What is Redundancy?
14 October 2019
A redundancy arises when an employer decides that an employee’s position is no longer needed and terminates an employee’s employment. For an employee to become eligible for a redundancy, the Fair Work Act 2009 (Cth) (“the Act”) defines the meaning of a ‘genuine redundancy’ to be when:
(a) The persons employer no longer required the persons’ job to be performed by anyone because of changes in the operational requirements of the employer’s enterprise; and
(b) The employer has complied with any obligation in a modern award, or enterprise agreement that applied to the employment to consult about the redundancy.
The meaning of ‘operational requirements’ could be taken to be the company restructure or downsizing of the company or it may well mean that the business could be closing down, or perhaps they have decided to outsource their
The purpose of this article is to provide a brief overview to the reader of what the hallmarks are of a genuine redundancy, and what an employee might be eligible for in terms of a redundancy pay from their employer. It is not to be interpreted as formal legal advice.
We begin our article in looking what law governs a redundancy focusing on eligibility only. Future articles will focus on cases where situations of non-genuine redundancies arise and also when what it means for an employee when business ownership changes.
The Law of Redundancy
Division 11 of the Fair Work Act 2009 (Cth) details the requirements an employer (National Systems Employer) must give to an employee (National Systems Employee) to firstly notify of the impending redundancy and depending on the size of your employer calculate a redundancy pay.
An employee’s redundancy pay can be affected by other instruments and variations and there are notable exclusions under the law that legally allow an employer not to pay redundancy pay to employees. Before exploring some of those exceptions, lets first begin by looking at what notice period is required to be given by an employer that is considering making an employee redundant.
How much notice does my employer need to give me?
Depending on how many years of continuous service you have performed for your employer, will ultimately govern how much notice your employer needs to give to you. In accordance with section 117 of the Act, the law states that the minimum period of notice that an employer must give is as follows:
Employee’s period of “continuous service” with the employer at the end of the day the notice is given Period
Not more than 1 year: 1 week
More than 1 year but not more than 3 years: 2 weeks
More than 3 years but not more than 5 years: 3 weeks
More than 5 years: 4 weeks
In reference to the above table, “Continuous Service” means a period of service performed by an employee for a continual period. However, continuous service does not include the following periods:
– An ‘unauthorised absence’ – that is, where an employee does not notify their employer of an absence from work due to sickness or otherwise;
– An ‘unpaid leave’ – for example, where an employee has no remaining entitlements, but at the discretion of his/her employer may take time away from for a reasonable reason;
– or ‘unpaid authorised absence’ – such as unpaid careers leave, unpaid compassionate leave, or unpaid family and domestic violence leave, or even community service leave.
If you have fallen into one of the above three categories where you have taken leave, and were not paid for it, you should ask your Human Resources Department (if you have one) and ask them to provide you with a summary of what unpaid leave or unauthorised leave you have taken over the course of your employment.
It is also valuable to know that the law also provides a provision for employees who are over the age of 45 years, permitting an additional one (1) weeks’ notice to the above periods, providing that you have worked continuously for your employer for at least 2 years of service.
What should my written notice say?
With regards to the ‘notice given’, section 117 of the Act also provides that an employer is now allowed to terminate an employee’s employment unless they have given ‘written notice’ of the termination. Therefore, this means that your employer must give you a letter stating the reasons why they are making your position redundant, and also provide you with calculations as to how much you are entitled to, in terms of a redundancy payout.
Employers also need to be careful on when the redundancy becomes effective. Should you receive a letter from your employer stating that does not comply with the above week’s notice requirements, then it is unlawful.
For example, Simon has been employed with his employer for 4 years. Simon’s employer gives Simon written notice that the company is downsizing, and due to operational requirements, his position is no longer available. Simon receives that letter on the 30 September 2019.
In this example, Simon’s employer must give Simon the minimum of 3 weeks’ notice of the impending redundancy. Therefore, Simon’s employer should be stating a redundancy date of no earlier than 21 October 2019.
Had Simon’s employer not complied with the notice period, then he may be entitled to lost wages for that any weeks shy of the notice period.
How and when should my written notice be delivered?
Your employer is legally required to give you notice in one of the following methods
(a) by delivering it personally to you; or
(b) by leaving it at your last known address; or
(c) by sending it by pre-paid post to your last known address.
