Three steps to a genuine redundancy – getting the process right

Redundancy – a process that no one is fond of but is important to get right. 

Knowing how to conduct a lawful redundancy process will minimise the risk of costly legal claims, such as unfair dismissal, general protections claims for adverse action, breach of an award or enterprise agreement, unlawful discrimination and workers’ compensation claims. It also allows things to run smoothly for all involved and provides for a more respectful process at a time where employees are under significant stress.

Partner Andrew Tobin and Special Counsel Adele Garnett below detail how to protect against the above legal claims by ensuring the three key steps of a ‘genuine redundancy’ are followed and by outlining the relevant tax considerations.

What is a ‘genuine redundancy’?

Section 389 of the Fair Work Act 2009 (FW Act) provides that a dismissal is a case of ‘genuine redundancy’ when:

1. the employer no longer requires the person’s job to be performed by anyone because of changes in the operational requirements of the employer’s enterprise; 
2. the employer has complied with any obligation imposed by an applicable modern award or enterprise agreement to consult about the redundancy; and
3. it would not have been reasonable in the circumstances to redeploy the affected employee within the employer’s enterprise or the enterprise of an associated entity of the employer.

When these three criteria are met, the chance of any employment related legal claims reduces significantly. Particularly, an employee cannot successfully maintain an unfair dismissal claim under the FW Act if an employer can show that a dismissal was due to a genuine redundancy.

Step one – is the job no longer required to be performed by anyone?

The starting point is to determine whether the dismissal is due to changes in the operational requirements of the employer’s enterprise which mean that the job is no longer required. Whilst ‘dressing up’ a dismissal for poor performance or misconduct as a redundancy may be appealing (particularly due to the positive tax outcomes that can apply to termination payments in a redundancy scenario), it can lead to trouble. ¹

This analysis can sometimes be difficult and challenging to undertake, particularly when certain aspects of a job will still be required to be carried out but the role, as a whole, is no longer required. Some case examples of genuine redundancies include where:

• the number of supervisors was reduced from four to three and the duties of the redundant job were redistributed to other positions; ²
• the enterprise required fewer workers based on projected future needs and an employee who scored poorly in a skills assessment was dismissed;³ and
• several full-time permanent employees were made redundant due to changes in the operational requirements of the employer’s enterprise following a direction from the employer’s client, but were offered ongoing casual employment.⁴ 

Step two – Consultation obligations

Strictly speaking, under the FW Act the obligation to consult in a redundancy scenario arises only where it is required by an applicable modern award or enterprise agreement, usually only where the scenario involves major change under the relevant definitions in the instrument.

Failure to comply with the consultation provisions of an applicable award or enterprise agreement can lead to prosecution – by an affected employee, their union or the Fair Work Ombudsman – for substantial civil penalties (plus compensation – whether or not an unfair dismissal or some other type of claim is also made!).

Does that mean if no award or enterprise agreement applies an employer does not need to consult employees? 

In some instances that may be the case, however, we generally recommend that consultation is the safest course of action in redundancy situations. This is for three reasons:

1. the QIRC has stated that even absent any mandatory requirement for consultation, there might be circumstances particular to a specific worker that make a failure to consult unreasonable management action which, if it leads to a psychiatric injury, will be compensable in the workers’ compensation jurisdiction;⁵ 
2. it is sometimes uncertain as to whether an enterprise agreement or award applies to a particular employee so as to mandate consultation – in those situations the conservative approach is to assume that consultation is required and to consult accordingly rather than risk, for example, liability in an unfair dismissal claim or for contravention of an industrial instrument; and
3. a certain level of consultation is often required to satisfy the third requirement of a genuine redundancy, that redeployment was not a reasonably available alternative to dismissal in all of the circumstances.

Consulting with employees is also just generally good practice, as it points to a culture of respect and care in the workplace. This may even lead to options being raised to avoid a redundancy that an employer had not previously considered. 

A few key considerations when undertaking the consultation process include:

• consultation should be meaningful, not perfunctory;
• when conducting meetings, an employer should provide prior notice of the meeting’s purpose generally (to “discuss your employment”) and offer the employee a support person; 
• consultation should involve providing information, in writing, explaining the issues, setting out all feasible alternatives considered and asking for input; and
• consultation should occur before any irreversible decision is made, and in some instances, it is best to involve employees in organisational restructures early in the process.

A detailed guide to effective consultation is provided here. 

Step three – consider redeployment

A person’s dismissal will not be a case of genuine redundancy if it would have been reasonable in all the circumstances to redeploy them within the enterprise of the employer or any associated entity of the employer. Whether or not redeployment is, or would have been, reasonable depends on many factors, including the alternative employment available, if any, and whether the redundant employee has suitable skills and qualifications to undertake any available role (even if some training/upskilling might be required).

