When do you have to pay redundancy?

When does a redundancy arise?

Redundancies commonly occur when:

• A business is downsizing, leading to a reduction in the number of employees
• A business outsources an employee’s job
• A business reallocates the tasks that make up an employee’s job to other employees, such that they no longer require anyone to do that particular job, or
• A business goes through a restructure, which results in the business no longer requiring anyone to complete certain jobs (for example, deciding that they require less mid-level managers than they previously employed).

A business can also (and sometimes unintentionally) make an employee’s position redundant if they are required to complete a job that is substantially different to the job that they were originally employed to complete.

Employers need to be careful when making changes to an employee’s job (including changes to duties, salary and location), to ensure that they do not inadvertently create a situation where the employee can claim that they have been made redundant, and are accordingly entitled to redundancy pay.

This most often arises where the employee is not happy with the change and decides to cease working, rather than continue in the new position.

Do I need to pay redundancy pay?

A business will need to pay an employee redundancy pay, where they have been terminated on the basis of redundancy, unless one of the exceptions contained in the Fair Work Act 2009 (Cth) applies.

The main exceptions are as follows:

• The employee is a casual employee
• The employee’s period of continuous service with the business is less than 12 months
• The employer is a small business employer, with less than 15 employees (however, some Modern Awards provide that small business employers must still pay redundancy pay, notwithstanding this exception)
• They were employed for a specified period of time, for a specified task or for the duration of a specified season (so those employed on fixed term or maximum term contracts generally will not be entitled to redundancy pay, unless they had a reasonable expectation that the contract would be renewed at the end of the fixed or maximum term)
• Their employment was brought to an end in the ordinary and customary turnover of labour. This may apply, for example, to a construction business which hired employees to complete a certain construction job, whereby those positions were made redundant once the construction job had been completed
• There is a transfer of business where the new employee accepts employment with the new business owner, and the new business owner recognises the employee’s period of service with the original employer
• There is a transfer of business, and the employee is offered employment with the new business owner on substantially the same terms that they were employed by the original business owner, even if they do not accept the transfer. In this situation, it would be open to the employee to apply to the Fair Work Commission for an order that they be paid redundancy pay, notwithstanding this exception, or
• The Fair Work Commission decides that the employer is not required to pay their employee redundancy pay because:

— The employer has found other acceptable employment for the employee, or

—The employer cannot pay the redundancy pay.

For this exception to apply, the employer must apply to the Fair Work Commission for the order.

What is the amount of redundancy pay that I need to pay a redundant employee?

The Fair Work Act sets out the minimum redundancy pay that an employee is entitled to receive as follows:

Some employment contracts, Awards and Enterprise Agreements will include redundancy provisions that are more generous than those provided for in the Fair Work Act. You should check your employee’s employment contract and any relevant Award or Enterprise Agreement to see if they contain any provisions regarding redundancy.

How can Sharrock Pitman Legal assist?

As can be seen, questions of redundancy can involve a fair degree of complexity. If you are unsure about your obligations as an employer regarding redundancy, please contact Mitchell Zadow on 1300 205 506 or alternatively fill in the contact form below and we would be pleased to provide you with assistance.

The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

Liability limited by a scheme approved under Professional Standards Legislation.