Genuine Redundancies – Law Overview for Companies

Practitioners in workplace relations law note an increased number of claims in both the Fair Work Commission and Federal Court by applicants contesting the validity of their termination by way of genuine redundancy. This increase in claims is likely brought on by the current economic climate and reduced jobs market in mining, which has forced a number of businesses to retrench workers due to operational requirements, general economic downturn and reasons relating to restructuring.

It is vital that all companies have a sound understanding of what constitutes a genuine redundancy at law, so as to avoid unnecessary claims and litigation by former workers that might otherwise be brought by way of unfair dismissal and/or breach of contract.

Genuine Redundancy

For businesses under the Federal employment system (such as for example, companies), there are 3 primary elements as to what constitutes genuine redundancy under the Fair Work Act 2009, which are as follows:

1. that the position (not the person) is no longer required to be done by anyone;
2. that the company consult with the affected worker prior to making any decision to make their position redundant, if a relevant Modern Award or Enterprise Agreement applies to the worker’s job; and
3. there are no suitable alternate positions available within the company’s enterprise to re-deploy the worker into, in an effort to avoid making the worker redundant in the first place.

When making the decision to make a staff member redundant, it is important that businesses ensure that the elements pertaining to what constitutes a genuine redundancy are satisfied in order to minimise the risk of potential claims being brought against the business.

The Federal unfair dismissal law covers most companies operating in Australia, and it is a recognised jurisdictional objection to a worker’s application for unfair dismissal remedy if the job was terminated for reasons of genuine redundancy.

One common trap for small and medium sized businesses when making terminations due to redundancy is failing to adequately consult pursuant to any relevant Award or Enterprise Agreement that otherwise covers their job. These documents commonly describe a minimum requirement of consultation that must be attended to when informing a worker that their position is required to be made redundant.

Final Pay

After a decision to make a worker genuinely redundant has been made, the company must attend to payment of severance, which usually includes the following amounts:

1. the relevant period of notice, as per the worker’s contract or the National Employment Standards (which is subject to the time the worker has been with the business);
2. any outstanding annual leave due and payable to the worker on termination;
3. a payment for redundancy as per the minimum requirement under the Fair Work Act, or the worker’s contract (whichever applies); and
4. any payment pursuant to any statutory long service leave that may have been accrued by the worker.

Exceptions to Pay Redundancy

There are also some common statutory exemptions that remove the obligation of the business to pay severance pay in some circumstances, including, but not limited to:

1. casual and fixed term workers;
2. staff whose job lasted less than 12 months;
3. workers covered by a specific clause in a Modern Award or Enterprise Agreement that may otherwise modify the severance payment due and owing to them in certain circumstances,
4. small businesses (i.e. usually companies with less than 15 staff); and
5. circumstances where a worker rejects an offer of suitable alternative job, which is offered on substantially similar terms overall to that of the now redundant position

Under the Fair Work Act 2009, it is also possible for a company to apply to the Fair Work Commission for the amount of redundancy pay due to workers to be reduced under certain circumstances, taking into account the financial hardship and operational environment of the company in question.

It is important that businesses seek advice on attending to their minimum requirements in relation to redundancy situations, as a failure to pay proper minimum redundancy pay may result in the business being fined and ordered to pay severe penalties for their breach of the NES, any relevant Award or any Enterprise Agreement.