Redundancy is one of the most significant events in an employment relationship. While it can be sudden and unsettling for employees, for employers it carries a set of legal obligations that, if not properly followed, can result in costly disputes.
A business must comply with redundancy laws if the business employs more than 15 employees, and the employee has more than 12 months of continuous service.
The Fair Work Act 2009 (Cth) sets out when a dismissal qualifies as a genuine redundancy, what entitlements flow from it and what process must be followed. Where those requirements are not met, an employee may have grounds to pursue an unfair dismissal claim, regardless of whether the underlying business decision was commercially sound.
Understanding how these requirements operate in practice is key to managing that risk and ensuring the redundancy process is carried out correctly.
When is a redundancy considered valid?
Under section 389 of the Fair Work Act 2009 (Cth), a dismissal will only be treated as a genuine redundancy where three conditions are met:
- The employer no longer requires the job to be performed by anyone due to changes in operational requirements
- The employer has complied with any consultation obligations under an applicable modern award or enterprise agreement
- It was not reasonable in all the circumstances for the employee to be redeployed within the enterprise or an associated entity.
All three elements must be satisfied. If any of these requirements are not met, the redundancy may be open to challenge as an unfair dismissal.
Consultation and redeployment
Consultation is one of the most commonly overlooked parts of the process. Most modern awards (which set minimum employment conditions for many industries) require an employer to notify and consult with affected employees once a definite decision has been made about a significant workplace change. Notifying employees after the fact or running a process that is effectively a formality will not satisfy this obligation.
The redeployment requirement is similarly broader than many employers appreciate. It extends beyond the employer’s immediate business to any associated entity, including related bodies corporate. Employers should actively assess whether suitable alternative roles exist and document that process. A failure to do so can undermine an otherwise legitimate redundancy.
Ulan Coal Mines Ltd v Howarth
The redeployment obligation was examined by the Full Court of the Federal Court in Ulan Coal Mines Ltd v Howarth. Following a downturn in operations, a number of employees were made redundant. The employer argued that no suitable roles were available, however, the evidence did not support a conclusion that this had been properly assessed or that employees had been considered for alternative positions.
The Court found that the redeployment requirement had not been adequately addressed, confirming that a general assertion that no roles are available is not sufficient. Employers are expected to undertake a proper assessment and, where relevant, document why redeployment was not considered reasonable, particularly where the decision may later be tested.
Converge International Pty Ltd v Stewart
The interaction between consultation and redundancy was considered in proceedings before the Fair Work Commission in Converge International Pty Ltd v Stewart. The employer restructured its operations and made several positions redundant but did not follow the consultation process required under the applicable modern award.
The Commission found that this failure meant the dismissal did not satisfy the statutory definition of a genuine redundancy. Despite the restructure being operationally justified, the procedural gap was enough to bring the matter within the unfair dismissal provisions. The outcome is a clear reminder that commercial logic alone does not determine the legal validity of a redundancy.
Where employers often come unstuck
In practice, most redundancy risks do not arise from the business rationale itself, but from how the decision is structured and implemented.
Some of the more common and less obvious areas of exposure include:
1. Treating redeployment as optional rather than mandatory
The redeployment obligation extends beyond the immediate business to associated entities and requires more than a general assumption that no roles are available. Employers can come unstuck where they fail to properly consider:
- Roles in different locations or business units
- Positions at a lower level or
- Opportunities that could be performed with reasonable retraining.
The legal test is whether redeployment would have been reasonable in all the circumstances, not whether it was convenient.
2. Using redundancy to address performance or conduct issues
Redundancy is concerned with the role, not the individual. Risk arises where:
- An employee is selected for redundancy because they are perceived as the weakest performer;
- Performance concerns influence who is made redundant; or
- Redundancy is used as a more straightforward alternative to performance management.
If the role itself continues to exist, the dismissal may not be a genuine redundancy and may be open to challenge on broader grounds.
3. Failing to properly identify whether the role is genuinely redundant
A redundancy requires that the job is no longer required to be performed by anyone.
In practice, issues arise where:
- Duties are redistributed across other employees;
- A new role is created with substantially similar responsibilities; or
- The title changes but the function remains largely the same.
In these circumstances, a redundancy may be challenged on the basis that the role still exists in substance, even if it has been restructured.
4. Inadequate or poorly timed consultation
Consultation is often addressed but not always effectively.
Employers can come unstuck where:
- Consultation occurs after the decision has effectively been finalised;
- Redundancy is presented as a fixed outcome rather than a proposal; or
- Employee feedback is not genuinely considered.
Even where a restructure is commercially justified, a failure to properly consult can prevent the dismissal from qualifying as a genuine redundancy.
Entitlements on redundancy
Where a redundancy occurs, employees will usually be entitled to redundancy pay under the National Employment Standards. This is calculated based on the employee’s period of continuous service, in accordance with section 119 of the Fair Work Act 2009 (Cth). Entitlements range from four weeks’ pay for employees with one to two years of service, up to sixteen weeks for those with nine or more years.
In addition to redundancy pay, employers are also required to provide notice of termination (or payment in lieu of notice), along with any accrued annual leave on termination.
Small businesses with fewer than fifteen employees are exempt from redundancy pay obligations. However, they are still required to comply with notice requirements and any applicable award entitlements.
Practical steps
For employers, a structured approach reduces the risk of a later dispute. This includes:
- Confirming the role is no longer required due to operational change.
- Reviewing consultation obligations under any applicable award or agreement.
- Conducting consultation before finalising the decision.
- Assessing redeployment options across the enterprise and any associated entities.
- Documenting the process and calculating entitlements correctly.
For employees, it is worth understanding whether the process followed by the employer met the legal requirements. This is particularly important given that an unfair dismissal application must generally be lodged within twenty-one days of the dismissal taking effect, making it important to seek advice promptly.
Employment law advice
Redundancy involves both commercial decision-making and legal compliance, with the process often determining whether a dismissal will be considered valid. Meeting the requirements under the Fair Work Act 2009 (Cth) is essential for employers to avoid exposure and understanding those requirements can help employees identify whether the approach taken was lawfully conducted.
If you require advice on redundancy, employment entitlements or workplace disputes, the team at Aubrey Brown Lawyers can assist. Contact us on (02) 4350 3333 or visit aubreybrown.com.au to arrange an appointment.
