Redundancy traditionally defined by Australian industrial tribunals as a situation where:
“The employer no longer requires the employee’s job to be performed by anyone because of changes in the operational requirements of the employer’s enterprise.
What is critical is whether the employee’s position continues to exist, not whether the duties which are formally part of that position are still required: Ulan Coal Mines Limited v Howarth  FWAFB 3488”.
Employers should refer to both the relevant modern Award and the Fair Work Act 2009 for details on specific requirements.
The following is a summary of well established principles which establish the obligations of employers contemplating redundancies. The employer is obliged to:
Employees when confronted with genuine efforts by the employer to minimise the impact of potential redundancy also have certain obligations. These include:
One of the most important aspects of redundancy is how it is done. If the provisions of the Award/Legislation are ignored and/or if the retrenchment occurs without any discussion with employees or if it is not a “genuine redundancy” it may be determined to have been an unfair dismissal.
“Genuine redundancy” is defined by s 389 of the Act. That definition extends beyond the usual meaning of redundancy, and brings in considerations of whether the employer complied with any obligation to consult, and whether the employee could have been redeployed to another position.
The prime purpose of severance pay is to provide assistance in easing immediate hardship, and to help the retrenched employee in regaining employment.
There needs to be full and detailed exchange of information to the employees and the union (if any).
Prior consultation and notice must be given.
Employers should attempt to explain the circumstances of the changes required, that the circumstances are outside the control of the employer, it is necessary to reduce costs, it is necessary to restructure to meet the competitive environment or the changing requirements of clients etc. In any event the employer is expected to share the problem with the workforce
An early objective in discussions should be to attempt to reduce the number to be retrenched. Techniques, which may help, are:
The tests of fairness in redundancy matters are accepted as follows:
The intention is that where retrenchments must occur, the impact should as far as is possible, be minimised, so that employees directly concerned can see that the selection has been carried out fairly. A departure from those principles (above) without good or just reasons may well lead to the conclusion that the dismissal should be regarded as harsh, unjust or unreasonable, even if economic or other valid considerations make the retrenchments necessary.
Employees are also entitled to minimum periods of notice (other than in cases of dismissal for matters arising out of serious misconduct). The following notice periods apply:
Period of continuous service Period of Notice
Less than 1 year 1 week
1 year and less than 3 years 2 weeks
3 years and less than 5 years 3 weeks
5 years and over 4 weeks
In addition to the notice above, employees over 45 years of age at the time of the giving of the notice with not less than 2 years continuous service, shall be entitled to an additional week’s notice.
Retrenched employees are entitled to severance payments in accordance with the S119 of the Fair Work Act 2009. There are exceptions for businesses with less than 15 employees.
|Redundancy pay period|
|Employee‘s period of continuous service with the employer on termination||Redundancy pay period|
|1||At least 1 year but less than 2 years||4 weeks|
|2||At least 2 years but less than 3 years||6 weeks|
|3||At least 3 years but less than 4 years||7 weeks|
|4||At least 4 years but less than 5 years||8 weeks|
|5||At least 5 years but less than 6 years||10 weeks|
|6||At least 6 years but less than 7 years||11 weeks|
|7||At least 7 years but less than 8 years||13 weeks|
|8||At least 8 years but less than 9 years||14 weeks|
|9||At least 9 years but less than 10 years||16 weeks|
|10||At least 10 years||12 weeks|
Whether the SG is payable on a component of the employee’s termination pay is determined by the Fair Work Act 2009 and federal superannuation law. According to the Australian Taxation Office’s Superannuation Guarantee Ruling SGR 2009/2, lump sum payments on termination such as payment of unused annual leave or long service leave pay do NOT attract the SG because it is not considered to be ordinary time earnings (OTE). The Ruling also provides that redundancy pay is NOT considered to be part of an employee’s OTE and, therefore, does not attract the SG.
Payment in lieu of notice of termination
Superannuation law and the Fair Work Act apply in relation to payments made in lieu of notice.
According to the ATO’s SGR 2009/2, payments in lieu of notice are included in an employee’s OTE and, consequently, attracts the 9.5 per cent SG charge.
Fair Work Act
In defining ‘full rate of pay’ under the notice of termination provision of the Act, the Explanatory Memorandum to the Fair Work Bill 2009 states that when an employer elects to pay an employee in lieu of providing notice of termination, this payment must include payments made on behalf of the employee, including superannuation contributions.
For more information on redundancy and redeployment contact us.