And Why Is It Offered?
Redundancy will generally be positioned as voluntary rather than mandatory when the employer doesn’t want to choose a specific employee to retrench.
Also, a successful unfair dismissal claim against the employer is less likely when the employee enters this agreement by choice.
Does Business Size Matter?
Yes. The Small Business Fair Dismissal Code provides a checklist you can follow to ensure the redundancy is genuine in the context of your business size.
The majority of small businesses need to offer redundancy payments to their employees.
Employers must still pay a redundant employee their final pay entitlement under the applicable award or enterprise agreement, regardless of whether a genuine redundancy payment is due. This includes unpaid or owed wages, accumulated annual leave, and accrued long service leave (where applicable).
Final Takeaway On What Is A Genuine Redundancy.
Despite the turbulent business conditions of 2023 and an ever-evolving technological landscape that forces businesses to transform, loyal staff are an incredible asset.
Making an employee redundant can be a very costly and traumatic decision, especially when the employee has worked for the company for a long time.
Keep this top of mind: where it’s practical and within your scope of power and possibility, you must explore all available options to retain the employee.
A genuine redundancy is a last resort and must be carried out with respect and empathy for the humans involved. Managing dismissals thoughtfully is in your business’s best interest.