Redundancy Basics: What employers need to know
Ending someone’s employment is never easy, but sometimes redundancies are a necessary part of business change. If you’re faced with offering employees redundancy, it’s essential to be across your legal obligations and to handle the process with care and empathy, so you can support employees while protecting your business from risk.
What is redundancy? How is redundancy different from other types of dismissal?
A redundancy is when an employment contract is ended because the role is no longer needed. This differs from other reasons for employment termination, such as poor performance or misconduct, because redundancy is about the role itself, not the individual, says Andrew Jewell, Principal at Jewell Hancock Employment Lawyers.
The Fair Work Act lays out three conditions for a redundancy to be considered “genuine”:
The employer no longer needs the role to be performed by anyone
The employer has complied with consultation obligations in any award or enterprise agreement
It was not reasonable to redeploy the employee within the business or an associated entity
Some common reasons for redundancy are:
An economic or business downturn that requires cutting back on staff
Business restructuring where roles are amended or not needed anymore
Adoption of new technology that automates a role
Business closure or relocation
It’s important to ensure the decision to make a role redundant is fair and lawful. As Jewell explains, redundancies must not be based on factors like age, pregnancy, or an employee raising a complaint.
Your legal obligations for redundancies
In Australia, redundancies are governed by the Fair Work Act 2009 and employers have a range of legal and compliance obligations, including notice period and redundancy pay.
Employers must follow certain steps to make sure the process is lawful when they make an employee redundant.
Consultation. A consultation process is often required under modern awards, enterprise agreements or internal redundancy policies. This involves consulting with the employee by notifying them in writing, discussing the reasons for redundancy and any alternatives offered, and considering feedback from the employee before making the final decision.
Notice of termination. Employers must give written notice of termination, with minimum periods set by the National Employment Standards (NES), or pay in lieu.
Redundancy pay. Employees may be entitled to redundancy pay under section 119 of the Fair Work Act, their contract, or enterprise agreement. However, redundancy pay generally does not apply to employees with less than 12 months of service or employees in businesses with fewer than 15 employees. Eligible employees must get redundancy pay based on how long they worked at the business, according to the NES. You can calculate it here. In some cases, businesses may opt to pay more as a gesture of goodwill.
Final pay. Along with any redundancy pay, or pay in lieu of notice, an employee’s final pay must also include unused annual leave and long service leave (if accrued).
Employees can also be entitled to bring a support person to meetings discussing a redundancy if they wish. While not legally required in all cases, offering this option is considered good practice and can be a show of fairness and compassion.
Employers should offer alternatives to redundancy
According to Jewell, what employers often miss is presenting redeployment and separation options within their business as genuine alternatives.
“It’s not enough to go through the motions. [Employers should] take the time to look for potential roles and document this process,” advises Jewell. “Not only does this put an employee more at ease with the outcome, but it also helps avoid potential unfair dismissal claims in future.”
If an employer doesn’t look for opportunities to find someone a different role within their business, it can increase the risk of an unfair dismissal claim. Even if the business has solid reasons for the restructure, skipping proper consultation or pushing employees toward a specific outcome can leave employers vulnerable.
Fair Work has more information on the legal requirements around redundancy. For specific advice, managers can talk to their company’s HR department or seek legal advice. If you’re an employer planning a large-scale restructure, you may want to get external change management support.
Beyond the legal requirements
While meeting legal obligations is essential, going above and beyond can make a big difference, for your employees, your workplace culture, and your company’s reputation.
“Employers who approach redundancy with care and compassion often fare better,” Jewell says. “This could mean communicating early and clearly, being transparent about timelines and payments, and simply taking the time to answer questions as they arise.”
Employers have the power to influence how redundancy is experienced, says Organisational Psychologist Dr Michelle Pizer. “Clear communication, respect and practical support – whether that’s giving someone time to wrap up, offering career transition services, or simply treating them with dignity – can help soften the impact and protect the long-term relationship, even when the working one ends.”
It’s important for employers to be mindful of the stress redundancy can cause for employees. Beyond the financial impact, redundancy often also has an emotional toll, no matter the stage of a person’s career. Small actions can make a big difference, says Jewell, such as:
Offering extra support like counselling or EAP
Drafting a letter of recommendation
Giving time off to attend job interviews
Extending an employee’s notice period
Additional redundancy compensation
How to support your team through redundancy
Employers often overlook the effect a restructuring can have on the people who remain in the business. Retained employees may be upset about colleagues leaving or the stress everyone is put under during the consultation process, advises Jewell. Your team also sees how redundancies are handled by the business and whether redundant employees have been treated well.
“While there are minimum requirements, employers should seek to apply some common sense and compassion – as a little of both can go a long way when handling redundancy,” he says. Even those who aren’t made redundant may lose trust and confidence in their employer, which could dampen productivity or their desire to stay on.
Also, think about the contributions a redundant employee might have made to projects or work-related tasks outside of their official role, and the employees who may now have to take on those tasks. Consider how to fill any incidental gaps that appear after a team member leaves, without putting pressure on the remaining employees.
Beyond the practical elements, think about what you can do to maintain or boost team morale, such as team events, recognition or extra check-ins.
Redundancies aren’t easy for employers or employees, which is why handling them with clarity and compassion makes such a difference. Aside from making sure your legal obligations are met, managing redundancies fairly and sensitively ensures employees feel supported, whether they’re leaving the business, being redeployed, or are remaining in their roles.