The Rules of Redundancy
The business is booming, making money, and life is good. Suddenly, things take a turn for the worse, and you are forced to let staff go to make ends meet. Many of our members have been fortunate enough to avoid dealing with redundancy, but when a situation arises where an employee or group of employees must be made redundant, it can be challenging for business owners to navigate the complex requirements.
A redundancy is genuine if you no longer require anyone to perform a role which an employee currently holds. This can occur due to operational requirements of the business such as:
- closing down or sale of the business.
I need to reduce my team of five sales employees to three as a result of economic downturn affecting the business. What rules are there to follow when choosing who will remain employed and who will become redundant?
There are a few ways to select which employees will be made redundant during a downsizing process. The fairest and reasonable way to select which employees will be made redundant is through a skills matrix. When selecting employees, it is important to link your decisions with the operational requirements of the business. The selection criteria should be objective, non-discriminatory, and consistently and fairly applied.
Best practice would be to map all of the affected employees on a matrix, against a series of selection criteria to clearly see which employees best suit the requirements of the business moving forward. Examples of possible selection criteria to use in your skills matrix would be:
- Required skills: relevant experience, training, qualifications
- Productivity levels (using objective, quantifiable records): sales data, daily production rates
- Performance-based (be careful as this can get subjective; it is important that performance-based selection is still closely linked to skills and productivity)
Remember: termination for redundancy can only occur where the job is genuinely no longer required by the business; it should not be used as a way to deal with concerns about an employee’s performance or conduct.
Do I always have to offer a redundant employee another role within my business?
No. You only need to redeploy an employee if it is reasonable to do so. If you do not have a suitable position for the employee, that is okay. For redeployment to be reasonable:
- The employee must have the skills and competencies required, either immediately or with a reasonable period of retraining;
- The job must be located in a feasible position, and if not, there should be consideration for extra travel expenses; and,
- A similar rate of pay must be offered.
I am making an employee redundant. They have been a full time employee for two years, and before they were full time they spent a year as a casual. What redundancy are they entitled to?
While a casual employee is not entitled to receive redundancy pay under the Fair Work Act (s123(1)(c), their service as a casual may count under certain circumstances.
Redundancy pay is based on the number of years of ‘continuous service’ the employee has completed with their employer.
If the employment period as a casual was ‘irregular or uncertain’, or the employee was called in as required with no expectation of continued employment, it could be argued that this service was non-continuous. For the purpose of redundancy pay, service for this employee would be deemed to have commenced from the time the employee converted to full time.
However, if the employee worked ‘regular and systematic’ weekly hours with a reasonable expectation that employment was ongoing, then the period of ‘casual’ employment would count as service for the purpose of redundancy pay.
Is there a maximum amount of redundancy pay an employee can receive?
There is no maximum monetary amount that an employee can be paid as redundancy pay. The National Employment Standards (NES) set out the minimum redundancy pay entitlement, which can be varied by an enterprise agreement, modern award, employment contract or your workplace policies.
An employee is entitled to a certain number of weeks’ redundancy pay depending on their length of service. The entitlement must be paid at the employee’s base rate of pay for their ordinary hours of work. A high income does not make an employee exempt from redundancy pay.
I am making an employee redundant and they have completed nine years of service. What happens to their long service leave?
In Queensland, the entitlement to long service leave is reached at 10 years of continuous service. However, employees who have completed seven but less than 10 years’ continuous service are entitled to pro-rata long service leave if the employer dismisses the employee for a reason other than the employee’s conduct, capacity or performance.
The redundant employee will be entitled to a pro-rata payment of their long service leave.