Redundancy: what are employers’ obligations?
The redundancy process can raise lots of questions, from how much redundancy pay is required, redeployment requirements, what is partial redundancy and how does the whole process work.
A genuine redundancy is when the role is no longer required. Redundancy generally arises out of an employer’s decision to implement significant change in their business due to a shift in operational requirements. This can be a work downturn, cutbacks, funding cuts or a restructure.
Where do my employee’s redundancy entitlements come from?
The National Employment Standards (NES) is the main instrument that sets out the redundancy provisions for national system employers.
Modern awards may also contain terms that are incidental to NES provisions but they cannot alter the NES provisions, except in the case of modern awards that contain industry specific redundancy schemes.
Where they do, the Act provides an express exemption to NES redundancy pay. Employers must apply both modern award and NES provisions, whichever is more generous.
Redundancy entitlements may also come from an employee’s Australian workplace agreement, individual transitional employment agreement, enterprise agreement, collective agreement, and/or company policy, custom and practice within the business from a contract of employment.
The employee must receive the greatest benefit of all the instruments that apply.
Redundancy provisions under the NES
The minimum redundancy provisions for national system employers are in the NES which is contained in the Fair Work Act 2009 (the Act).
The amount of redundancy pay is calculated on the employee’s period of continuous service and is paid at the employee’s base rate of pay for their ordinary hours of work, as per the below table:
|Employee’s period of continuous service on termination||Redundancy pay period (weeks)|
|Less than 1 year||Nil|
|1 year and less than 2 years||4|
|2 years and less than 3 years||6|
|3 years and less than 4 years||7|
|4 years and less than 5 years||8|
|5 years and less than 6 years||10|
|6 years and less than 7 years||11|
|7 years and less than 8 years||13|
|8 years and less than 9 years||14|
|9 years and less than 10 years||16|
|10 years and over||12|
The NES provides for some general exclusions to redundancy pay:
- Where the employee’s period of continuous service is less than 12 months;
- Small business employers (fewer than 15 employees);
- A modern award may include a term specifying other situations in which redundancy does not apply;
- Employees employed for a specified period of time, for a specified task, or for the duration of a specified season;
- Employees terminated for serious misconduct;
- Casual employees;
- Apprentices and trainees to whom a training arrangement applies for a specified period of time; and
- Employees to whom an industry-specific redundancy scheme in a modern award or enterprise agreement applies.
In a transfer of business situation an employee is also not entitled to redundancy pay if:
- The second employer will recognise the employee’s service with the first employer; or
- The employee rejects an offer of employment from the second employer that is on terms and conditions substantially similar to, and considered on an overall basis, no less favourable than, the employee’s current terms and conditions of employment; and
- The second employer will recognise the employee’s service with the first employer, and;
- Had the employee accepted the offer, there would have been a transfer of employment in relation to the employee.
Employers can apply to the Fair Work Commission for a determination to vary the redundancy pay if they obtain acceptable alternative employment for the employee or are unable to pay the amount.
Small business employer – who should be counted?
Up until 1 January 2011, the count was based on “full-time equivalent” employees. From 1 January 2011, the count is a simple “head count”. The count should also include employees of associated entities and the employee(s) who is/are being made redundant. If you require assistance in determining if you are a small business employer for redundancy pay purposes, please contact the CCIWA Employee Relations Advice Centre.
An employer may be obliged to make a redundancy payment in the following circumstances, even if they are exempt from redundancy pay:
- Where there is a specific entitlement to redundancy payments in the employee’s contract of employment
- Where the employee is covered by an industrial award/agreement containing such an entitlement
- Where the employer has a redundancy policy that provides for a redundancy payment
- Where other employees in similar circumstances have previously received redundancy payments
The redundancy process
When redundancies have been deemed to be necessary, the employer must advise affected employees of the decision to implement significant change as soon as practical after the decision has been made and discuss ways to minimise its impact.
There may also be a requirement in an award or agreement to advise employees likely to be affected by the decision. This may include where remaining staff will be required to absorb certain work tasks etc.
This notification should also be issued to affected employees in writing. Employers should consult the affected employees and, where required by the Act or an applicable industrial instrument, any relevant unions before effecting any termination decisions.
Modern awards and the Act set consultation requirements which employers are obliged to comply with. Failure to do so may result in difficulty defending future unfair dismissal claims and fines being incurred for breach of the Act or other industrial instrument and compensation or reinstatement to the employee.
As part of that consultation, employers may want to follow this process:
- Explain the reasons for the proposed changes.
- Explore and discuss alternatives to redundancy, for example:
- casual or part-time work
- changes in operating procedures
- transfer to another position
- job sharing
- voluntary retirement
- offering to employees to take accrued annual leave or extended unpaid leave.
The NES has an additional requirement that employers must explore alternative employment opportunities within the company and any associated entities.
- Give proper consideration to any employee suggestions or response.
In circumstances where an employer is obligated to consult employees, it is advisable for the employer to document these processes.
