Getting the redundancy process right

Getting the redundancy process right

Workplace redundancies come with a unique set of rules that must be followed carefully. Failing to do so puts employers at risk of facing unfair dismissal claims from their employees.

A recent case heard by the Fair Work Commission (FWC) is a cautionary tale to employers about the need to understand what constitutes a genuine redundancy. In Alesia Khliustova v Isoton Pty Ltd [2023] FWC 658 (28 April 2023), a telecommunications company, told a software engineer and two other employees, via a Zoom call, their positions would be made redundant. The company followed this up the next day with an email confirming their redundancies would take effect the following month.

The FWC found the employer failed to establish that it genuinely made the software engineer redundant because consultation was ‘at best a perfunctory exercise’ and because it should have offered her a lower-paying job available at a related entity in India. In response to the employer’s stated belief that the software engineer would not have accepted such a role, given its location and the fact it paid less than her Australian role, the FWC warned that it is “dangerous for employers with redeployment options to fetter offers based on their own prejudices.

The following steps will help you get the redundancy process right:

 

Step 1: Are you a ‘national system employer’?

You may need to follow these steps if you are a ‘national system employer’ under the Fair Work Act 2009 (Cth). Most businesses registered in Australia fall under this category. However, some businesses may not be required to pay ‘redundancy pay’ if:

• They are a business with less than 15 employees (including the employee you want to make redundant and any regular casual employees);
• The employee being made redundant was employed for less than 12 months of continuous service; or
• The employee was employed for a specified period of time, for a specified task, or for the duration of a specified season.

 

Step 2: Does a modern award or enterprise agreement apply?

 

Modern awards and enterprise agreements often have different procedural requirements and redundancy pay provisions to what is set out under the Fair Work Act. Make sure you know which award or agreement (if any) applies to the employee.

 

Step 3: Ensure you can prove the ‘change in operational requirements’.

Under the Fair Work Act, a ‘genuine redundancy’ is when an employee’s job is no longer required to be performed by anyone because of ‘changes in the operational requirements’ of the employer’s business.

Some recognised examples of ‘changes in operational requirements’ are:

• New technology can do the job;
• The job is being outsourced;
• Your business is experiencing a downturn and needs to downsize; and
• You are restructuring the business to improve efficiency and the tasks done by a particular employee are distributed between several other employees and therefore the relevant employee’s job no longer exists.

When informing the employee about the redundancy, you are not required to provide evidence of the change in operational requirements. Such evidence would usually be considered the employer’s privileged information and not something the employee is inherently entitled to. However, if the employee makes an unfair dismissal claim, the obligation is then on the employer to prove this was a genuine redundancy. In such circumstances, you would need to provide documentary evidence of the change in operational requirements. So, it is important to record notes, reports, or correspondence to prove that change in your operations.

 

Step 4: Redeployment

Proving a change in operational requirements is not enough. You should have also properly considered if there are any other roles within your company or related entities that the employee could fill.

To ensure you’ve done your due diligence, search for available jobs in your company and related entities and consider whether any of the available jobs suit the employee? Make sure you record your findings. Factors to consider are:

• The nature of available positions;
• The qualifications required of the alternative positions;
• The employee’s skills, qualifications, and experience; and
• The location and level of remuneration in the alternative position.

Some examples of a record for this step would be:

• Offering an alternative position to the employee;
• Keeping a record of the available positions and their requirements; and
• Inviting the employee to inform you if they are interested in any other roles.

If you would like to avoid paying redundancy pay and keep the employee within the business, you will need to show that you have considered the above factors and that the new role offered is ‘reasonably suitable’ for the employee and ‘directly comparable’ to their existing role.

If you would prefer to make the employee redundant, you need to prove that it was ‘not reasonable in consideration of all the circumstances to redeploy the employee’.

Most disputes over redundancy occur at this step.

 

Step 5: Consult, even if you don’t have to

If you are required to consult with the employee under an award or enterprise agreement, you should consult with them before making any decisions to make them redundant.

Consider going through this process even if you are not required to; it may help ease the redundancy process.

When consulting with the employee, you should:

• Invite them to a meeting in writing;
• Take notes during the meeting;
• During the meeting – explain the process, give reasons for the potential redundancy, and answer any questions the employee might have. Be prepared to give them options of what redeployment or redundancy pay might look like; and
• After the meeting, give them a letter clearly outlining the conclusion of the meeting and next steps.

At all times, offer support to the employee. This can include providing information on their entitlements, offering outplacement support, and assisting with job search efforts.

 

Step 6: Announce the redundancy and pay redundancy pay

Send a final letter announcing the redundancy that clearly outlines the employee’s entitlements.

What you do next (and whether you apply step 6A or 6B) will depend on the employee’s future employment with you.

 

Step 6A: Redeploy

If you have offered a new role to the employee and they accept the role, it is important to clearly outline how the transition into the new role will occur and whether their service will continue with the same employer.

At this stage, you should also have a new employment contract prepared for the redeployed employee, clearly setting out the terms of their new role.

 

Step 6B: Enter a Deed of Release

If:

• the employee has not been offered or accepted a new role; or
• you think the redundancy will be challenging for the employee; or
• the employee is likely to bring a claim against you,

then it may be appropriate to enter a Deed of Release with the employee.

A Deed of Release is a binding agreement in which an employee agrees to waive their right to make a claim against their employer in exchange for a certain ex-gratia payment in addition to their redundancy pay.

 

How can we help?

As you can see, there are many issues to consider if you need to effect a redundancy. If you have any doubts about your redundancy process, you should consult a Human Resources professional.

You can find out more about working with Marsh & Partners here. As your Absolute.Account.Ability partner we’re on a mission to make your business life better. If you need high-level support for your business, get in touch with our specialists on 07 3023 4800 or at mail@marshpartners.com.au.