Redundancy: is payment in lieu of notice required??


Redundancy: is payment in lieu of notice required??

Should employees receive pay in lieu of notice and redundancy pay, or can you offset one against the other? Paul Munro explains.

Should employees receive pay in lieu of notice and redundancy pay, or can we offset one against the other?

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

Q Our company is making some positions redundant at the end of September. The affected employees are directly involved with clients so they will be terminated without notice. The employees will be paid the appropriate redundancy pay and payment in lieu of notice of termination.

In determining each employee’s total termination payment, it is our intention the payment in lieu of notice will be offset against the amount of redundancy pay applicable under the National Employment Standards. In our view, the payments are related to the same circumstance – that is, the employee positions becoming redundant. One of our senior managers has questioned the legality of merging both payments into one termination payment.

Are these employees entitled to payment in lieu of notice of termination and also the relevant redundancy pay in this circumstance?

A  Payment in lieu of notice and redundancy pay represent two separate entitlements. There is a distinction between the nature and purpose of a period of notice or payment in lieu and a redundancy payment.

A period of notice is to give an employee the opportunity to adjust to the change in circumstances and to seek other employment. Redundancy pay is to provide an employee with sufficient remuneration to cover an anticipated period of unemployment. This means employees are entitled to payment in lieu of notice and, in addition, redundancy pay.

While the two payments are often treated together to arrive at a total redundancy package, the separate nature and purpose of the two entitlements remains.

Under the Fair Work Act and the National Employment Standards, an employer is required to provide both the appropriate minimum period of notice of termination to an employee as well as payment of the relevant redundancy pay when an employee’s position becomes redundant. The two entitlements are mutually exclusive and must be treated and recognised separately.

The distinction is reflected in Articles 11 and 12 of the International Labour Organisation Convention Concerning Termination of Employment at the Initiative of the Employer, which was the Convention adopted by the (then) Australian Industrial Relations Commission in the initial Termination, Change and Redundancy Case, which inserted these provisions into federal awards.

The bottom line: Payment in lieu of notice of termination and redundancy pay are two separate employment entitlements under the National Employment Standards and must be paid on termination of employment.

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