Redundancy: how to do it fairly


Redundancy: how to do it fairly

Businesses confronted with implementing redundancies need to address a number of key points to ensure the process is fairly and reasonably carried out.


Get unlimited access to all of our content.

Businesses confronted with implementing redundancies need to address a number of key points to ensure the process is fairly and reasonably carried out.

This article provides advice on how to implement redundancies in a way that is both fair to both parties and addresses the legal requirements.

A previous article explained the changes to redundancy provisions that have occurred under WorkChoices.

'This offer is genuine …'

The starting point is that redundancy must be for reasons that include a 'genuine operational reason' related to the conduct of your business. The WorkChoices definition of this term is at sec 643(9) of the Workplace Relations Act 1996.

This means that the job is redundant, not the employee. If you think that the employee lacks the skills or ability to perform his/her job, that does not mean the employee is redundant - although it may, depending on the circumstances, be grounds for dismissal because it is related to the employee's capacity or conduct. Redundancy only occurs when the employer does not require a job to be performed by anyone.

An employee's capacity or conduct may be taken into account when selecting employees to be made redundant. If an employer suffers a downturn in business and decides to make one employee redundant, it is not unlawful to select an employee on the basis of performance and transfer another employee to take over his/her job, provided that the end result is a staff reduction for operational reasons.

Dismissal and retrenchment

If the transfer occurred and a new employee was recruited for the job of the transferred one, the first employee has been dismissed, not retrenched. In that case, the employer may have to prove that its action was not unfair, if a claim arises. Similarly, if job duties are shuffled around or a job is 'upgraded' or 'downgraded', a court or tribunal might find that the event was not a redundancy for operational reasons, but a dismissal disguised to look like one.

In summary, it will not be enough to justify a redundancy by merely asserting that there was a genuine operational reason — the employer must be able to back up the claim with solid evidence that the position is no longer required.

What you must comply with

Apart from WorkChoices (if your business is covered by it), there may be other provisions that regulate the redundancy process.

If an award, agreement or individual contract provision provides for longer notice periods than WorkChoices, the latter apply. If the employee is covered by a NAPSA or PSA with longer notice periods, the latter apply until the NAPSA or PSA expires or is replaced by a new Federal WorkChoices instrument.

The same instruments may also contain procedures for selecting employees for redundancy. If so, they must be complied with. If not, you are free to choose your own system provided it is not unlawful — eg discriminatory.

The Workplace Relations Act does not provide for severance pay, however provisions may exist in one of the above instruments and must be complied with. The most common provisions are those established by an AIRC Test Case in 2004. However, the individual employment instrument needs to be checked.

Selection criteria

Even where there are no provisions for selecting employees for redundancy, the selection process should be transparent and fair. Even if a genuine redundancy can no longer be held to be an unfair dismissal, the 'unlawful dismissal' provisions of WorkChoices apply to all employees, and a redundancy selection made on discriminatory grounds may be actionable under anti-discrimination legislation as well.

Various selection methods have been used, including seniority ('last-on, first-off') and systems based on employee performance and potential. Performance and potential-based systems are generally the best to use in terms of the business's future needs, but they need to have as much demonstrable objectivity as possible (eg published measurement criteria and job performance standards, or some form of potential/promotability scoring system). Otherwise, their subjectivity may leave them open to claims of bias, rating errors or discrimination, and claims of unfair dismissal or discrimination may result.

Performance issues

With performance-based systems, employees should previously have been made aware of any performance-related issues and given opportunities to discuss them and improve performance. Merely conducting a one-off performance assessment and retrenching those employees with the lowest ratings may be found to be unfair. In the case of potential-based systems, all employees should be assessed in the same manner and have equal opportunity to participate.

The criteria should focus on the likely future needs of the business, rather than short-term 'bottom line' cost savings. This approach is likely to be more cost-effective in the longer term.

Implementing the redundancy

Businesses might be tempted not to put too much effort into substantiating 'fairness' when the less stringent requirements of WorkChoices imply that you are not legally obligated to do so, eg if you have fewer than 101 employees, and they cannot make claims of unfair dismissal. It's worth remembering, however, that the opponents of WorkChoices are still active and vocal and employers should consider the bigger picture.

Unions, politicians and competitors are looking for and publicising cases where employees appear to have been treated unfairly and the bad publicity has embarrassed those businesses, even where they have in fact complied with the law's minimum provisions. With current evidence of widespread and increasing skills shortages, anything that makes your business look unattractive to job seekers may wipe out the short-term cost savings gained from expediency.

Recommended steps

The following steps are recommended:

  • Review other options to redundancy first.
  • If feasible, interview each employee to be retrenched separately. Even if you have to make a general initial announcement, you should process each redundancy via an individual meeting.
  • Inform employees of possibility of redundancy well in advance, if you can.
  • Provide reasons for the redundancy — in more detail than 'operational reasons'. Also provide details of the selection process you used.
  • Where it is possible to provide the employee with options, do so and provide time for him/her to evaluate these options and seek expert advice.
  • Where possible, offer alternative employment.
  • If there is a long lead time to the actual date of redundancy, hold further meetings to update progress.
  • Provide assistance such as outplacement resources, time off to attend job interviews, contacting other potential employers, etc. Some award or agreement provisions will require some of these steps anyway.
  • Sometimes employers may make 'package' offers that are more generous than the legal minima, perhaps with the intention of 'buying' peace and discouraging future claims. If doing so, the procedure itself still has to be fair and non-discriminatory, with all affected employees treated the same way. Contents of a package should take into account previous offers made for the same industry, work location, etc.
  • Document all steps of the process, including the consultative ones.
  • The employee's statement of termination entitlements should itemise separately each component related to redundancy (such as payment and taxation of severance pay).
  • The normal procedures, checklists, etc for terminations of employment should also apply.

'Genuine consultation' required for mass redundancies

Where an employer intends to retrench 15 or more employees for economic, structural, technological or other reasons, the employer must conduct genuine consultations with the employees, and any unions that represent them, before implementing the redundancies, and notify Centrelink, and any union whose members are to be made redundant, of the proposed redundancies.

Genuine consultation may include considering the impact of the decision on employees, evaluating options for redeployment, providing assistance with outplacement and job search, and seeking and evaluating options proposed by the employees/unions themselves.

If an employer fails to comply with these provisions, the Australian Industrial Relations Commission can issue orders that include reinstating or compensating the employees, and the employer can be fined for having breached the Act.


Redundancy: clarifying some issues under WorkChoices've been selected for redundancy



Post details