Redundancy

What is a ‘redundancy payment’?

Under the FWA and in accordance with the National Employment Standards, an employee is entitled to be paid redundancy pay (sometimes called severance pay by employees although not the legal term), by their employer if the employee’s employment is terminated under the following conditions:

• At the employer’s initiative because the employer no longer requires the job done by the employee to be done by anyone, except where this is due to the ordinary and customary turnover of labour; or
• Because of the insolvency or bankruptcy of the employer.

The amount of redundancy pay is calculated based on the length of continuous service the employee has provided to the employer. The FWA contains a table setting out the redundancy pay payable and the required redundancy notice period ,depending on the length of an employee’s employment.

In certain circumstances, redundancy pay is not payable to certain employees such as:

• Employees of a small business (that employs less than 15 people);
• Employees whose period of continuous service is less than 12 months;
• Employees engaged for a fixed term;
• Casual employees;
• Trainees engaged only for the length of the training agreement;
• Apprentices; and
• Employees to whom an industry-specific redundancy scheme in a modern award applies.

An employer can apply to the Fair Work Commission (‘FWC’) for an order to reduce a redundancy amount if the employer cannot pay the amount or obtains other acceptable employment for the employee.

Is redundancy pay tax free?

A ‘genuine redundancy’ payment is taxed differently to other termination payments. Generally, tax is not payable if the redundancy is a ‘genuine redundancy’, up to a tax-free limit.

The tax-free limit changes every year and is a base amount, plus an amount for each complete year of service with a person’s employer. Any remaining genuine redundancy payment is taxed at concessional tax rates up to a capped limit, which is indexed annually.

What is a ‘genuine redundancy’?

The term genuine redundancy is used in the context of a person’s dismissal from their employment and whether or not the termination was an ‘unfair dismissal’ rather than a genuine redundancy.

A dismissal will not be an unfair dismissal if it was a ‘genuine redundancy’.

A person’s dismissal will be a ‘genuine redundancy’ if:

• the employer no longer required the person’s job 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 in a modern award or enterprise agreement to consult about the redundancy.

A person’s dismissal will not be a ‘genuine redundancy’ if it would have been reasonable for the person to be redeployed within:

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

It is up to the employer to prove each element above.

When is a person’s job no longer required?

Case law suggests that a person’s job involves a ‘collection of functions, duties and responsibilities entrusted, as part of the scheme of the employer’s organisation, to a particular employee’.

Generally, a redundancy occurs when the collection of functions, duties and responsibilities is reorganised, removed and/or redistributed. When a person no longer has the original functions and/or duties of the original role, then it is likely their job has become redundant.

What does ‘operational requirements’ of an employer’s enterprise mean?

A redundancy will not be a genuine redundancy unless it is due to ‘changes in the operational requirements of the employer’s enterprise’.

An example of a change in ‘operational requirements’ may be that technology has been implemented to do the job of an employee or a restructure has been completed to improve efficiency thereby redistributing the tasks done by an employee.  

Courts have held that when determining whether there has been a change in the ‘operational requirements’ of an enterprise, consideration must be given to:

• past and present performance of the business;
• the state of the market in which the business operates;
• steps that may be taken to improve the efficiency of the business;
• the application of good management to the business.

Does an employer have to consult with an employee before making them redundant?

An employer only has to consult with an employee about the redundancy when a modern award or enterprise agreement applies to an employee and where that document contains consultation terms.

Consultation discussions should address the following:

• What is happening with the business, why it is happening, who will be affected and the reasons for the change;
• The effect the changes will have on an employee;
• Any measures the employer is taking to avert or mitigate the adverse effect that the changes will have.

Employers should explore alternatives to redundancy such as:

• encouraging employees to use their leave;
• reducing the number of casual positions;
• altering rosters;
• job sharing;
• temporarily decreasing working hours of those employed for a period of time;

Dismissal should be considered as a last resort.

When is it reasonable for a person to be redeployed?

A redundancy will only be a ‘genuine redundancy’ when it is unreasonable in all the circumstances for the employee to be redeployed.

Whether or not it is reasonable for a person to be redeployed will ultimately be determined by the FWC which takes into consideration all of the relevant circumstances that exist at the time of the dismissal to determine whether an employee could have been transferred to another job within the same organisation or associated entity.

Considerations as to whether redeployment is reasonable include:

• Whether there is another job, position or other work to which the employee can be redeployed into;
• Whether it is reasonable for the employee to redeploy into the role, taking into account:
  • suitability of the job;
  • location of the job in relation to the employee’s residence; and
  • the remuneration that is offered by the position.

Even if a potentially suitable position is inferior with less remuneration and responsibility, it must nevertheless still be put to an employee for them to make the ultimate decision on the position’s suitability.

What about state employees?

Employees and employers of the Queensland Government, as well as local councils are generally covered by the IRA and matters will be heard in the Queensland Industrial Relations Commission (QIRC).

The IRA sets out similar provisions to the FWA with respect to ‘redundancy pay’ and also includes a table setting out the redundancy payments and redundancy notice periods depending on the length of an employee’s employment. The IRA however does not include provisions on ‘genuine redundancy’.

Get help

Redundancies can be complex, particularly when full consideration is given to the different workplace laws that impact upon a person’s redundancy.

If you’ve been made redundant but you feel it is not a genuine redundancy, you may wish to pursue a claim for unfair dismissal. We can assist you with this.

If you’ve been made redundant and you’re eligible for redundancy pay but you feel that payment (including notice period pay) is inaccurate or you have not been paid any redundancy pay at all, you should seek legal advice from our employment law team.