Re-employment after redundancy – is it allowed?

Re-employment after redundancy – is it allowed?

By Paul Munro on 21 August 2017 Is there a period of time that must elapse before  someone who was made redundant can be re-employed?

This question was recently sent to our Ask an Expert service.

Q Due to a downturn in business earlier this year, our company had to make several positions redundant. However, trading has improved to the point where we are now considering hiring people in the new year.

Some of the employees who were made redundant are still available and keen to take up their previous positions. The company is not sure whether an employer can re-employ an employee after having been made redundant.

Is there a period of time that must elapse before an employee who was made redundant can be re-employed? Would the employees have to repay their redundancy pay before starting employment?

A There is nothing under the Fair Work Act which specifically prohibits the re-employment of a former employee whose position had become redundant, provided the termination was a genuine redundancy.  If not, an employee may allege the job was not redundant and may be successful in claiming unfair dismissal before the Fair Work Commission. 

A company may have a policy which prevents re-employment of a redundant employee within a specified period of time. Employees are not required to repay redundancy entitlements if they are re-employed.

Rationale for company policy

It is common to have a company policy which prohibits re-employment of a former employee for a specified period (commonly 12 months to 2 years). This applies to employees whose job was previously made redundant by the same employer, or a subsidiary of the same employer. The policy usually applies to employees who have taken either voluntary redundancy or where termination was due to a forced redundancy.

Such a policy is usually recognising requirements under taxation law, i.e. the payment must relate to a ‘genuine redundancy’ or to avoid resentment from existing staff who may perceive such an employee has gained an advantage by taking redundancy pay and then returning to employment in the same, or similar role, within an organisation.

Exceptions to the company policy are usually agreed at a senior executive level and is normally to address a shortfall in company skill/knowledge/expertise as a consequence of implementing the redundancy program.

Taxation law

Concessional tax treatment is given to ‘genuine redundancy payments.’ If a payment qualifies, part of the payment is tax free, with the tax free component based on the number of years of service with the employer.

The Australian Tax Office identifies the conditions that must be satisfied so that that a redundancy payment is regarded as genuine. One condition is that there is no arrangement between the employer and the employee (or between the employer and another entity (a subsidiary or another employer) for the dismissed employee to be re-engaged after the termination, although this condition would not prevent the former employee from being employed as a contractor.

Unfair dismissal - genuine redundancy

When making the position of an employee or group of employees redundant, it is important an employer can prove, if challenged, that the redundancy was genuine.

The Fair Work Act (s389) defines a ‘genuine redundancy’ to mean if:
  • the person’s 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 that applied to the employment to consult about the redundancy.
The Fair Work Act (s389(2)) states that a person’s dismissal is not a case of genuine redundancy if it would have been reasonable in all the circumstances for the person to be redeployed within:
 
  • the employer’s enterprise; or
  • the enterprise of an associated entity of the employer.
 
If a position that was made redundant is re-created within a short timeframe, an employee who was dismissed may claim this is evidence the job continued to exist and the termination was therefore not a case of genuine redundancy.

An employee has 21 days after dismissal to lodge an unfair dismissal claim, although the Fair Work Commission can allow applications later than this timeframe. Consequently, an employer is advised to maintain all relevant documentation in relation to any position which is made redundant.

Previous service & re-employment

The re-engagement of an employee after having been made redundant can create some issues for an employer, particularly with respect to the continuity of an employee’s entitlement.

Modern awards

A modern award may contain terms which recognise previous service with the same employer for the purposes of calculating an employee’s entitlements.

For example, the Manufacturing and Associated Industries and Occupations Award 2010 (cl 42.2) provides that if an employee is terminated  and then re-engaged by the same employer within six months then the employee’s unclaimed balance of paid personal/carer’s leave continues from the date of re-engagement.

Long service leave

Most state and territory long service leave legislation recognise previous service when an employee is terminated and subsequently re-engaged by the same employer within a specified period (usually two or three months depending on the legislation). However, the period during which the employer was not employed does not normally count as service for the purposes of calculating total service.

These provisions were intended to broaden the scope of the relevant legislation to include casual employees in recognition of the irregular nature of casual employment. However, the legislation is usually couched in terms that would include an employee in the above circumstance.

Where the reason for termination was due to a downturn in trade, the period between termination and re-engagement by the same employer may be unlimited. However, the period the employee was not employed does not count as service for the purposes of determining total service when calculating long service leave.

The bottom line: There is no statutory prohibition to re-employing an employee whose position was previously made redundant. However, it may create issues with respect to taxation and unfair dismissal if there is doubt the dismissal was actually a genuine redundancy.
 

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