Get it wrong and it may feel like a volcano exploding lava right in your face!
What is a Genuine Redundancy?
An employer may terminate an employee for reason of redundancy if the employer no longer requires the position to be performed by the employee or by anyone else due to operational requirements of the organisation/business (section 389(1) of the Fair Work Act 2009 (“the Act”)).
An employee’s termination for redundancy will not be genuine if it was reasonable in the circumstances for that employee to be redeployed within the employer’s enterprise or an associated entity of the employer (section 389(2) of the Act).
If the redundancy is not a genuine redundancy claims may be brought against the employer for:
- unfair dismissal (section 385(d) of the Act);
- breach of contract;
- breach of an industrial instrument (Award or Enterprise Agreement)
- discrimination; or
- other claim under the Act.
How can employers restructure without offending the Act?
When an employer terminates an employee’s employment due to redundancy, the employer must ensure:
- The redundancy is a genuine.
- All notice requirements have been complied with.
- A determination is made on whether or not the severance pay is payable.
- If severance pay is payable, the amount of severance pay to be paid.
- All requirements under any relevant aware or enterprise agreement are complied with.
- All contractual obligations are complied with.
- Payment in lieu of notice is paid in addition to redundancy pay (if the employee is not to work the notice period out).
Planning a Restructure – Who should be involved?
It is vital that when a restructure is being considered that the Human Resources Director/Manager/Co-ordinator (HR) is involved early. A failure to involve HR or bringing HR in at the last minute is often to the detriment of the organisation and contributes to staff unrest.
The first critical step in planning and preparing a restructure is to get HR advice early, where necessary, legal advice should also be obtained.
The matters to be addressed in the planning stage include:
- Knowing what the goals and strategies of the organisation are.
- Identify the reason(s) for the goals of the restructure: are they economically driven or is it about improving the organisations capability or getting better strategies.
- Identify the leaders for the various things to be done and establish accountability for each leader.
- Ensure the organisation has protocols in place about creation of documents and communication. Confidentiality must be maintained.
- Clearly identify the proposed change(s) and be in a position to articulate the goals and rationale for the change(s). It is essential that this is determined before any steps are taken in the redundancy process.
- Obtain legal advice on whether there are any matters to be addressed before you do what is proposed to ensure there are no legal restrictions.
- Establish a team to manage the project with clear guidelines in regards to authority.
- Establish a budget for the proposed change(s) to ensure that the change(s) are properly resourced.
- Identify when consultation should occur – do the changes involve significant or substantial change requiring consultation.
- Determine who will be affected by the restructure and therefore who must be consulted.
- Identify all stakeholders and what is to be communicated to those stakeholders.
- Establish realistic timelines for the process and identify key decision points.
- Prepare a consultation document setting out all necessary information about the restructure. The consultation document may be used as a guide for the discussions/consultation with those affected by the restructure.
- Prepare an implementation plan and communicate that plan to employees.
- Undertake a careful review of financial information required to justify the restructure. Ensure the information used is accurate and relevant.
- Implement a fair selection criteria for the retrenchments.
- Ensure you have a contingency plan for each step of the project.
Consultation as it is understood in an industrial context is not joint decision making. What is required is giving staff and their representative an opportunity, based on the sound knowledge of what is proposed, to influence the decision maker.
It should be noted that the Fair Work Commission may issue an injunction to restrain retrenchments where it is alleged that there has been a failure to consult.
Selection for Redundancy
Determining the criteria for selecting employees for redundancy is often difficult. This requires planning and careful thought not only to avoid disputes and unfair dismissal claims but also potential discrimination claims. Employers need to establish a fair and rationally based for the selection criteria.
The decision of Justice Gray in the Federal Court in National Tertiary Education Union v Royal Melbourne Institute of Technology  FCA 451 demonstrates the importance of adopting clear and transparent criteria for selection for redundancy to ensure that the selection decisions for redundancy are not tainted by subjective factors that might lead a Court to find that the practices involved in the selection for redundancy were designed to achieve pre-determined results.
In the RMIT decision, Justice Gray found that a Professor who had been selected for redundancy on the basis of alleged financial imperatives had, in fact, been targeted for other reasons and that the University had taken adverse action against the Professor.