Section 117 of the Act also provides that an employer is not lawfully permitted to terminate an employee unless the delivery has occurred no less than the minimum period calculated in the above table.
For example, if you are employed for ‘not more than 1 year’, then notice should be delivered at least 1 week prior to the redundancy date i.e.
– Redundancy date is Friday, 20 September 2019;
– Notice must be delivered by no later than Friday, 13 September 2019.
A case before the Federal Circuit Court of Australia ( FCCA 450) considered when written notice is ‘given’ to an employee of an impending redundancy. The employee commenced employment in October 2002, and it was alleged that her employer had ‘terminated’ the employee’s employment by way of a redundancy on or about 1 March 2012. The employer alleged that that they had ‘given’ the employee notice of the termination when they posted the letter to the client. The issue then became whether the date that the letter was ‘sent’ could be interpreted as the date the letter was ‘delivered’. The court disagreed with this view, particularly when the employee did not receive the letter until the 13 March 2012. The employer further stated that they also gave the employee a notice by ‘hand delivery’ on the 6 March 2012. The court held that service was affected on this date and that while the letter had been sent, it had not been sent by ‘pre-paid post’ i.e express post – therefore it was difficult to confirm with absolute certainty that service had occurred by post.
This case draws to the surface how strictly an employer must comply with these provisions when serving an employee, a notification of redundancy. While in the above case, the employer only had to compensate the employer a matter of 6 days compensation, it certainly highlights the need to be vigilant with delivery.
Redundancy payment instead of giving notice?
The law also provides another alternative for an employer to make an employee redundant by giving notice. Section 117(2)(b) of the Act says that an employee is entitled to employer pay the employee the ‘Full rate of pay’ that the employer would have been required to pay had the employee worked the minimum notice period.
In understanding what the ‘full rate of pay’, section 18 of the Act provides that to be as follows:
The full rate of pay of a national system employee is the rate of pay payable to the employee including all of the following:
(a) Incentive-based payments and bonuses;
(c) Monetary allowances;
(d) Overtime or penalty rates;
(e) Any separate identifiable amounts.
What if I am covered by a modern Award or an Agreement?
The Act and the Fair Work Transitional Provisions and Consequential Amendments) Act 2009 (Cth) both provide legislative provisions that step out how the period of notice an employer must be delivered to an employee in order to make his or her employment redundant.
Essentially it makes it legally permissible for an employer to be excluded from an obligation to pay redundancy pay to an employee should either the Award or Agreement includes a term not to make redundancy payments.
How Much Redundancy Pay am I Entitled to?
Where an employee is eligible to receive a redundancy payment from their employer, the Act provides guidance on how many weeks pay an employer is legally required to pay an employee. This is ultimately determined on how many years of continuous service an employee has completed with their employer at the time the written notice is given. The calculation is done so on the employee’s base rate of pay for his or her ordinary hours of work performed. The table is as follows:
Redundancy pay period
Employee’s period of continuous service with the employer on termination Redundancy pay period
At least 1 year but less than 2 years: 4 weeks
At least 2 years but less than 3 years: 6 weeks
At least 3 years but less than 4 years: 7 weeks
At least 4 years but less than 5 years: 8 weeks
At least 5 years but less than 6 years: 10 weeks
At least 6 years but less than 7 years: 11 weeks
At least 7 years but less than 8 years: 13 weeks
At least 8 years but less than 9 years: 14 weeks
At least 9 years but less than 10 years: 16 weeks
At least 10 years: 12 weeks
Using our example of before, Simon who was given a written notice of redundancy from his employer on the 30 September, and who has served 4 years of service with his employer, using the above table what might his redundancy pay look like?
Answer: Providing Simon has completed at least 4 years’ continuous service, but less than 5 years continuous service, Simon’s employer is required to pay Simon 8 weeks pay.
It is also necessary to note that Simon’s 8 week’s redundancy pay will be subject to taxation.
While the above provides a simplistic overview of what a calculation may look like, there are other important issues to note such as in the case of a genuine redundancy, there may be circumstances where the redundancy payout does not attract tax. Depending on your redundancy payout, it may require an accountant or a financial advisor to provide you with advice on the implications of a redundancy payout.