Redundancy in Australia: Genuine Redundancy, Consultation and Employer Risk

What Redundancy Means

Redundancy is the dismissal of an employee because the employer no longer requires the job to be performed by anyone. The focus is on the job and on the operational requirements of the business, not on the employee's performance, conduct or suitability. A dismissal dressed up as redundancy that is in substance a performance termination, a personality removal or a response to a complaint is not a redundancy and will be treated by the Fair Work Commission as the dismissal it actually is.

Genuine Redundancy Under the Fair Work Act

Section 389 of the Fair Work Act defines what counts as a 'case of genuine redundancy' for the purposes of unfair dismissal. A dismissal is a case of genuine redundancy only if:

• the employer no longer required the person's job to be performed by anyone because of changes in the operational requirements of the employer's enterprise;
• the employer has complied with any consultation obligations in a modern award or enterprise agreement that applies to the employment; and
• it would not have been reasonable in all the circumstances to redeploy the person within the employer's enterprise or the enterprise of an associated entity.

All three limbs must be satisfied. Where any one fails, the redundancy is not 'genuine', the unfair dismissal defence falls away, and the dismissal is assessed on its merits under section 387.

When a Role Is No Longer Required

A role is no longer required where the duties cease, disappear, are absorbed entirely into other roles or are outsourced. It is not enough that the employer prefers a different person in the role, that the role has been re-titled, or that the role has been split into two with substantially the same combined duties. The question is whether the actual work corresponding to the position continues to be performed, by anyone, in the same or a recognisable form.

Hiring a replacement for the same or substantially the same role shortly after the dismissal is almost always fatal to the redundancy defence. So is hiring the replacement under a different title that performs the same duties. Both are common and avoidable mistakes.

Operational Reasons for Redundancy

The operational reason must be real, contemporaneously documented and capable of independent verification. Common operational reasons include:

• downsizing or restructure in response to revenue, margin or strategic change;
• automation, technology change or outsourcing of a function;
• the loss of a key customer, contract or revenue stream;
• the closure or sale of a discrete business unit or location;
• a merger or acquisition that produces duplicate roles; and
• a genuine cost-reduction program backed by financial information.

Board papers, executive minutes, financial information, restructure plans, organisational charts and decision-maker file notes are the evidence the Commission will look for. A redundancy supported only by an after-the-event assertion that "the business needed to restructure" will not survive scrutiny.

Consultation Obligations

Consultation is the single most-litigated limb of section 389. The obligation comes from the consultation clause in the applicable modern award or enterprise agreement, not from section 389 itself — section 389 simply requires compliance with that clause. Almost every modern award contains a consultation clause. Most enterprise agreements do too.

A model consultation clause requires the employer, when it has made a definite decision to introduce major workplace change likely to have a significant effect on employees, to:

• notify the affected employees and any representative (often a union) as soon as practicable after the decision is made;
• discuss the introduction of the changes and the effect they are likely to have on the employees;
• discuss measures the employer is taking to avert or mitigate the adverse effects of the changes; and
• promptly consider matters raised by the employees in relation to the changes.

Consultation must be genuine. A meeting convened on the day of dismissal to inform the employee of an irrevocable decision is not consultation. Consultation must occur early enough that the employee's input can actually influence the outcome — including, where relevant, the selection decision, the alternatives to redundancy, and the redeployment search.

Modern Awards and Enterprise Agreements

The actual instrument applying to the employee must be checked. Modern awards differ in the detail of their consultation clauses, particularly around the timing of notification, the form of written information that must be provided, and union involvement. Enterprise agreements often have additional or more onerous obligations negotiated between the parties.

A failure to comply with the consultation clause is also a separate breach of the award or agreement, exposing the employer to civil penalty proceedings — including against individuals under section 550. Compliance with the actual clause, not a generic model term, is essential.

Redeployment Obligations

Section 389(2) is a separate, independent obligation. A dismissal is not a case of genuine redundancy if it would have been reasonable in all the circumstances to redeploy the employee within the employer's enterprise or the enterprise of an associated entity.

The obligation is active. The employer must actually consider available vacancies (including in associated entities), assess the employee's suitability for those vacancies, and consider redeployment to roles that may differ in title, location, duties, hours or seniority provided redeployment is reasonable. A redeployment search limited to "the role you currently do" is no search at all. The Commission will expect to see evidence — vacancy lists, role descriptions considered, conversations with the employee about preferences and capability, and a written assessment of why redeployment was not reasonable.

Selection Criteria

Where more than one employee performs the role being reduced, a selection pool is created and criteria must be applied. Defensible selection is:

• Objective — criteria such as skills, qualifications, performance against contemporaneous records, experience, breadth of capability, disciplinary record;
• Written — criteria, weightings and scoring on paper or in the HR system, prepared before the scoring occurs;
• Contemporaneously scored — by the actual decision-makers, with reasons recorded against each criterion;
• Independent of protected attributes or conduct — criteria that proxy for periods of leave, complaints, union membership, age, pregnancy, carer's responsibilities or disability are dangerous and frequently produce adverse-action claims (see our companion article on general protections and adverse action).

Documentation

Redundancy cases are decided on the documents. The minimum redundancy file should contain:

• board or executive minutes recording the operational decision;
• a written restructure or change plan, with current and proposed organisational charts;
• the pool composition, selection criteria, weightings and scoring;
• evidence of the redeployment search, including roles considered, conversations with the employee and reasons redeployment was not reasonable;
• copies of all consultation communications — meeting agendas, written information, file notes, emails;
• the redundancy letter, with clear reasons and effective date;
• the calculation of redundancy pay, notice and accrued entitlements; and
• any legal advice obtained before the decision was communicated.

Redundancy Pay

Redundancy pay is set by section 119 of the Fair Work Act and scales with continuous service:

• at least 1 year but less than 2 — 4 weeks;
• at least 2 but less than 3 — 6 weeks;
• at least 3 but less than 4 — 7 weeks;
• at least 4 but less than 5 — 8 weeks;
• at least 5 but less than 6 — 10 weeks;
• at least 6 but less than 7 — 11 weeks;
• at least 7 but less than 8 — 13 weeks;
• at least 8 but less than 9 — 14 weeks;
• at least 9 but less than 10 — 16 weeks; and
• 10 years or more — 12 weeks (reduced because of the long service leave entitlement that arises at that point).

Modern awards and enterprise agreements may provide more generous redundancy entitlements; the employee is entitled to whichever is greater. Redundancy pay is in addition to notice, accrued annual leave, accrued long service leave and any contractual termination payments.

Notice

The minimum notice period under section 117 of the National Employment Standards scales with service:

• not more than 1 year — 1 week;
• more than 1 year but not more than 3 — 2 weeks;
• more than 3 years but not more than 5 — 3 weeks; and
• more than 5 years — 4 weeks.

An additional 1 week applies where the employee is over 45 and has at least 2 years of continuous service. The employer can pay the employee in lieu of notice. Modern awards, enterprise agreements and employment contracts often provide longer notice — again, the employee is entitled to whichever is greater.

Small Business Considerations

A small business employer (fewer than 15 employees on a headcount basis, including associated entities and regular casuals) is exempt from the redundancy pay obligations in section 119 (section 121). The exemption does not apply to the genuine-redundancy test in section 389 — small business employers must still satisfy the operational reason, consultation and redeployment limbs to defeat an unfair dismissal claim.

The minimum employment period for unfair dismissal is 12 months for small business employers (rather than 6 months), which gives small employers a longer initial window. After that window, the section 389 analysis applies in the same way.

Fixed-Term and Casual Employees

A fixed-term employee whose contract expires by effluxion of time has not been 'dismissed' for unfair dismissal purposes and section 389 does not arise. Care is needed where rolling fixed-term contracts have created an expectation of ongoing employment — recent decisions have been increasingly willing to treat a non-renewal as a dismissal where the substance of the arrangement is permanent.

Casual employees on a regular and systematic basis with a reasonable expectation of continuing employment can bring unfair dismissal claims if their casual engagement is terminated in circumstances that look like a redundancy. Casuals are not entitled to redundancy pay under section 119 in any event, but the genuine-redundancy analysis still matters for the unfair dismissal defence.

