Redundancy: Know your obligations

Many businesses are currently being faced with the need to reassess their resources, including considerations of restructuring and reducing their workforce. With redundancies being felt across the country, employers need to know their legal obligations.

It is imperative employers understand their rights and obligations when implementing redundancies. Specifically, employers need to be aware of the legal position on:

  • the process to adopt when implementing redundancies;
  • how to select employees for redundancy;
  • what termination and redundancy/severance payments need to be made; and
  • if they should be considering redeployment or alternative employment options.

Employers who fail to implement redundancies in accordance with legal requirements risk exposure to costly legal disputes.

Redundancy process
To minimise the risk of legal claims, it is important for employers to follow a sound and defensible process when implementing redundancies. The starting point in any redundancy process should be to undertake a thorough review of the employer’s operational requirements. From this review, an employer can assess whether they have operational reasons of an economic, technological or structural nature that mean they no longer require a position or positions to be done by anyone; that is, a position or positions have become redundant. This review should be documented to ensure any decisions made are referrable to a strong paper trail.

Once an employer has determined the need for redundancies, it is necessary to check whether any workplace agreement or policy may apply that sets out the process to be followed by the employer. For example, an employer may be bound by a collective agreement that requires the employer to go through a consultation process with its employees and/or a relevant union. Alternatively, an employer may have adopted a redundancy policy that sets the criteria to be followed when selecting employees for redundancy.

In the absence of any applicable workplace agreement or policy, an employer can adopt their own approach in implementing redundancies, provided they comply with unlawful termination and anti-discrimination laws and they provide the appropriate notice, employee entitlements, and (if applicable) redundancy/severance payments on termination. In addition, if an employer is making 15 or more employees redundant, they need to notify Centrelink and may need to notify any relevant union prior to implementing the redundancies.

Selection of employees
The selection of employees for redundancies must be based on fair and reasonable criteria, that has been properly considered. Employers must not include selection criteria that could be construed as unlawful reasons for termination. Such unlawful reasons would include:

  • temporary absence due to illness or injury;
  • union status and participation/non-participation in union activities;
  • the filing of a complaint or participation in proceedings against the employer;
  • race, colour, sex, sexual preference, age, physical or mental disability, marital status, family responsibilities, pregnancy, religion, political opinion, national extraction or social origin;
  • absence due to parental leave; and
  • reason(s) in breach of anti-discrimination legislation.

Notice of termination and redundancy/severance payments
An employee being terminated because of redundancy must be given notice of the termination of their employment or payment in lieu of such notice. The notice must meet minimum legislative requirements and meet the notice requirements under an applicable award, workplace agreement or contract of employment. In the absence of any of these instruments, the employee will be entitled to reasonable notice of termination.

In addition to notice of termination, the employee will be entitled to receive payment for accrued but unused annual leave and long service leave entitlements. In some cases, an applicable award or workplace agreement may also provide for payment in lieu of untaken sick leave. Whether the employee is also entitled to a redundancy/severance payment will require consideration of the employee’s terms and conditions of employment.

There is no automatic entitlement under legislation to redundancy/severance pay. The entitlement of an employee to a redundancy/severance payment will normally arise in three circumstances:

  • as a term of an applicable award, workplace agreement or contract of employment;
  • as a term of the employer’s redundancy policy or procedures; or
  • as a result of the employer’s custom and practice of providing redundancy/severance payments to employees terminated because of redundancy, where such custom and practice will be implied into the employee’s terms and conditions of employment.

It is also important to note that employers who are required under an applicable workplace agreement to provide redundancy/severance payments but who are unable to make those payments because of an ‘incapacity to pay’ or who have obtained acceptable alternative employment for employees in positions declared redundant, may be able to apply to the Australian Industrial Relations Commission for an exemption from paying all or some of the required payment.

Alternatives to termination
Unless an applicable workplace agreement or policy provides for it, employers are under no obligation to offer redeployment options to employees in positions declared redundant. However, if employers want to consider redeployment options, it is important to note that they cannot unilaterally change employees’ terms and conditions of employment. If an employer wants to offer to an employee in a position declared redundant an alternative position with different duties and responsibilities and different remuneration benefits, they will need the employee to agree to the new position.

Other alternatives to implementing redundancies could be negotiating with employees to take annual leave and long service leave entitlements, or negotiating with employees to work reduced hours or reduced days.

Future considerations
It is important to note that the laws on redundancy will be subject to considerable change with the introduction of the Federal Government’s Fair Work reforms.

Of specific importance is:

  • From 1 July 2009, all employers will again be subject to the unfair dismissal regime and the circumstances where employers can justify terminations on operational grounds will be significantly reduced. Generally, this means when terminating an employee because of redundancy, an employer will be required to show that prior to implementing the redundancy they undertook a thorough investigation and review to ascertain they no longer needed the redundant position, they consulted with the affected employee, and they considered all possible redeployment options within the employer and its associated entities.
  • From 1 January 2010, the National Employment Standards (NES) will commence operating. The NES will contain the minimum employment entitlements that will apply to all employees. Included in the NES will be a guaranteed entitlement to redundancy/severance payments for all employees whose employment is terminated because of redundancy and who are employed by an employer of 15 or more employees at the time of the termination of their employment.

This means that for the first time, many employees terminated because of redundancy who are not covered by awards, workplace agreements or redundancy policies, will have an entitlement to redundancy/severance payments.

With the above in mind, we recommend employers act now to address any needs for workforce reductions.

—Alison Baker is a partner with Hall and Wilcox (www.hallandwilcox.com.au)

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