Retrenchment Guidelines

Posted By Chris Delaney / Uncategorised / No Comments

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 [2010] 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:

  1. Give reasonable notice to employees and/or their Unions
  2. Adequately consult with employees and/or their Unions on the impact of the proposed changes;
  3. Explore genuine alternative options for redundancy, such as redeployment or relocation;
  4.  Ensure such options are fairly offered to the affected employees;
  5. Provide reasonable standards of redundancy benefits (as a minimum the NES);
  6. Provide appropriate ancillary services, such as time off to seek alternative work (this is generally an award provision), retraining opportunities, outplacement services or financial planning;
  7. Ensure employees nominated for redundancy are fairly selected on an objective and unbiased basis.

Employee Obligations

Employees when confronted with genuine efforts by the employer to minimise the impact of potential redundancy also have certain obligations. These include:

  1. A willingness to participate in consultation with the employer;
  2. Genuinely participating in exploring alternatives to redundancy;
  3. Not unreasonably refusing to accept retraining, alternative employment, redeployment or relocation.

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:

  • Natural wastage can avoid the need to retrench especially where recruitment programs are suspended. Spreading retrenchments may mean that wholesale dismissals may be unnecessary;
  • Where appropriate early retirement may be used;
  • The criteria for determining who is to be retrenched should be considered. This may include such factors as :
  1. length of service;
  2. occupational qualifications and skills;
  3. age and family responsibilities;
  4. satisfactory work record (including absenteeism record);
  5. the commercial retention of employees to best serve the commercial needs of a continuing enterprise
  • transfer and retraining within the company is a desirable outcome;
  • there is a positive obligation on the employee not to unreasonably refuse to accept transfer, reclassification, relocation and the obligation to retrain in the interest of continuing employment. Note that those who unreasonably refuse alternative employment and training do not receive severance pay;
  • spreading workloads;
  • substitute part-time or even casual employment;
  • employees may take long service leave or even annual leave to smooth out the process of adjustment and save jobs;
  • assistance in obtaining alternative employment and job placement and introduction to employment agencies should be discussed;
  • provision should be made for time off to seek employment. Enquiries should be encouraged rather than impeded, even at some cost or temporary inconvenience;
  • preference for re-employment should be considered;
  • Voluntary early retirement schemes may be available, but beware of loosing employees with the longest service and the greatest know-how, for this can be counterproductive. Such policies require careful planning and close scrutiny if they are not to have the unintended effect of stimulating unemployment;
  • take note of the effect of superannuation entitlements.

The tests of fairness in redundancy matters are accepted as follows:

  • the employer should give as much warning as possible of the impending redundancies so as to enable the union and the employees to take early steps to inform themselves of the facts, so that they may consider possible alternative solutions and if necessary to find alternative employment either with the employer or elsewhere;
  • the employer should consult with the union to determine the criteria for selection of employees to be made redundant;
  • in attempting to determine the criteria to be applied attention should be given to such matters as length of service, efficiency, experience and attendance records where such matters can be objectively checked, and do not depend solely on the opinion of the person making the selection;
  • the employer should then seek to see that the selection is made fairly in accordance with the established criteria and should consider any representations that may be made in respect of the selection(s);
  • the employer should seek to see whether instead of dismissal the employee could be offered alternative employment.

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.

Superannuation law

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.

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