Key legal considerations to be aware of if you are thinking of making a position redundant

Anna Ford

Elements of a "genuine redundancy"

The term "redundancy" in an employment context refers to a situation where an employer no longer requires the role that the relevant employee(s) has/have been performing to be performed.  The focus is the job, or the removal of the particular position from the company personnel structure, so it is important to keep in mind that it is quite possible for a redundancy to arise even in circumstances where the duties of a particular position are reallocated to other existing or remaining employees.

One key point for employers and employees alike to note is that an unfair dismissal application will not succeed if the dismissal qualifies as a "genuine redundancy".

The term "genuine redundancy" refers to situations where: 

"Consultation"

Employers are required to consult with employees about a proposed restructure as soon as possible in the decision-making process, or more specifically, as soon as a decision to consider a restructure and the possibility of redundancies has been made.

The purpose of consultation is to assist management by giving it access to ideas or options that they may not have otherwise considered, as well as to provide the potentially impacted employees with an opportunity to reduce the impact of any negative effects likely to come about as the result of a proposed restructure.  

The typical steps include:

  1. Explain the situation that has made the restructure necessary (i.e. the reason behind the restructure and redundancies being considered in the first place) - what is the business hoping to achieve?;
  2. Provide an outline or framework of the proposed restructure (e.g. explain the company structure now and compare it to the proposed company structure if the redundancy/redundancies is implemented);
  3. Ask for input from the potentially impacted employee(s), carefully considering any responses/suggestions put forward; 
  4. Make a final decision; and
  5. Implement the decision.

The information in steps 1 and 2 must be given in writing, ideally following a face to face meeting at which the information is initially conveyed.

Redeployment

A person's dismissal will not qualify as a "genuine redundancy" if it would have been reasonable to redeploy the employee, i.e. place the employee in another role within the employer's business, or the business of an associated entity of the employer.  

In determining whether or not there is a reasonable redeployment opportunity - the following factors must be considered:

Essentially, the employee should have the relevant skills, experience and qualifications required to perform the role either immediately, or within a reasonable period of associated training.

If you as an employer have positions available that the employee has the skills to perform, you should not assume that the employee will refuse the position - even if it is at a lower level.
 
Redundancy Pay

Once it has been established that the role is no longer required, and both the consultation and redeployment steps have been addressed, attention must be turned to the calculation of the redundancy package - which consists of the following:

  1. Notice;
  2. Redundancy pay; and 
  3. Accrued leave.  

Typically, employers will need to refer to the National Employment Standards in order to calculate the amount of notice and redundancy pay required - although this may not be the case if the relevant employment contracts or workplace polices provide for a greater, or specific amount to be paid.  The relevant amount of accrued leave will ordinarily include accrued annual leave, and for your longer serving employees, the possibility of accrued long service leave.

Another crucial point for both employers and employees to note is that employers with less than 15 employees are exempt from having to pay the "redundancy pay" component.

Variation of Redundancy Pay - obtaining "other acceptable employment"

If you are able to obtain or secure "other acceptable employment" for an employee who would otherwise be entitled to redundancy pay due to the fact that you no longer require their job to be performed, you can apply to the Fair Work Commission for a determination that the amount of redundancy pay under the Fair Work Act be reduced to a specified amount, which may be nil.

The Fair Work Commission applies an 'objective' test when determining whether alternative employment is "acceptable", that is, the Commission looks at the particular circumstances of the role on offer as compared to the role that was made redundant - paying particular attention to the following (among other things):

A case study

Whether or not an alternate position qualifies as "other acceptable employment" was an issue considered by the Fair Work Commission in the case of Australian Footwear T/A Diana Ferrari [2018] FWC 7864 - which involved footwear retailer, Diana Ferrari.

To summarise this matter, Diana Ferrari applied to the Commission to vary the redundancy amount payable to a particular employee, Ms Tzortzis.
Specifically, Diana Ferrari had sought to have Ms Tzortzis' redundancy pay reduced to nil.  Ms Tzortzis opposed the application and sought the full amount of statutory redundancy pay.

The position made redundant was at the Diana Ferrari Store located at Birkenhead Point at Drummoyne ("the Birkenhead Store"), and the position offered by Diana Ferrari as "other acceptable employment" was at the Williams store located at Macquarie Centre at North Ryde ("Macquarie Centre Store").

The Commission held that the new position at the Macquarie Centre Store offered the same part-time hours, rate of pay and seniority that Ms Tzortzis had been receiving at the Birkenhead Point Store, so the determining issue was Ms Tzortzis' commute to work.  The Commission was satisfied that the commuting time for Ms Tzortzis had not increased significantly, however, it then focussed on Ms Tzortzis' capacity to park her car at or near the Macquarie Centre Store.

Free street parking was available to Ms Tzortzis at Birkenhead Point Store, however parking at the Macquarie Centre Store cost $10 a day, or $50 a week.
The Commission took that additional expense into account in reaching its decision, as well as the fact that Ms Tzortzis was earning an award rate of pay, and concluded that given the additional expense for parking, Ms Tzortzis has not been offered "other acceptable employment" and refused to reduce the redundancy pay to which she was entitled.

If you have a query relating to any of the information in this article, or you would like to speak with a lawyer in Coleman Greig's Employment Law team with regard to your own redundancy matter, please don't hesitate to get in touch: