Who can use this correspondence
This document can be used by all employers throughout Australia, except the following excluded employers:

 

• Non-constitutional corporation employers in Western Australia;
• State public sector employees (ie employees of a Minister, the Governor or the Crown); and
• Local Government employers — except in Tasmania.

 

Excluded employers may however, wish to use this document, but they should first obtain legal advice.

Commentary

What is a redundancy?

Termination of employment due to redundancy is a form of dismissal by the employer.  It carries with it the concept of involuntary termination of the employee’s employment.  However, rather than being a fault based dismissal, redundancy is usually caused by factors such as economic conditions, business efficiency, or technological development.

Generally speaking, termination of employment due to redundancy occurs where:

• an employer has made a definite decision that the employer no longer wishes the job the employee has been doing to be done by anyone; and
• that decision leads to the termination of the employee’s employment.

Under the Fair Work Act 2009 (Cth) (the 'Act') a dismissal will not be unfair where the person’s dismissal was a case of a genuine redundancy. Under the Act a redundancy will be genuine if:

• the job will no longer be required to be performed by anyone because of the changes in the operational requirements of the employer’s enterprise; and
• the employer has complied with any obligation to consult contained in an applicable modern award or enterprise agreement.

In order to avoid the risk of an unfair dismissal claim, employers must consider, prior to terminating an employee due to redundancy, whether it would be reasonable in all the circumstances for the person to be redeployed within:

• the employer’s enterprise; or
• the enterprise of an associated entity of the employer.

Employers should keep records of attempts made to re-deploy employees. Records of employer attempts to search for alternate jobs and the reasons why redundancy was necessary should also be retained (in the event a claim is made). Additionally records should be kept of the discussions with employees in connection with these matters. Employers should update the personnel file to note termination was for redundancy.

If you are unsure when terminating the employment of an employee whether the circumstances constitute a redundancy, you should seek legal advice about this matter. If the termination of an employee's employment is incorrectly classified as a redundancy and a redundancy payment is made, there may be taxation consequences for both the employer and employee. You should obtain taxation and legal advice about these issues if you are unclear as to the true nature of the termination. 

Additional obligations apply when you are terminating the employment of 15 or more employees. Before carrying out a redundancy employers should consult their agreements and awards to ensure they comply with any relevant requirements.

Mandatory Severance Pay

From 1 January 2010, employers should be aware that mandatory severance pay is payable on redundancy to eligible employees. There are however certain exemptions from that obligation.

Some of the common exemptions from the obligation to provide severance pay are detailed below:

• the employer employs less than 15 employees
• an employee has less than 12 months continuous service with the employer
• the employee is a casual
• the employee is terminated because of serious misconduct
• the employee is employed for a specified task, or a specified period of time, or for the duration a specified season
• a training arrangement applies to the employee (other than an apprentice) and his/her employment is for a specified period of time, or limited to the period of the training arrangement
• the employee is an apprentice
• an industry-specific redundancy scheme in a modern award applies to the employee, or the industry specific redundancy scheme from the modern award which covered the employee is incorporated into an enterprise agreement which applies to the employee.

Modern awards may also include exemptions from the obligation to provide severance pay. A number of other potential exemptions apply from the obligation to provide severance pay. Given the complexity of this area, it is advisable for employers to seek advice to confirm that they can apply a relevant exemption from the obligation to provide severance pay.

Further considerations

Where 15 or more employees will be terminated due to redundancy employers must notify Centrelink of the redundancies prior to any termination. If any employee is a member of a union, employers must also notify the relevant unions prior to the termination of the employees. A form of that notification is available at this website.

Appropriate care also should be taken in selecting employees for redundancy in order to avoid discrimination claims.

Important: The template letter we have provided has an optional 'Schedule of Entitlements' section which you can complete and include in the letter. It is very important that you check the monetary entitlements you record in the schedule are correct, before providing the letter to the relevant employee(s). If you have over-calculated the entitlements owed and present this to the employee(s), you may in some circumstances be bound to pay the additional amounts you have offered, despite the fact a miscalculation has occurred.

Likewise, if you have under-calculated the entitlements owed, you may be in breach of a relevant industrial instrument or applicable legislation, which may lead to a financial penalty, damages and/or interest on the unpaid entitlements, being imposed. Calculations are often quite complex, particularly for long-serving employees, so it is recommended that you check them thoroughly. If you are unsure of the correct entitlements to offer or pay, you should seek legal and relevant financial and taxation advice.