The result was that the Court ordered the reinstatement of Professor Bessant. The Judge decided that reinstatement was appropriate because compensation that would otherwise have been awarded for breach of adverse action provisions would be significantly in excess of one million dollars and potentially up to two million dollars.
Redundancy Payments – Employee Entitlements
Termination of employment due to a restructure will usually give rise to a redundancy and therefore trigger payment of severance pay (unless exempt – see below).
The amount of severance pay will depend on the period of service and may also be dependent upon award, enterprise agreement and employment contract provisions.
The National Employment Standards set out the minimum entitlements for all employees.
Exemption to redundancy pay
There are some situations where basic statutory redundancy pay does not usually apply;
- where an employee’s period of services is less than 12 months (section 121(1)(a) of the Act);
- casual employees and employees employed for a specific period, task or season;
- apprentices and employees employed for specific duration under a trainee agreement;
- employees covered by an industry specific industrial scheme in an enterprise agreement or modern award (section 121(2) of the Act);
- small business employers (employing fewer than 15 employees excluding short term casual employees and including employees of associated entities) (section 121(1)(b) of the Act). There are however exceptions to this provision in some awards;
- where the employee rejects an offer of employment made by another employer which is substantially on the same terms and conditions as his/her previous employment (section 122(3) of the Act);
- where the employer finds the employee alternative suitable employment (section 120(1)(b)(i) of the Act); and
- where the employer cannot pay the amount (section 120(1)(b)(ii) of the Act).
Transfer of Business
Redundancy pay can sometimes be avoided or reduced in circumstances where an employer finds suitable alternative employment for the redundant employee.
A new role will not be considered comparable if it is inferior to the existing position, results in lower pay or duties, requires a different skill set or varies significantly from the redundant position.
Transfer to Lower Paid Duties
Transfer of employment to lower paid duties cannot occur unless agreed to by the employee concerned. If an employee is transferred to lower paid duties, arguably his/her position at the higher rate of pay is redundant.
Abandonment of Employment during the Notice Period
Where an employee leaves his or her employment during the notice period, he or she remains entitled to redundancy pay but cannot demand payment in lieu of notice for the balance of the notice period.
Redundant employees are entitled to time off during the notice period without loss of pay for the purpose of attending interviews. Generally, the maximum entitlement is one day during the notice period however some awards or enterprise agreements may provide for more than this. An employer may request proof of attendance at interviews.
Common Law Employment Contracts
If an employment contract provides for redundancy, which is more generous than the provisions of the NES, an Award or Enterprise Agreement, the parties are bound by the agreement in that contract.
Transfer of Business
If a restructure involves a transfer of business to another legal entity, there may not be an obligation to provide notice/notice payments or severance payments if an employer is merely transferring functions from one employer to another or from the employer to another controlled entity.
There is often a question whether superannuation contributions are payable in respect of severance and termination payments.
Minimum superannuation payments are payable on ordinary earnings. Generally speaking, superannuation calculations are not included in ordinary pay for the purposes of annual leave or redundancy pay (unless otherwise specified by the applicable industrial instrument).
In the Fair Work Commission decision in Aldred v J Hutchison Pty Limited  FWA8289 it was held that a construction worker who had been employed on a construction project at Docklands in Victoria was unfairly dismissed as the employer had failed to consider re-deployment of the employee to an alternative job in Queensland. This meant that the redundancy was not a genuine redundancy.
The Commission said that even where the employee does not raise the possibility of their re‑deployment to another position that does not relieve the employer from the obligation to explore re-deployment alternatives.
In the Aldred case, the employer had concluded internally that the employee would not want to move to Queensland because the employer’s policy was that it would not pay relocation costs therefore re-deployment to Queensland was not offered. The Commission found that the employee might have accepted a transfer at his own cost. Consequently, the dismissal was found to be unfair.
Fair Entitlements Guarantee
The Fair Entitlements Guarantee is a legislative safety net scheme of a last resort which provides assistance for:
- Wages up to 13 weeks of unpaid wages;
- Annual Leave;
- Long Service Leave;
- payment in lieu of Notice – maximum of five weeks;
- Redundancy pay – maximum of four weeks per full year of service.
There are certain time limitations for applications and caps on payments for this scheme.
What you need is a strategy for planning, preparing consultation, communication and compliance.