A guide to redundancy under the Fair Work Act

The Fair Work Act has narrowed the scope of redundancy requirements while expanding employers’ obligations to their employees. Lisa Berton outlines the changes the new regime has introduced and the impact it is likely to have.

The redundancy requirements under the new Fair Work Act are narrower in scope than previous legislation. There are now more hoops that employers need to jump through to ensure they do

not leave themselves open to an unfair dismissal claim — or alternatively, an adverse action claim.

A dismissal is not unfair if it is for reasons of genuine redundancy. For a redundancy to be considered genuine (and therefore a possible defence to any unfair dismissal claims) a company must:

• no longer require the person’s job to be performed by anyone because of changes
• in the operational requirements of the employer’s enterprise;
• comply with any obligation in a Modern Award or Enterprise Agreement to consult about the redundancy. Where a company is seeking to make 15 or more employees redundant there are also additional notification and consultation provisions under the Fair Work Act with respect to Centrelink and employee associations (ie, unions); and
• make reasonable efforts to redeploy the employee within the employer’s enterprise or within an enterprise of an associated entity of the employer.

Rethinking the ‘hire and fire’ mentality

The new requirements will have a significant effect on businesses’ human resources strategies.

This is especially important due to the change in unfair dismissal rules under the Fair Work Act, which removes the exception to unfair dismissal claims for companies with less than 100 employees and replaces it with the concept of a small business employing less than 15 employees.

Companies need to think about incorporating the National Employment Standards (NES) into employment contracts and policy documents (which came into effect on January 1, 2010).

Companies will need legal guidance to assist them, particularly while the parameters of the legislation are still being mapped out in test cases before Fair Work Australia.

Importantly, companies should be mindful about amending policies or employment contracts to provide for an entitlement to redundancy where no such entitlement existed before January 1, 2010.

This is because before January 1, 2010 service only counted towards calculating the amount of redundancy pay under the NES where an employee had a right to redundancy pay before January 1, 2010.

Redundancy: not the only solution

One of the major effects of the global financial crisis (GFC) has been the ongoing reduction of staff across most industry sectors.

While Australian economic commentators are now predicting the worst is over, recent surveys of HR managers have indicated that employers are still acting cautiously and have not ruled out further workforce cuts.

Parts of the new Fair Work Act came into effect on July 1, 2009, with the redundancy provisions coming into effect from January 1, 2010 in line with the NES.

For those companies looking to further reduce their workforce, the redeployment requirement will have a major effect.

While the extent to which an employer must go to redeploy an individual before making them redundant is still unclear, one thing that is as clear as crystal is there is a positive obligation on the part of employers to look for other opportunities within the company’s broader structure (including associated entities) to redeploy the employee. It should be noted that the requirement to redeploy must be "reasonable in all the circumstances".

Although no specific guidance has been provided to date, factors that may contribute to reasonableness include the qualifications and experience of the employee in relation to the other roles available within the company’s broader structure.

For medium to large entities, this requirement makes the process of redundancy more complex and time-consuming. Yet it may in fact deliver significant benefits too.

Redundancy, redeployment or retention?

When a business is faced with falling revenues, downsizing can be seen as a rapid way to reduce costs.

However, some employers fail to recognise the long-term effect it can have on reputation, staff engagement or business performance. Redeployment, on the other hand can help to balance these negative effects.

It may not be practical for a business to redeploy all employees, but it can be an effective way to retain loyal people who know the business well.

Reinvesting the money that would be spent on redundancy payouts into education and training will also help protect the company’s reputation and staff morale.

It’s important to recognise that what is seen as a ‘reasonable’ redeployment option will vary for each individual — and employers should avoid making that determination unilaterally.

If there are redeployment options available that would require the employee to relocate or take a pay cut, the employer should still present the option, rather than making assumptions that this would not be palatable.

Any decision to put forward a relocation or pay cut offer to an employee should be considered in the context of two further considerations:

• Where the location of the position is a central element of the employment contract, there is still a chance that a redundancy will be held to occur. If relocation is an option companies wish to utilise they should consider inserting appropriate provisions allowing for relocation in employment contracts; and
• Modern awards and enterprise agreements may provide for payments in situations where employees are transferred to positions on lower pay.

Under the old WorkChoices legislation, the regulatory watchdog heard several cases where businesses failed to offer employees a reasonable redeployment option for which they were duly qualified and which the employee would have accepted.

If this type of consideration arose from legislation that did not contain a redeployment requirement, it will not be surprising to find the same — if not weightier — consideration being applied by Fair Work Australia.

This issue may be particularly pertinent in the context of the GFC; numerous studies have shown that employees are often willing to accept fewer hours and potential pay cuts in order to keep a job during the downturn.

Open and honest wins the day

In times like these, redundancy is a word that is whispered in office hallways in conspiratorial tones. To some employees, it can seem as if redundancy is no longer an ‘if’ but a ‘when’. This is not a culture that businesses should be tolerating in their workforce.

Companies can be assured that insecure employees will take the time to understand how redundancy programs should be implemented, and will be prepared to take action against the company if they suspect foul play.

Open and honest communication is essential when implementing a redundancy program. A thorough and open ‘exit strategy’ can help to restrict the number of disgruntled employees who make unfair dismissal claims.

Do's and don’ts of redundancy under the Fair Work Act

• Comply with any notification and consultation procedures in applicable Modern Awards or Enterprise Agreements and the Fair Work Act.
• Consider whether redeployment is an option before making redundancies. Offer redeployment if available. Don’t assume the employee will not be interested in the redeployment opportunity. Give the employee the option to decline the offer.
• Keep written documents of redeployment considerations and consultations, as these may prove beneficial should an unfair dismissal or adverse action claim be brought by terminated employees.
• Ensure that employees are provided with the right benefits where Modern Awards or Enterprise Agreements provide for paid leave to seek other employment.

Lisa Berton is an employment lawyer at Kemp Strang Lawyers.