Last week, we wrote about things businesses should consider before deciding to make an employee redundant. This week, we look at the process for making an employee redundant and some of the Do’s and Don’ts.
It is essential that you keep in mind that it is the role that is being made redundant, not the person who is performing that role. Redundancy arises when you no longer need the role in your business.
This can be a very challenging situation that needs to be handled with care. No-one wants to be put in this position – whether delivering or receiving the news. Having the support of an experienced adviser, may be worth the investment.
There are several risks involved in making an employee redundant, so it is wise to make sure you understand the process and what can go wrong. An unfair dismissal application cannot be made if the dismissal was a case of genuine redundancy.
To understand the process you must look at the employee’s contract of employment (if they have one) and their Modern Award or enterprise agreement if one applies which often set out the steps that must be followed.
What is a genuine redundancy?
A dismissal is a case of genuine redundancy when:
- the employer no longer requires the person’s job to be performed by anyone because of changes in the operational requirements of the employer’s enterprise, AND
- the employer has complied with any obligation imposed by an applicable Modern Award or enterprise agreement to consult about the redundancy, AND
- it was not reasonable in the circumstances to redeploy the person within the employer’s enterprise, or the enterprise of an associated entity of the employer.
What does ‘no longer requires the person’s job to be performed by anyone’ mean?
This means the employee made redundant will not be replaced with someone new doing the same role. The role may no longer be required because the business has reorganised or re-distributed duties so the employee has no function or duty to perform. It is ok to split the role up and re-allocate it to other people provided they are already employed by the business or to completely outsource the role.
What is a change in operational requirements?
The onus is on the employer to prove that the redundancy was due to changes in operational requirements. This can include a change in the performance of the business, the state of the market in which it operates, efficiency gains through new equipment or a restructure of labour, or improved management practices.
What does ‘consult’ mean and when do you have to do it?
If the employee is covered by a modern award or enterprise agreement, there will usually be an obligation to consult with the employee before making the role redundant.
Consultation means a meaningful discussion with the employee, before the role is made redundant, and a genuine consideration of any suggestions or comments from the employee. The obligation to consult arises once a business has decided to make changes but must be done before a final decision is made. This allows the employee, who is likely to lose their job, an opportunity to be heard before a definite decision is made.
What is a ‘reasonable’ redeployment option?
If there are any job(s) available within your business (or a related business), that the employee could reasonably do, you need to offer these to the employee as a redeployment option. A redeployment option can be deemed reasonable even if it is at a lower grade or status, or if it is at another location. The safest option is to offer any available role as a redeployment option.
Do I have to give notice if I make someone redundant?
Yes. You must give your employee notice according to their contract of employment, Modern Award, enterprise agreement or the National Employment Standards. If the business decides that the employee is not required to work out all or part of their notice period, then you will need to pay the employee in lieu of notice.
Do I have to pay redundancy pay?
This will depend on several factors. Generally, small businesses (fewer than 15 employees) do not have to pay redundancy pay. Most other businesses need to pay redundancy pay to eligible employees, based on their years of service. Check whether there is an entitlement to redundancy pay in a Modern Award, enterprise agreement or employment contract that covers the employee.
The following employees are generally not entitled to redundancy pay:
- employees who have been employed for less than 12 months
- small business employees (as above)
- employees employed for a fixed period, an identified task or project or employed for a season
- employees terminated because of serious misconduct
- casual employees
- trainees or apprentices
Any outstanding employee entitlements, such as paid leave, must also be paid out upon termination.
What can go wrong?
If the decision to terminate an employee is not a case of genuine redundancy, it is possible that a successful unfair dismissal claim could be made. If the decision was motivated by some other reason, such as because they have complained about you to HR or have exercised some other workplace right, a general protections claim could succeed. Both claims will end up in the Fair Work Commission and the onus will be on you to show that the decision to terminate was due to a genuine redundancy.
Do’s and Don’ts
- Get advice about the process to make sure you get it right
- Take your time and don’t rush the decision
- Critically look at your business and resourcing needs
- Have a clear business case as to why the role is no longer required
- Document your decision at a management meeting
- Look for redeployment options within your business
- Consult thoroughly
- Put everything in writing
- Use redundancy to get rid of a troublesome employee
- Be in a hurry
- Avoid the conversation and the need to consult
Next week, we will look at unfair dismissal claims and what you need to do as an employer, if one is made against your business.
At Robertson Hyetts, we are ready to help businesses of all sizes with their employment law needs. Call us today on 03 5434 6666 (Bendigo) or 03 5472 1588 (Castlemaine).