Redundancy - what is it?

Analysis

Redundancy - what is it?

The term 'redundancy' is often used to describe a myriad number of reasons for terminating an employee.

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The term 'redundancy' is often used to describe a myriad number of reasons for terminating an employee. Here is an analysis of the more prominent circumstances that qualify as redundancy.

From the employer's perspective, it is important the term is applied appropriately to the circumstances as there are usually additional payments applicable when the reason for the employee's dismissal is because the employee's position has become redundant.

Source of entitlement

Redundancy or severance pay on retrenchment is normally payable where the applicable industrial instrument or the individual's contract of employment provides for such payment.

There is no statutory entitlement to redundancy pay although, in NSW, an employee may make application to the Industrial Relations Commission under unfair contract legislation seeking, amongst other payments, redundancy pay.

Note: the Employment Protection Act 1982 (NSW) does not define redundancy - it has a limited application, providing for a scale of benefits for NSW award workers where there is no applicable NSW award specifying redundancy benefits:
 
Definition of redundancy

Redundancy occurs when an employee is no longer required for work through no fault of their own, usually because the employer no longer needs or requires a particular job to be performed by anyone. The definition centres around the position becoming redundant, not the employee, therefore, termination is not always the consequence.

Redundancy can occur for a number of different reasons. Common examples include:

  • staff reductions due to the introduction of technological change;
  • downturn in the organisation's level of sales or production, or in the economy generally;
  • relocation of the business;
  • merger of takeover of the business;
  • internal company reorganisation or restructure (rationalisation);
  • market changes reflecting shifts in product demand and/or production costs; and
  • structural changes such as tariffs, quotas or exchange rates.

Exemptions

The redundancy provisions contained within most industrial instruments usually provide for certain categories of employees to be exempt from an entitlement to redundancy pay.

These categories include:

  • employees of an employer employing less than 15 employees;
  • employees terminated because of serious misconduct justifying instant dismissal;
  • probationary employees;
  • apprentices;
  • trainees;
  • employees engaged for a specific period of time or for a specified task or tasks; or
  • casual employees.

Common exclusions

Redundancy clauses commonly specify circumstances that although involving the disappearance of a position, do not qualify as redundancy. The reasons are generally that the positions come and go (seasonal work), the usual turnover of work and labour is the root cause or the employees have suffered no real loss. Specific examples are set-out below.

Ordinary customary turnover of labour

A common expression contained in the redundancy clause of industrial instruments is when the termination is due to the 'ordinary customary turnover of labour'. An employee whose position becomes redundant for this reason is not usually entitled to redundancy pay upon retrenchment.

It is customary for an employee's services to be dispensed with because it is the view of management that they are in some way less than satisfactory employees - not appropriately skilled, not appropriately motivated, unreliable or exhibiting other forms of unhelpful conduct in an industrial context, but not amounting to misconduct. Under these circumstances, an employee would not be entitled to redundancy pay upon termination of employment. Also, many employees, particularly in the building construction, contracting and subcontracting industries, are employed on terms which contemplate intermittency in employment.

Loss of contract

Where the nature of the industry is such that the business is subject to the continued successful tendering or otherwise for contract work to maintain the employment of its workforce, an employee terminated because of the loss of a contract would not usually be entitled to redundancy pay.

Industrial tribunals have determined that the nature of a business dependant on contract work does not create an expectation of continued employment within the minds of that workforce. An example of such an industry would be the contract cleaning industry.

Seasonal work

Redundancy pay is not usually applicable where the nature of the work in an industry is seasonal. Industrial tribunals have generally delineated between cases of 'seasonality' and instances of 'permanent' loss of employment.

The seasonality of the work has been interpreted to mean the work has not been 'permanently' lost but is do to with the fluctuating nature of the business, which consequently does not create an expectation of continued employment.

Transmission of business

Industrial tribunals do not envisage the payment of redundancy payments being made in cases of succession, assignment or transmission of business. Where credits based on length of service have been transferred to the transmittee, it has been determined to be inappropriate to require those employees who are transferred in their employment to receive severance or redundancy payment.

Redundancy provisions contained in federal industrial instruments generally provide for the continuity of service where a transmission of business occurs. Where such a provision applies, the purchaser of a business is liable for the total period of continuous service, including service with the previous employer, if redundancies occur after the date of transmission.

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