Who can use this policy?

This policy can be used by all employers.

Commentary 

The Policy is to be applied at the employer’s sole discretion, and as such, is not intended to create or confer any entitlement on employees. The Policy makes it clear that it is not intended to form part of an employee’s contract of employment, and an employer’s employment contracts should also contain a corresponding statement to this effect (i.e. that the employer’s policies and procedures are not incorporated into, and do not form part of, the employee’s contract of employment).

National system employers should also be aware that they may be required to provide mandatory redundancy entitlements to employees under contracts of employment, enterprise agreements, applicable awards or legislation ('the Instruments'). This policy is not intended to override the obligations imposed under the Instruments.

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 (e.g. termination for underperformance or serious misconduct), 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 'FW Act') a dismissal will not be “unfair” where the person’s dismissal was a case of a “genuine redundancy”. Under the FW Act, a redundancy is a “genuine redundancy” if:

• the job will no longer be required to be performed by anyone because of 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; and
• it would not have been reasonable in the circumstances to redeploy the employee within the employer’s enterprise or the enterprise of an associated entity.

For this reason, it is vital consultation obligations are complied with and redeployment options are actively considered before termination.

Record keeping

Employers should keep records of consultation meetings and/or discussions, as well as attempts made to re-deploy employees, so that it is in the best possible position to defend a potential claim relating to the termination (e.g. unfair dismissal). This would include keeping records of:

• the employer’s attempts to search for alternate jobs;
• the reasons why redundancy was necessary; and
• the discussions with employees in connection with these matters.

 

Employers should update the personnel file to note termination was for reasons of redundancy.

Furthermore, notice of the termination of employment by way of redundancy must be given in writing to the employee being terminated. It is important to note that the day of termination cannot be before the day the notice is given.

Legal advice

If employers are unsure when terminating the employment of an employee whether the circumstances constitute a genuine redundancy, they should seek legal advice about this matter. If the termination of an employee's employment is incorrectly classified as a redundancy, the employer may be exposed to claims relating to the termination (e.g. unfair dismissal claims). Additionally, there may be taxation consequences for both the employer and employee where a redundancy payment is made incorrectly. Employers should obtain taxation and legal advice about these issues if they are unclear as to the true nature of the termination.

Before carrying out a redundancy, employers should consult their enterprise agreements and applicable modern awards to ensure they comply with any relevant requirements relating to redundancy. For example, every modern award or enterprise agreement contains a term that requires the employer to notify and consult with affected employees and their representatives (e.g. Union) where the employer has decided to implement a major change that may result in a redundancy. A form of that notification is available on Workplace.

Employers may also need to notify and consult with Centrelink and Unions in relation to the redundancies. Under the FW Act, this obligation is triggered where the employer decides to dismiss 15 or more employees for reasons of an economic, technological, structural or similar nature. The requirement to notify and consult with Unions in relation to redundancies may also be triggered under an enterprise agreement or modern award. Employers should check these instruments to determine their obligations.

Notice period

The Policy includes two optional notice periods for subscribers to choose from.

The first option included in the Policy is identical to the notice period under the FW Act. It includes the requirement to provide an additional week’s notice of termination to employees over 45 years of age at the time the notice is given and have not less than two years continuous service with the employer.

The second option is more generic and allows the employer to specify the number of weeks’ notice it will provide employees. If this option is utilised, legal advice should be sought in relation to compliance with any minimum notice periods in the Instruments.

Mandatory severance pay

National system employers should be aware that the FW Act introduced mandatory severance pay for employees made redundant in workplaces that are not a 'small business employer' as defined by the FW Act (‘small business employers’ are those with less than 15 employees).

An obligation to provide severance pay under the FW Act applied from 1 January 2010. Importantly, continuous service (relevant to the calculation of severance pay) under the FW Act will only start to accrue from 1 January 2010, where an employee previously had no entitlement to severance pay as at 31 December 2009. Advice should be sought in relation to severance payments if employers are unsure of their obligations under the FW Act.