Risks of Sham Redundancy

Sham redundancies are common and they almost always go badly for the employer. The tell-tale signs are:

• the redundant employee is replaced soon afterwards by a new hire performing substantially the same work;
• the duties continue, simply re-titled, re-allocated to a single existing employee, or both;
• the redundancy follows shortly after a complaint, a leave request, a workers compensation claim, parental leave or a relationship breakdown with a manager;
• only one employee is in the pool, and the employer cannot explain why other potentially comparable roles were excluded;
• there is no contemporaneous documentation of the operational reason; and
• the consultation and redeployment processes are perfunctory or non-existent.

Where these features are present the unfair dismissal defence will fail and a general protections claim is the usual sequel.

Relationship with Unfair Dismissal Claims

Genuine redundancy is a complete defence to unfair dismissal under Part 3-2 — see our companion article on unfair dismissal claims in Australia. If the defence fails, the Commission applies the section 387 criteria: was there a valid reason, was the employee notified of the reason, were they given an opportunity to respond, were they unreasonably refused a support person, was there a warning history for any performance issue, and what about the size of the employer and the absence of HR resources. Most of those criteria are not satisfied by a process designed as a redundancy.

Relationship with General Protections (Adverse Action) Claims

Genuine redundancy is not a defence to a general protections claim. The question in that jurisdiction is why the particular employee was selected. Where selection criteria or pool composition were influenced by a workplace right (a complaint, a leave request, a workers compensation claim, parental leave) or a discriminatory attribute, the redundancy will not save the employer — and the reverse onus of proof in section 361 puts the employer on the back foot from the start. See our companion article on general protections and adverse action.

Common Employer Mistakes

• announcing the redundancy without any prior consultation;
• running 'consultation' meetings after the decision is already final;
• failing to check the applicable award or enterprise agreement consultation clause;
• limiting the redeployment search to the employee's existing team;
• using subjective or unrecorded selection criteria;
• scoring an employee down on attendance, recent performance or "fit" during a period of leave or a complaint;
• replacing the redundant employee with a new hire within weeks;
• failing to document the operational reasons; and
• communicating the decision before obtaining legal advice.

Practical Redundancy Checklist

1. Identify and document the operational reason — financial information, board minutes, restructure plan, organisational charts.
2. Identify the affected role(s) and the selection pool — and document why the pool is drawn the way it is.
3. Identify the applicable modern award or enterprise agreement and read the consultation clause carefully.
4. Provide written information to affected employees and any representative as soon as practicable after the decision is made.
5. Hold genuine consultation meetings — early enough to influence the outcome, with file notes and follow-up emails.
6. Apply objective, written selection criteria, scored contemporaneously by the actual decision-makers.
7. Conduct a documented redeployment search across the enterprise and any associated entities.
8. Issue written notice complying with section 117 (or longer instrument or contract entitlements).
9. Calculate redundancy pay under section 119 (or the more generous instrument entitlement).
10. Issue a redundancy letter that explains the operational reason, the consultation undertaken and the redeployment consideration.
11. Obtain legal advice before the decision is communicated, particularly where the employee is on or has recently returned from leave, has made a complaint, or has a workers compensation history.
12. Retain the entire file — most cases are decided on what was, or was not, in writing at the time.

How Parke Lawyers Assists Employers

We act for Australian employers, directors, HR teams and in-house counsel on:

• pre-decision advice on restructure, role-reduction and redundancy programs, including consultation, selection and redeployment;
• defending unfair dismissal claims that follow redundancy decisions in the Fair Work Commission;
• defending general protections (adverse action) proceedings in the Federal Court and Federal Circuit and Family Court;
• the commercial and corporate dimensions of restructures, business sales and outsourcings that produce redundancies — see our commercial and business law service;
• broader employer-side advice on employment law and litigation and dispute resolution.

Related Information Centre Articles

• Unfair Dismissal Claims in Australia
• General Protections Claims (Adverse Action) in Australia
• Can an Employer Terminate Employment for Serious Misconduct?
• Procedural Fairness in Workplace Investigations
• Employee or Contractor? The Risks of Getting It Wrong

Frequently Asked Questions