Meeting Your Obligations in Relation to Redundancy

Peta Tumpey, Katie Simon , 12 May 2015

Peta Tumpey and Katie Simon outline the steps you need to go through as an employer to ensure you meet your obligations in relation to redundancy.

If you are planning on terminating an employee by reason of redundancy, you should ensure that the termination is a ‘genuine redundancy’. If the termination is rushed and not thought through properly, there is a high risk that it will not satisfy the legal requirements to be categorised as a genuine redundancy and your employee may have grounds to make an unfair dismissal claim in the Fair Work Commission.

Under the Fair Work Act 2009, a termination will be a genuine redundancy if:

  1. the employer no longer requires the role performed by the employee to be performed by anyone; 
  2. the employer has complied with its obligations under any applicable modern award or enterprise agreement to consult with the employee; and
  3. there are no suitable redeployment opportunities for the employee within the organisation or with any related entities.

This means that if you do not meet any one of the three factors set out above, the employee may have grounds to make an unfair dismissal claim in relation to the termination on the basis that the dismissal was not a case of genuine redundancy. 

This article sets out a simple guide to meeting your obligations in respect of redundancy under the Fair Work Act 2009. However, redundancy can be a tricky and technical area, so, if you are going through the process of making a role or roles redundant for the first time, we suggest that you consult with a workplace relations specialist or lawyer to ensure that you have taken all necessary steps.

1.   Is the role redundant?

Prior to making a role redundant, you should consider whether that role is truly redundant – that is, you no longer require that role to be performed by anyone. If you require an employee to continue to perform that same role it will generally not be a case of genuine redundancy. 

Redundancies often arise in organisations when the organisation needs to reduce headcount or implement other cost-cutting measures. In this case, the duties performed by an employee are often absorbed into other roles and the employee’s role is made redundant. If you are considering implementing these types of changes, you should ensure you clearly document the restructure, including the changes made to any affected roles within the organisation.

A&B Architects employs Martin as a senior architect to manage one of its largest clients, Big Industries. A&B Architects loses Big Industries to a competitor and as a consequence, A&B Industries no longer requires a senior architect to manage that client. In this case, Martin’s role is redundant.

2.   Have you consulted with the employee?

Often employers will miss this very significant step in a redundancy process and will inevitably subject the organisation to the risk of an unfair dismissal claim. Where you are considering making a role redundant and the employee that performs the role is covered by a modern award or enterprise agreement, you must comply with any obligations under those instruments to consult about the redundancy. If the employee is not covered by a modern award or enterprise agreement, you are not required to consult with the employee in relation to the redundancy. 

Generally, the consultation provisions in modern awards are consistent with each other. This means that regardless of whether the employee is covered by the Architects Award 2010 or the Clerks – Private Sector Award 2010, your obligation to consult will be the same. 

The steps employers are required to take to comply with their obligation to consult under a modern award are as follows:

Stage 1

The first stage should occur as soon as you make a decision to implement a major change that is likely to have a significant effect on any employees, such as resulting in the termination of their employment.

Once you have decided to implement a major change, you must notify the employees affected by the proposed changes and discuss those changes as soon as practicable. You should meet with the affected employees and advise them as follows:

  • The organisation proposes to implement a major workplace change and that the effect of this change would be that their role would no longer exist. You should also provide details of that proposed major workplace change;
  • The organisation wishes to consult with the employee in relation to the proposed changes, including considering his/her views on the proposed change and the effect it would have on his/her employment. 
  • You are required to provide the employee with information in writing during this stage. At the conclusion of your meeting with the employee, you should provide the employee with a letter confirming the above information.

Stage 2

Following the initial meeting and letter, you should arrange a second meeting with each of the affected employees a few days later. During this meeting, we suggest taking the following steps:

  • Ask the employee whether he/she has any views on the proposed changes and its effect on his/her employment;
  • Discuss with the employee any redeployment opportunities; and
  • Advise the employee that the organisation will consider his/her views and arrange a further meeting in a few days’ time to inform him/her of the organisation’s decision in respect of the proposed changes.

Stage 3

After the second meeting with the employee, you should consider any views expressed by the employee regarding the proposed changes and determine whether to proceed with the changes. If you decide to proceed with the changes, you should determine whether there are any suitable positions to which the employee can be redeployed (discussed in section 3 below).

Stage 4

As a final step, we suggest meeting with the employee to inform him/her of the organisation’s decision. If the organisation’s decision is to proceed with the change and there are no redeployment opportunities available, the decision will be to terminate the employment. You should inform the employee of this decision in writing. 

3.   Have you considered redeployment opportunities?

After you make a decision to implement a major change but before you terminate any employee who is affected by the change, you should consider whether there are any suitable redeployment opportunities for the employee within the organisation or within an associated entity. The definition of associated entity is very broad and includes subsidiaries, holding companies and entities associated because of other factors.

If opportunities for redeployment are not considered, there is a risk that the redundancy will not be considered a genuine redundancy and the employee affected may have grounds to make an unfair dismissal claim.

Redundancy pay

If an employee is dismissed by reason of redundancy, that employee will generally be entitled to redundancy pay in accordance with the National Employment Standards of the Fair Work Act 2009. The amount of redundancy pay will depend on the employee’s length of continuous service with your organisation. It is important to keep in mind that under the Fair Work Act 2009 ‘small business employers’ are exempt from the obligation to pay redundancy pay. A small business employer is an employer than employs fewer than 15 employees. For the purposes of calculating the number of employees of an employer:

  • employees of associated entities should also be counted; and 
  • casual employees should not be counted unless they have been employed on a regular and systematic basis.

There are also other factors that may affect an employee’s entitlement to redundancy pay, including where that employee is covered by a pre-modern award or enterprise agreement which provides for an entitlement to redundancy pay which is more generous than the Fair Work Act 2009.

This area of the law is currently a minefield and it only takes one critical step to be missed to result in compensation being awarded against an employer. We would suggest that you consult a workplace relations specialist or lawyer if you are considering implementing a major workplace change that may result in redundancies or if you are going through the redundancy process for the first time.

Peta Tumpey is a Partner at TressCox Lawyers. Katie Simon is a Solicitor at TressCox Lawyers. They invite readers to contact TressCox Lawyers if you would like more information about your obligations in respect of redundancy or would like assistance in any stage of the redundancy process,.

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