Severance scale options

The Policy includes three optional severance scales for subscribers to choose from.

The first optional severance pay scale included in the Policy is identical to the severance pay scale under the FW Act. Please note the severance pay under this scale decreases at 10 years continuous service due to the effects of long service leave being taken into account. It is not an error.

The second optional severance pay scale is derived from common NSW state awards. It is the most appropriate scale for non-national system employers to use. This scale is more generous than the first severance pay scale because it does not take into consideration the effect of long service leave entitlements. It also has higher severance payments after less service and provides additional severance pay for employees 45 years or older.

The third optional severance pay scale is general and merely provides the employer with an opportunity to nominate a specific number of weeks’ pay that an employee will receive on redundancy for each year of continuous service. If this option is utilised, legal advice should be sought in relation to compliance with the Instruments.

Exemptions from severance pay

A list of exclusions with respect to when a severance payment will not be payable has been included in the Policy. Please note that some of the exemptions from the obligation to provide severance pay are not contained in the FW Act. Accordingly, care should be taken in applying the exemptions to deny an employee severance pay.

If the ongoing employment of employees (or certain classes of employees) is contingent on the continuation of certain contracts or business (Government or otherwise), the employer should make this is known to those employees, preferably at the time of engagement (and also during the course of their employment). If, then, the contracts upon which their employment is contingent are terminated, employers should be in a better position to defend any claim for severance pay. Employers should also have appropriate employment contracts in place to evidence that an employee’s employment is contingent on the continuation of certain contracts or business.

Remember, these steps are preventative measures only and Workplace does not guarantee that a claim for severance pay will not successfully be made. Employers should seek advice if any such claims are made so that appropriate action can be taken to defend the claim.

Where an employer obtains acceptable alternative employment for an employee, or the employer cannot pay severance pay, then for employer’s to whom the FW Act applies, an application can be made to the Fair Work Commission  seeking to vary the amount of severance pay. This variation of severance pay could involve a reduction in the overall amount payable or no payment of severance pay altogether. You should seek legal advice if you are unsure of your obligations.

Further considerations

When a redundancy occurs, employers should be aware that they may have additional obligations under the Instruments, such as providing the employee with paid leave during the notice period for the purpose of seeking alternative employment. Also, for certain industries (such as building and construction) there are industry specific redundancy scheme which operate differently to the one under the FW Act (e.g. calculation of severance pay). This reinforces that employers should always check the relevant Instruments to determine employee entitlements.

Caution: Appropriate care also should be taken in selecting employees for redundancy in order to avoid potential discrimination claims. Any criteria used in order to justify making employees redundant must be objective and non-discriminatory.

An employer may wish to use a deed of release to protect itself against any claim from an employee where the employer provides severance pay over and above the amount required by the FW Act or any applicable Instruments.

Important note to subscribers

The commentaries and documents in Workplace are updated as necessary, to keep them relevant. You should familiarise yourself with the relevant commentary each time you create a document.

This document has been drafted to suit a wide variety of businesses, with a number of options available to enable you to customise the document to better suit your business. Nevertheless, you may need to make other changes to the document so that it suits the specific needs of your business. If you make additional changes, we cannot guarantee that the changes and modifications you make to the document will be legally compliant or enforceable.

This commentary and any additional information provided to assist you in creating this document, does not constitute legal advice.

If you are unsure about any aspect of this document (including the changes or amendments you make to it), you should seek appropriate advice from a lawyer, skilled in these issues. You may also wish to consider contacting Australian Business Lawyers & Advisors for targeted advice on your business’s specific needs.

You should consult with your financial advisor in relation to any taxation or financial issues concerning the document you create.

After creating this document, you should read through it carefully to make sure it meets your business needs and is consistent with other industrial instruments, policies and procedures which operate in your workplace. This commentary is not designed to be provided to employees or other workplace participants.