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 will not be treated as a redundancy. A concurrent performance concern does not itself prevent a job from genuinely becoming redundant — the question is whether the job is no longer required because of operational change, and what the actual reasons for the dismissal and any selection between employees were.

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. Section 385(d) of the Fair Work Act makes a case of genuine redundancy an exclusion from unfair dismissal jurisdiction under Part 3-2. Where any limb fails — including failure to comply with an applicable consultation obligation, even where the role was operationally redundant — the exclusion is not available and the dismissal is assessed against the section 387 criteria. Section 389 is not a general defence to a general protections claim, discrimination proceeding, breach-of-contract claim or a separate claim for breach of the applicable consultation clause.

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 kind of evidence the Fair Work Commission will look for. A redundancy supported only by an after-the-event assertion that "the business needed to restructure" is at real risk of not being accepted as sufficient.

Consultation Obligations

The consultation limb of section 389 is a frequent focus of litigation. The obligation itself comes from the consultation clause in the applicable modern award or enterprise agreement, not from section 389 — section 389 simply requires compliance with any such clause that in fact applies. Almost every modern award contains a consultation clause; most enterprise agreements do too. Where no such instrument applies to the employment, the section 389(1)(b) limb has nothing to bite on and the analysis moves to the other limbs.

A typical model consultation term for major workplace change requires the employer, once it has made a definite decision to introduce a major change in production, program, organisation, structure or technology 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 a completed decision does not meet the usual model term. Under that term, employees and any representative must have a genuine opportunity to raise matters about the change, its likely effects, measures the employer is taking to avert or mitigate adverse effects, alternatives (including redeployment) and, where selection has not already been finally determined, selection. The employer must promptly consider matters raised. What consultation covers, and whether the employer is required to reopen aspects of the operational decision itself, depends on the actual wording of the applicable clause.

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 drawn and criteria applied. Objective, written selection criteria, scored contemporaneously by the actual decision-makers, are prudent risk-management practice rather than express statutory elements of section 389. In practice, defensible selection should ordinarily be:

• Objective — for example skills, qualifications, performance against contemporaneous records, experience, breadth of capability and 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; and
• Independent of protected attributes, workplace rights and industrial activity — criteria that proxy for periods of leave, complaints, union membership, age, pregnancy, carer's responsibilities or disability create adverse-action and discrimination exposure (see our companion article on general protections and adverse action).

Documentation

Contemporaneous records can be important evidence if a redundancy is later challenged. A sensible redundancy file typically contains:

• 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.

Sections 117 and 119 set National Employment Standards minimums. Under sections 55 and 56, awards and enterprise agreements cannot exclude the NES but may include terms that supplement them; employment contracts may confer additional or longer entitlements. Whether an award, enterprise-agreement or contractual amount is cumulative with, inclusive of, offset against or in substitution for the NES amount depends on the wording of the applicable instrument or contract and must be assessed in each case. Under section 120, the Fair Work Commission may on application reduce the amount of redundancy pay where the employer has obtained other acceptable employment for the employee or cannot pay the amount. Section 122 addresses transfer of employment and can affect whether prior service counts and whether redundancy pay is payable on a transfer between associated entities or on a business transfer.

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 under section 117(3) where the employee is over 45 and has completed at least 2 years of continuous service. The employer may pay in lieu of notice. Section 117 is a National Employment Standards minimum: awards, enterprise agreements and employment contracts may include terms that supplement it, and (as with redundancy pay) whether any such amount is cumulative with, inclusive of, offset against or in substitution for the NES notice depends on the wording of the applicable instrument or contract and the operation of sections 55 and 56.

Small Business Considerations

Under section 121(1) a small business employer (broadly, an employer with fewer than 15 employees on a headcount basis at the relevant time) is exempt from the section 119 redundancy pay obligation. That exemption does not dispose of section 389. Section 389(1)(b) requires compliance with any consultation obligation actually imposed on the employer by an applicable modern award or enterprise agreement; where no such instrument applies to the employment, the small business employer is not required to satisfy a consultation limb that does not exist, but must still satisfy the operational-reason and redeployment limbs to establish the section 389 exclusion.

The minimum employment period for unfair dismissal is 12 months for a small business employer (rather than the 6-month period that applies to other employers), which gives small employers a longer initial window before an employee has standing under Part 3-2. After that window, the section 389 analysis applies in the same way.

Fixed-Term and Casual Employees

Section 386(2)(a) provides that a person is not taken to have been dismissed for the purposes of unfair dismissal where they were employed under a contract of employment for a specified period of time, a specified task or a specified season and the employment terminated at the end of that period, task or season. That exclusion is subject to the statutory exceptions in section 386(3) and to the substance of the arrangement rather than merely its label. Whether successive fixed-term or maximum-term arrangements terminate at the employer's initiative for the purposes of section 386 is fact-sensitive and depends on the actual contractual and factual matrix.

For casual employees, section 384(2)(a) governs when a period of casual employment counts towards the minimum employment period — broadly, casual employment on a regular and systematic basis with a reasonable expectation of continuing employment on that basis. Whether a casual has standing to bring an unfair dismissal claim also depends on the other Part 3-2 requirements. Casuals are not entitled to redundancy pay under section 119 in any event; if a casual with the necessary period of service is dismissed in circumstances presented as a redundancy, the section 389 analysis is still relevant to the unfair-dismissal exclusion.

Risks of Sham Redundancy

'Sham redundancy' is a shorthand for a dismissal presented as a redundancy where the substantive reason is performance, conduct, a complaint, a relationship breakdown or another non-operational reason. Indicators that materially increase legal risk include:

• 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.

These features do not automatically prove sham redundancy but they increase the risk that the section 389 exclusion will not be made out and that a general protections or discrimination claim will succeed on the same facts.

Relationship with Unfair Dismissal Claims

A case of genuine redundancy is an exclusion from unfair dismissal jurisdiction under Part 3-2 — see our companion article on unfair dismissal claims in Australia. Where the exclusion is not made out, the Fair Work Commission applies the section 387 criteria (including valid reason, notification of the reason, opportunity to respond, any unreasonable refusal of a support person, any warning history for performance, the size of the employer's enterprise and absence of dedicated HR resources). Applications must be lodged under section 394 within 21 days of the dismissal taking effect.

Relationship with General Protections (Adverse Action) Claims

Genuine redundancy is not a defence to a general protections claim under Part 3-1 of the Fair Work Act. The question in that jurisdiction is why the particular employee was selected. Once the applicant proves the objective elements of the alleged contravention and alleges a prohibited reason, section 361 presumes that reason unless the respondent proves otherwise; under section 360, a prohibited reason need only be included among the reasons for the action. Where selection criteria or pool composition were affected by a workplace right (for example a complaint, a leave request, a workers compensation claim or parental leave) or by a discriminatory attribute, section 389 will not answer the adverse-action question. 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 in accordance with the applicable clause — giving employees and any representative a real opportunity to raise matters about the change, its likely effects, measures to avert or mitigate adverse effects, alternatives (including redeployment) and, where not already finally determined, selection — and promptly consider matters raised, with file notes and follow-up emails.
6. Apply objective, written selection criteria, scored contemporaneously by the actual decision-makers, as prudent risk-management practice.
7. Conduct a documented redeployment search across the enterprise and any associated entities.
8. Issue written notice that meets section 117 as a minimum, and any longer instrument or contractual entitlement.
9. Calculate redundancy pay in accordance with section 119 as a minimum, and any more generous instrument or contractual 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 — contemporaneous records can be important evidence if the dismissal is later challenged.

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