What needs to be considered if redundancies are on the cards… By Emma Watt.

Sometimes an employer needs to change the size of their workforce by making some employees redundant. This is a process that requires some attention to detail if it is to be done properly, in order to provide the employer with a defensible response if challenged. In the grim economic environment of 2020, this is a prospect many more employers will have to consider.

Firstly, it is a good idea to identify whether redundancies are the only option. Some other possibilities include employees taking some leave without pay or taking accrued annual leave or long service leave. Obviously, in all of these cases, the express (and preferably written) agreement of the individual employee would be required as these are usually not steps that an employer can take unilaterally.

If the employer is eligible for the recently announced JobKeeper wage subsidy, then changes recently made to the Fair Work Act 2009 may allow directions to be given to employees to reduce hours, stand down, take leave or change duties or location of work. Please seek advice if you’re considering using these provisions, as the changes are new, and a little complex in places.

If you are at the stage where redundancies really are necessary, then you need to examine the work that is done and identify any jobs that are no longer required. Document your reasons for choosing particular positions to be made redundant, in case you need to justify the decision later. Focus very clearly on the work that is being performed, rather than individual employees.

It is important to be careful how you choose which positions will be made redundant – choosing an employee for redundancy because of their performance, sick leave or workers’ compensation record or for an unlawfully discriminatory reason could render the entire process invalid.

Modern awards don’t contain guidance on criteria to be used when choosing employees for redundancy. Enterprise agreements may cover this area, so if you have an agreement in place you need to check whether, for example, employees need to be chosen on the basis of seniority or length of service. There is no universal requirement to choose employees on ‘last on, first out’ – in fact, this approach has been shown in some situations to have an indirectly discriminatory effect.

If the employees who might be affected by restructure are covered by a modern award or enterprise agreement, then you are required to comply with the consultation provisions in the relevant industrial instrument. These provisions usually require that you:

  • Discuss any changes that might lead to redundancies with employees and their representatives; and
  • Provide information to employees in writing about the changes, the effect of the changes, and any measures to avert or mitigate the adverse effect of changes on employees; and
  • Make a positive effort to meet with employees and document the process.

Some enterprise agreements require an employer to make a positive attempt to discuss these matters with the relevant union. In most cases, however, the union may be involved at the request of employees who are members.

Employees who are genuinely redundant are not entitled to make a claim that the dismissal was unfair. There are three components to the test for genuine redundancy in the Fair Work Act 2009. They are:

  • The employee’s position is actually redundant, to eliminate sham redundancies;
  • The employer has complied with the consultation provisions as described above; and
  • It would not have been reasonable for the employee to be redeployed.

Redeployment has been the subject of quite a bit of case law over the last 10 years. If the employer is part of a group or has associated entities within the meaning of corporate law, then redeployment options across all associated entities must be considered. You may be required to prove that you examined each available position for its suitability for each redundant employee.

It has been clearly established that redeployment means offering the employee the job, not just allowing them to apply for the job in a competitive environment. The new job should be a job that the employee could do, potentially with retraining, within a reasonable period of time. You would be required to consider all available positions, not just positions at the same level of responsibility or salary as the position the employee currently holds.

Consult the relevant modern award, enterprise agreement or written contract to determine whether the employee is entitled to redundancy benefits in excess of the National Employment Standards (NES).

Under the NES businesses with fewer than 15 employees are exempt from the requirement to pay redundancy. However, it is vital that you check the relevant modern award or agreement, because many industrial instruments, such as the Timber Industry Award 2010, impose an obligation to pay redundancy on smaller employers despite the exemption from the NES. Small businesses under the Timber Industry Award 2010 may be required to pay up to eight weeks’ redundancy.

There are provisions in the Fair Work Act 2009 for variation to the requirement to pay redundancy, including where an employer obtains acceptable alternative employment for the employee, or cannot pay the amount required. These require the employer to apply to the Fair Work Commission for an order.

Other payments that may be required if an employee is made redundant include:

  • Notice, or payment in lieu of notice if you do not require the employee to work through to the end of the notice period;
  • Some paid time off to look for other work, in accordance with the relevant award;
  • Accrued but untaken annual leave and leave loading; and
  • Accrued or pro rata long service leave– check relevant award or State/Territory legislation for details.

Emma Watt is an independent industrial relations consultant who has, for more than 20 years, provided advice and assistance to employers in the timber industry. She has also worked as an unfair dismissal conciliator with the Fair Work Commission. Emma is very keen to ensure that employers know their rights and obligations, so they can sleep well at night!