The current pandemic has caused several businesses to change the way they conduct their business. While some have shut down, others have restructured their teams. It is but natural in such restructuring for some jobs to be made redundant. If you have received a redundancy notification letter from your employer, you might have a case for redundancy pay or a reduced redundancy pay, depending on the facts and circumstances of your case.
This article seeks to explain in general terms the basics of redundancy and the legal avenues available to an employee in the event of his/her job being made redundant.
What is Redundancy?
The term redundancy has not been defined in the Fair Works Act 2009(Cth) (‘the Act’). However, the Court in the case of R v Industrial Commission of South Australia; Ex parte Adelaide Milk Supply Co-Op Ltd (1977) 16 SASR 6 has defined the term to mean as follows:
“A job becomes redundant when the employer no longer desires to have it performed by anyone. A dismissal for redundancy seems to be a dismissal, not on account of any personal act or default of the employee dismissed or any consideration peculiar to him, but because the employer no longer wishes the job the employee has been doing to be done by anyone.”
What this essentially means is that redundancy is an elimination of the role or job position rather than dismissal of the employee.
While the above definition has been referred to by Courts with approval in several cases, it is important to note that this definition is only explanatory and not exhaustive.
There can be several reasons for redundancy to arise. It can arise as a result of closure of a business, introduction of technological or organisational change, the sale of a business, the outsourcing of the business or as a result of the privatisation of a government undertaking. A redundancy may also arise as a result of restructuring of a business in order to make it more competitive. Further, it has been accepted that an employee’s position is redundant where the duties that go to make that position are split up and spread amongst other employees (Dibb v Commissioner for taxation (2004) 136 FCR 388.)
When is redundancy genuine and when is it not?
A genuine redundancy is said to have occurred when the employee’s job is no longer required to be done by anyone in the business. In addition, the employer is required to invite the employee to a consultation to discuss alternative employment options, if any. This requirement is usually as per the Modern Award, enterprise agreement or other registered agreements.
Generally, the consultation requirements include:
- Notifying the employees who are likely to be affected by the redundancy
- Informing the employees about the changes and effects of the proposed redundancy
- Discuss the steps taken to minimise or avoid the effects of the changes
On the contrary, a dismissal is not said to be genuine redundancy when the employer:
- Requires the employee’s job to be done someone else
- Has not followed the consultation requirements mentioned above
- Has not made reasonable efforts to employ the employee in another job within the business organisation or an associated enterprise.
What are the legal avenues available to an employee whose job has been made redundant?
When the redundancy is not genuine, an employee can make a claim for unfair dismissal.
However, in case of a genuine redundancy section 119(1) of the Act states that an employee is entitled to be paid redundancy pay by the employer if the employee’s employment is terminated:
- at the employer’s initiative because the employer no longer requires the job done by the employee to be done by anyone, except where this is due to the ordinary and customary turnover of labour; or
- because of the insolvency or bankruptcy of the employer.
Who is entitled to a redundancy pay?
Section 121 of the Act lays down exclusions to the type of employees who are not entitled to redundancy pay. The following employees are not entitled to redundancy pay:
- Employees whose continuous period of service is less than 12 months.
- Employees employed for a stated period of time or an identified task or project or a particular reason
- Employees dismissed summarily for serious misconduct
- Casual Employees
- Employees of a small business
In addition to the above, sections 119(1) (a) and (b) lays down an exception to the redundancy pay in cases where employees have been genuinely made redundant due to the ordinary and customary turnover of labour or because of the insolvency or bankruptcy of the employer.
How is redundancy pay calculated?
Redundancy pay is calculated on the basis of the continuous period of service of the employee with their employer. This amount is paid at the base rate of pay for ordinary hours worked. It is important to note here that the base rate of pay does not include incentives, loadings, monetary allowances, overtime or penalty rates. Section 119(2) of the act lays down a table to calculate redundancy pay as below:
|Period of continuous service||Redundancy pay|
|At least 1 year but less than 2 years||4 weeks|
|At least 2 years but less than 3 years||6 weeks|
|At least 3 years but less than 4 years||7 weeks|
|At least 4 years but less than 5 years||8 weeks|
|At least 5 years but less than 6 years||10 weeks|
|At least 6 years but less than 7 years||11 weeks|
|At least 7 years but less than 8 years||13 weeks|
|At least 8 years but less than 9 years||14 weeks|
|At least 9 years but less than 10 years||16 weeks|
|At least 10 years||12 weeks*|
Can redundancy pay be reduced?
Section 120 of the Act states that where there is genuine redundancy and the employer has obtained ‘other acceptable employment’ for the employee or the employer cannot pay the full redundancy amount, the employer can make an application to the Fair Works Commission to reduce the redundancy pay.
While the application for reduced pay is made by the employer, the award of such reduced pay is entirely at the discretion of the Fair Work Commission as per section 120(2) of the Act and the Fair Work Commission has the discretion to reduce the redundancy pay to nil.
When is redundancy pay reduced?
The first step for reduced redundancy pay is for the employer to satisfy the conditions set out in section 119 of the Act. For this, the employee should have been terminated by the employer because the employer no longer requires the job done by the employee.
With the above in mind, a case for reduced redundancy pay exists where the employer obtains other acceptable employment for the employee.
What constitutes ‘other acceptable alternative employment’?
In order to determine what constitutes an acceptable alternative employment, the Courts apply an objective test. It is not just any employment but one that meets the relevant standard.
Several factors, such as the nature of the alternate employment, location, pay arrangements, hours of work, seniority, fringe benefits, workload, job security and other matters are considered to determine the ‘acceptable employment’ (Australian Chamber of Manufacturers v Derole nominees Pty Limited (1990) 140 IR 123; Clothing and Allied Trade Union of Australia v Hot Tuna Pty ltd (1988) 27 IR 226). The subjective views of the employee about the alternative employment are not given any weight (Re: Derole).
The onus to prove the acceptability of the alternative position lays with the employer and not the employee. While it is not necessary for the alternative position to replicate the various functions of the original position to be acceptable, it is a salient consideration as to whether or not the alternative position manifests the same degree of seniority and executive status within the employer’s business.
The above information is intended as general information and is not intended to be relied on as legal advice.
If you are looking for advice on your employment rights or if you are looking to review your employment contracts, call one of our experienced lawyers now on (02) 9920 1787 to find out how we can assist you. Pannu Lawyers are highly experienced in drafting & reviewing employment contracts as well as resolving civil disputes between employees and employers. Our team regularly appears at the Fair Work Commission in matters of unfair dismissal, general protection claims and other cause of actions arising out of Fair Work Act.