If redundancies still appear likely after these discussions, one or more employees may need to be selected from a group of employees all performing the same or similar work in a particular area.
An objective selection process must be used when determining which employee(s) to terminate. Selection criteria should be based on the employees’ conduct or capacity to undertake the remaining work.
Criteria used by the employer to determine which employees are retained and which employees are made redundant should be documented.
This is to assist in defending any claims made against the employer for discrimination or general protections or if the dismissal is found not to be due to a genuine redundancy, to defend against an unfair dismissal claim.
Below are some guidelines which employers may use, however, they are not exhaustive and their application will vary from case to case:
- Employers should apply criteria that focus on maximising productivity of remaining employees. Using criteria such as “last on, first off” may result in the loss of valued employees or may be discriminatory (e. an employee who has returned from parental leave recently who has many years’ experience would be at a disadvantage).
- An employee’s skills, qualifications and experience are legitimate selection criteria.
- Employers must ensure managers are involved in the selection process, that they understand the selection criteria and consult in accordance with any relevant industrial instrument before making recommendations.
- Care should be taken if performance records are relied on to select employees for retrenchment. It would be considered subjective for an employer to rely on personnel file records of an allegation against the employee where the employee was not afforded fair due process and provided with an opportunity to challenge or respond to that allegation. If the employee accepts the allegation, it is not unfair to take it into account when selecting employees for retrenchment. However, any subsequent redeeming conduct should also be taken into account. Employee records should be regularly updated so they can be relied upon in the selection process.
- Generally, full and part-time employees should be retained over casual and temporary employees.
- Selection criteria should not be based on discriminatory grounds such as race, colour, sex, age, marital status, family responsibilities, pregnancy, religion, political opinion or national extraction (except where such preferences are based on the inherent requirements of the particular position).
- Selection criteria should generally be made available to employees and, where relevant, the union.
Once an employee has been selected for termination, they must be informed of the decision. This should be in the form of a letter of termination outlining the reason for the decision and the termination date and giving appropriate notice or compensation in lieu.
Following the consultation process where an employee has been selected for termination due to redundancy, they must be informed of the decision. Notification of the pending termination, including the reason(s) for the decision and the effective termination date should be provided in writing to the affected employee(s) and, where appropriate, any relevant union. An employer must not terminate an employee’s employment unless they have given the employee written notice of the day of termination (this cannot be before the day the notice is given).
Modern awards may also contain consultation provisions and these must also be complied with. Please ensure you check your contracts, awards, agreements and policies and consider custom and practice for any other consultation requirements that may apply.
Notice of termination
In addition to redundancy payments, an employer must also give the employee at least the following notice (or compensation in lieu):
|Employee’s period of continuous service with employer at the end of the day the notice was given:||Notice period (weeks):|
|Not more than 1 year||1|
|More than 1 year but less than 3||2|
|More than 3 years but less than 5||3|
|More than 5 years||4|
*Increase the notice period by one week if the employee is over 45 years old and has completed at least two years continuous service.
Employers should be aware that there are certain categories of employees and certain scenarios in which employees are not entitled to notice in accordance with the table above. Should further information be required in relation to this, please contact the CCIWA Employee Relations Advice Centre or email firstname.lastname@example.org
Some awards, agreements or employment contracts contain greater notice periods than the above scale. Employees are entitled to the most beneficial notice provision.
An employer has the option of paying the employee in lieu of notice rather than have the employee work the notice period. When paying in lieu of notice, the employee must receive what they would have received had they worked the notice period. This means they need to be paid at their full rate of pay, which includes incentive-based payments, bonuses, loadings, monetary allowances, overtime and penalties, as well as superannuation payments.
In addition, the employer may be obliged to meet the following notification requirements.
The Fair Work Act 2009 requires that, where 15 or more employees are made redundant, notification be sent to:
- Centrelink: The notice must be in the form set out by the regulations and state the reasons for the terminations, the number and categories of employees likely to be affected, and the time when, or the period over which, the employer intends to carry out the terminations. This notice must be sent as soon as practicable, and it must be before any terminations are affected.
- Trade unions: Prior to any terminations, employers must give any relevant trade unions that are entitled to represent the interests of an employee an opportunity to consult the employer on:
- measures to avert or minimise the proposed terminations, and
- measures (such as finding alternative employment) to mitigate the adverse effects of the proposed termination.
- Trade unions: An employer must notify the relevant trade union(s) informing them of the proposed redundancies. The notification should contain the same details as for the notification to Centrelink. It is best practice to put this notification into writing so you can demonstrate compliance with this requirement.
Businesses should also check the relevant industrial instruments ie. award or agreement to ensure there are no further obligations in relation to this.
Like to know more?
For further information on how CCIWA’s employee relations advisers can help Members with redundancy strategies and formulating objective selection criteria, contact our Employee Relations Advice Centre on (08) 9365 7660 or email email@example.com.