With economic uncertainty and recession affecting various industries, the possibility of having to reassess company budgets, including costs associated with running a workforce, is turning into a reality for many organisations. However, it is quite common for employers to be unaware of the legal risks and processes associated with making an employee redundant, and what obligations they may need to account for if faced with this difficult situation.
What is a redundancy?
Under Sect. 119 of the Fair Work Act 2009, a redundancy occurs where an employer no longer requires an employee’s job to be done by anyone. This may be due to a multitude of different scenarios including restructuring, outsourcing, closing down of a business or due to slow down of trade or sales. When a redundancy occurs, affected employees may be entitled to certain entitlements as per their award or the NES, such as redundancy pay, and a notice period for termination of employment.
What is a “genuine redundancy”?
One of the risks in a redundancy situation is that an employee will be able to claim unfair dismissal. However an employer has absolute defence to an unfair dismissal in the case of a “genuine redundancy”.
Demonstrating that the redundancy is a “genuine redundancy” involves several key aspects, which we explain more fully below.
Employees with over 6 months continuous employment (for businesses with 15 or more employees) or with over 12 months continuous employment (for businesses with less than 15 employees), will have access to make an unfair dismissal claim in the event their employment is terminated. To successfully mitigate this risk, an employer must ensure that any redundancy is a “genuine redundancy”.
To be classified as genuine, the following conditions must be met:
- The business must provide evidence that they no longer require the job to be performed by anyone because of changes in the operational needs of the business
- The business must fulfill any consultation obligations stipulated in the relevant modern award or enterprise agreement. This includes engaging in meaningful discussions with affected employees and their representatives to explore alternative options and minimize the impact of the redundancy. (Fair Work Act 2009 s.389(1)(b))
- The employer must make a genuine effort to consider suitable alternative employment opportunities within their organization or associated entities. This involves assessing whether there are vacant roles or positions that the redundant employee can be redeployed into. (Fair Work Act 2009 s.389(2)
If a redundancy is deemed genuine, an employee will be unable to make an unfair dismissal claim. In other words, if they do bring an unfair dismissal claim it will be dismissed so long as the Fair Work Commission agrees there was a genuine redundancy.
Although these factors are really only relevant in the context of mitigating an unfair dismissal claim, these requirements are generally considered best practice to follow in any redundancy situation.
Avoiding non-genuine redundancies
A non-genuine redundancy occurs when the employer fails to meet one or more of the conditions mentioned above, indicating that the redundancy was not legitimate. This could arise if the redundancy is used as grounds for terminating an employee for reasons unrelated to operational requirements, if the employer neglects their consultation obligations or if it fails to consider or offer suitable alternative employment.
To be clear, a redundancy will not be a “genuine redundancy” if the business:
- hires someone else to do the same job, in the same capacity or terms as the employee who was made redundant
- has not properly communicated and consulted with the employee in accordance with the consultation provisions in any modern award or enterprise agreement that applies
- has not made a reasonable effort to redeploy the staff member to another position in the company or explored available alternatives to redundancy
- has not based the redundancy on a genuine operational need, such as if the business were to make someone redundant because they are underperforming
In these instances, an employee would likely have cause to make an unfair dismissal claim (should they be eligible) and the business would fail to meet the test required in evidencing a “genuine redundancy” in dismissing such a claim.
Under Section 389(2) of the Fair Work Act 2009 (The Act), “A person’s dismissal will not be a case of genuine redundancy if it would have been reasonable in all of the circumstances for the person to be redeployed within:
- the employer’s enterprise, or
- the enterprise of an associated entity of the employer.”
In cases where an employee has access to make an unfair dismissal claim, it is important for businesses to consider genuine redeployment efforts to avoid potential claims being successful. If it is reasonable to redeploy the employee within the employer’s business or associated businesses and the employee is not offered this, the dismissal may not be considered genuine.
Whether the redeployment of an employee is considered reasonable will depend on the circumstances that exist at the time of the dismissal.
In determining whether redeployment was reasonable several matters may be relevant, including:
- whether there exists a job or a position or other work to which the employee can be redeployed
- the nature of any available position
- the qualifications required to perform the job
- the employee’s skills, qualifications, and experience, and
- the location of the job in relation to the employee’s residence and the remuneration (pay and entitlements) which is offered
It is important to offer a redeployment opportunity to an employee, even if it is lesser in status and pay, or if you expect they won’t accept.
It is also important throughout the redundancy process to ensure you are selecting employees on a factual and non-discriminatory basis, and to ensure you have adequate evidence to support this. Failing to do so may open up the business to the risk of a discrimination or general protections claim, particularly where you are deciding between employees with almost identical qualifications, experience and tenure.
The business needs to evidence how it fairly and reasonably came to select a position, and if more than one employee is performing the role, how it came to select one or more employees for redundancy.
Decisions cannot be made on protected attributes, such as selecting an employee on maternity leave purely on this basis. In some cases, a business may also have limited redeployment opportunities available. It’s crucial to avoid offering or not offering redeployment opportunities based on or related to protected attributes. We recommend reviewing the protected attributes summarised here by the Fair Work Ombudsman.
When faced with redundancies that impact only one role and/or one employee, the business may not need to consider a selection matrix, however, it is still recommended to have evidence of the business case. In cases where multiple roles and/or employees may need to be narrowed down, throughout the decision making and consultation process it’s important to consider and assess reasonable variables such as skills, tenure, salary, disciplinary record, qualifications, performance, KPI’s etc. The business should keep records of selection matrix criteria and assessment tools used to fairly select employees.
If an employer fails to fulfill their obligation to consult about redundancy as outlined in a modern award or enterprise agreement, it will not likely be considered a genuine redundancy. Consultations should be meaningfully conducted prior to making an irreversible decision to terminate employment. Consultation is not simply providing superficial advice on forthcoming actions; it entails offering individuals or other relevant parties a genuine opportunity to influence the decision-making process. The purpose of a consultation clause is to enable necessary changes to be implemented in a collaborative manner while fostering an exchange of ideas and perspectives between workers and managers to derive mutual benefits.
For example, in the case Harrison v Queensland University of Technology  FWA 8789 (Asbury C, 12 November 2010) the employee was dismissed when the subjects they taught at the university were discontinued. It was found that the employer failed to adequately consult with the employee regarding the redundancy and, in particular, the issue of redeployment. The Commissioner struggled to accept that redeployment options were genuinely considered without prior consultation or discussion with the employee before terminating their employment. Consequently, it was determined that the redundancy claim lacked legitimacy.
Understanding genuine redundancy and adhering to the legal obligations surrounding redundancies are essential for businesses. By following the conditions set out in the Act, consulting with affected employees, considering suitable alternative employment, and conducting the process fairly, organisations can avoid the risk of legal complications arising.
Redundancies may be influenced by various workplace factors such as employees who may be on periods of protected leave such as parental leave, transfer of business and workers compensation. It is always advisable to seek further advice to ensure compliance with the specific requirements of your industry and circumstances. Please reach out to the HR Connect team if you require any further information about redundancy within your business or if you require templates to assist you – such as letters to send to the employees, redundancy selection matrixes, etc.
We have also produced this helpful guide which sets out the process to follow in a redundancy situation and details employees’ rights to redundancy pay.
The information provided in these blog articles is general in nature and is not intended to substitute for professional advice. If you are unsure about how this information applies to your specific situation we recommend you contact HR Connect for advice.