There comes a time when technology and general advancements in the workforce can make an employee’s job obsolete. This process is known as redundancy, and you need to take several specific steps to ensure that you do it right.
Today, we are going to look into the main steps that you need to take when a position is found to be redundant, and the incumbent employee is terminated on the grounds of redundancy.
Remember to treat the team members impacted by the redundancy with utmost dignity and respect. Redundancy isn’t a pleasant process for anyone involved but thinks of how you would like to be treated if you were in their position and approach, it in that manner whilst following the steps required.
What is Redundancy?
Genuine redundancy occurs when a business no longer requires a position to be performed by anyone in the business or as a result of the business becoming insolvent or bankrupt. Redundancy may be brought on by various reasons including relocation or closure of a business. In essence, any reason resulting in the position being required to be performed by anyone in the organisation results in redundancy.
What is not genuine redundancy?
A position is not genuinely redundant if it is related to an employee’s performance or conduct. It is crucial to remember that for redundancy to be genuine, it has to be about the position no longer being required as opposed to the employee’s underperformance or conduct.
To avoid a claim for non-genuine redundancy, a fair process needs to be adhered to. The process might be dictated by some or all the following including the Fair Work Act 2009, applicable Modern Awards, enterprise agreements, and common law contracts.
The Fair Work Act 2009 Sect 119 states that:
(1) An employee is entitled to be paid redundancy pay by the employer if the employee’s employment is terminated:
(a) at the employer’s initiative because the employer no longer requires the job done by the employee to be done by anyone, except where this is due to the ordinary and customary turnover of labour; or
(b) because of the insolvency or bankruptcy of the employer.
Notwithstanding the above, it is important to understand that there are several reasons that could cause the position to no longer be needed and therefore result in a genuine redundancy. A genuine redundancy can be brought on by several factors.
Other common reasons that can lead to redundancy include:
• A recession in the economy results in significant business loss
• The termination of a business due to insolvency or bankruptcy
• The termination of a specific job title due to the role no longer being required
• Loss of a client resulting in significant loss of revenue for the business
• Relocation interstate or overseas
Who is not entitled to redundancy?
Not all employees are entitled to a redundancy payment. The following employees aren’t eligible:
1. Employees with less than 12 months of continuous service
2. Employees employed for a set period of time such as fixed-term contracts
3. Casual employees
6. Trainees engaged for a set training period
7. Employees of a small business (employs fewer than 15 employees)
8. Employees terminated on grounds of gross misconduct
Note that it is important to verify for any exceptions in the applicable Modern Awards, enterprise agreements and common law contracts as the employee might have entitlements to redundancy regardless of their length of continuous service and the size of the business.
Below are some of the typical steps you should follow for a redundancy process.
1. Consult with the employee
It is very important for the employee to be informed of the potential redundancy of their role as there may be specific agreements that come into play. You should invite the employee to a meeting and inform them that their position is up for potential redundancy, the main idea is for the employee to be able to state their case and show the reason(s) why they should keep their job. Furthermore, the business needs to explore available options to keep the employee including mitigating circumstances that could prevent termination. This is usually a 48-hour process in which the employee is given time to state their case after the time is up.
2. Subsequent consultation
At this point, both the employer and employee should have a better idea of the situation and they should be discussing and exploring options. Unfortunately, redundancy isn’t uncommon nowadays, but there are possibilities for employees to continue to work within a company if there are vacancies in other suitable areas of the business.
Once you have confirmation that the position is no longer required to be performed by anyone, you should invite the employee to another meeting and inform them that their position is redundant and explain the reason(s) for it. This is going to be important because it leads to the next step, which is the possibility of redeployment.
At this point, the employer and the employee need to sit down and discuss the possibility of a new job within the company. It is important for the employee to have the required skills to be able to secure the new position.
If there are several vacancies that the employee could be redeployed to, it is essential to take into consideration which vacancies would be a better fit for the employee’s skills and knowledge. There are many situations when the employee experiencing redundancy in their position can qualify for redeployment into other vacancies, but the company may also not have vacant positions.
Once all possible options for redeployment have been exhausted, the process moves on to notice to terminate the employee’s position and final pay including redundancy entitlements. There are many steps to take into account when you reach this stage.
5. Notice and final pay
There are benefits and entitlements that need to be provided to the employee when their job is terminated due to redundancy. The employee needs to be notified of the final day in advance and explained how the notice period will work. Typically, employees are paid in lieu of serving the notice period and can utilise the time for job hunting.
The notice period is not the same each time you are dealing with a redundancy termination. It is heavily based on the number of years that the employee provided continuous services and can vary depending on the agreement or contract. In the instance where an agreement or contract stipulates a longer notice period, it needs to be applied instead of the notice of termination entitlements below. There is also usually an extra week’s notice to be given to employees who are over 45 years of age and have been in the business for 24 months or more.
See below the notice of termination which forms part of the National Employment Standards (NES)
See below the redundancy pay which forms part of the National Employment Standards (NES)
The final pay given to the employee that is being terminated due to redundancy needs to include outstanding wages, annual leave, and possibly also long service leave as well as redundancy pay.
How to look for potentially redundant positions in the office
Being able to spot which roles within your company are likely to become redundant or already reached that state is very important. This could translate to the preservation of your company’s finances.
It is important to look at key personnel and check how many of them have the ability to take on other roles. This is particularly important when you think an employee is worth keeping, but their current position is no longer required by the business. You need to be on a constant lookout to see which roles or departments may be showing signs of having limited benefits.
Final thoughts on Redundancy
This is a process that is an inevitable part of any business, but you need to make sure that you handle it properly if you want to avoid any issues. Some of which could end up being overly expensive for your business.
At HR Expertise, our HR consultants in Melbourne and across Australia can assist with the end-to-end redundancy process. Contact us today, we would love to work with you.