Redundancy Law Basics—Covering Yourself

Author: Harrison HR | Blog

Redundancy is a mechanism you can use to terminate a worker’s employment. On the surface, it sounds like a convenient excuse for dismissing your unwanted or troublesome employees. That’s not the case at all. Redundancy law is a huge trap for the unwary. Failing to understand your rights and obligations as an employer under redundancy law can be disastrous. Misuse it and it will come back to bite you where it hurts most … in the hip pocket.

What is a ‘redundancy’?

Redundancy is a way of justifying the termination of a worker’s employment in circumstances where:

  • financial pressures on the business such as bankruptcy or insolvency make it impossible for you to retain that employee
  • you’ve introduced new processes, systems of work or equipment that mean that that employee’s role is no longer needed
  • that employee’s role becomes completely obsolete, or
  • you’re relocating, merging or restructuring your business and that employee’s position cannot be accommodated into those plans.

There are strict laws governing the process of making an employee’s role redundant. Those laws also describe your employee’s eligibility to receive redundancy payments.

Redundancy law and your obligations as an employer

Giving your employee adequate notice and ensuring you meet their entitlements to redundancy pay is recognised as a National Employment Standard (NES) under the Fair Work Act 2009 (Cth). If your business comes under this Act (the national workplace relations system), your obligations under redundancy law are significant and well-established.

In addition, some of your employee’s entitlements regarding redundancy are also set out in any applicable awards, enterprise agreements and in their contract of employment.

Factors affecting your redundancy law obligations

Your obligations in relation to retrenching an employee depend on a number of factors including:

  • the size of your business. Special rules apply to small businesses (defined as a business that employs fewer than 15 employees)
  • whether your employee is full-time, part-time or casual
  • their base rate of pay
  • how long they have worked for you. Generally, it has to be for at least 12 months before they’re eligible for redundancy pay
  • the reason you need to terminate their employment.

One of the driving forces behind redundancy law is to prevent ‘sham’ redundancies. If you’re exercising your rights to dismiss an employee on the basis of redundancy, it must be a genuine redundancy. You have to act in good faith. You can’t use redundancy as an excuse to get rid of an employee whose job performance isn’t up to standard.

What can happen if you get it wrong

Your obligations under redundancy law are subject to scrutiny by the Fair Work Ombudsman. If you fail to meet your obligations regarding redundancy you could face prosecution. There are substantial fines, in the tens of thousands of dollars, for either:

  • disguising an unfair dismissal as a redundancy, or
  • failing to meet your obligations regarding your employee’s entitlement to redundancy pay.

If it’s not a genuine redundancy, you might also find yourself on the receiving end of a costly and time-consuming claim for unfair dismissal .

Eliminating the risk of getting it wrong

Because there are so many different factors in determining your redundancy law obligations, it’s easy to make a mistake. There’s only one way to guarantee that you’re exercising your rights while also meeting your obligations appropriately under redundancy law: consult a lawyer and human resources specialist.

Redundancy law is a double-edged sword. As such, it should only be used sparingly and in the right conditions. Why leave it to chance? Contact the professional and experienced team at Harrison Human Resources on 1300 544 803 for expert advice, support and guidance in navigating the minefield that is redundancy law.

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