While it may be tempting, an employer should avoid making assumptions that an employee will not be interested in accepting a position which has a lower salary or lower skill set. In the case of Iryna Margolina v Jenny Craig Weight Loss Centres Pty Ltd [2011] FWA 5215 – an unfair dismissal claim – the Fair Work Commission noted that, ‘by being precious about not wanting to “insult” the applicant with an offer of redeployment to a lower paid position’ the employer had failed to meet the requirements of a genuine redundancy. In that case the applicant/former employee’s evidence was that she would have taken a lower paid/lower responsibility position as that would have suited her circumstances. While there was no clear obligation to consult under an award or other industrial instrument in this case, consultation was required in order to canvass all possible redeployment options with the employee.

In the case of Khliustova v Isoton Pty Ltd [2023] FWC 658, the employer failed to meet the requirements of a genuine redundancy in an unfair dismissal claim because the employee was not offered a position with an associated entity in India. The employer had assumed that because the role was lesser paid and overseas the employee would not be interested, however, evidence presented at the Fair Work Commission indicated the employee “was keen to work in different cultures, prepared to travel and, despite the lower wages, would have liked to experience the role for 2-3 months.”  Commissioner Plat noted, “It is dangerous for Employers with redeployment options to fetter offers based on their own prejudices.”

Also, care should also be taken in assuming that an employee can reasonably be redeployed without genuinely consulting with them. In SSX Services Pty Ltd v Workers' Compensation Regulator [2016] QIRC 62, the employer redeployed an employee to a different role involving face-to-face sales, despite the employee raising various concerns about the proposed transfer, particularly that she had anxiety over meeting customers face-to-face and ‘could not do sales’. The employee subsequently suffered a psychological injury and made a successful workers’ compensation claim. The QIRC stated that, ‘the decision to insist on [the employee’s] transferring to the CSO position despite her repeated advice that she could not perform the sales role… was not reasonable management action taken in a reasonable way.’ ⁶

Tax considerations

Tax concessions can be applicable to termination payments made to employees dismissed on redundancy grounds. Some such termination payments can be tax free, while others may be concessionally taxed. 

However, there are a number of requirements in the tax law that must be satisfied for a payment to receive this advantageous treatment. Many of these requirements are within the employer’s control and in other cases, this treatment is simply unavailable.

The key risk is that an employer may incorrectly tax a termination payment, by not correctly withholding under the PAYG withholding regime. The penalties for an employer failing to withhold an amount from a termination payment as legally required include a liability to pay to the Commissioner of Taxation a penalty equal to that amount, additional to the tax that should have been withheld. The liabilities could be significant, particularly where the employer has failed to correctly withhold from termination payments made to a number of departing employees. Needless to say, it is always best to discuss the tax treatment of termination payments with your legal advisor.

Workers compensation claims 

Employers considering making a worker redundant are usually aware that their actions might come under scrutiny in an unfair dismissal claim. What many employers don’t consider is that the reasonableness of the redundancy and the way in which it is undertaken may also come up for consideration by the Queensland Industrial Relations Commission (QIRC) should the worker make an application for compensation for psychiatric injury arising out of the redundancy and the question of reasonableness in this forum is not so black and white. 

In the below webinar, Partner Anna Hendry and Senior Associate Adele Garnett discussed redundancies and reasonable management action and provided guidance on how to avoid workers compensation claims. Further information can also be found in the article ‘Redundancies up for double scrutiny’.
 

Other things to consider

Termination of employment on redundancy grounds, like termination of employment for other reasons, must also be effected in accordance with the FW Act and applicable industrial instruments, including the employee’s contract of employment.

The FW Act requires notice of termination (or dismissal) to be given in writing, to take effect no earlier than the day the notice is given. The period of notice will usually be determined by the applicable industrial instrument, including the contract of employment (even if the contract is unwritten), underpinned by minimum notice requirements imposed by the Act.
Additional redundancy pay may also be payable, again, as determined by the applicable industrial instrument, also underpinned my minimum redundancy pay obligations imposed by the FW Act.

Failure to discharge these obligations can, in the worst cases, expose an employer to liabilities for significant civil penalties for contravention of the National Employment Standards prescribed by the FW Act.

Key takeaways for employers

When carrying out redundancies, we always advise that you seek legal advice. The redundancy provisions found in the FW Act appear to be relatively straight‑forward, but in practice there are often nuances that can quickly change the process from straight‑forward to complex (and increase the risk of potential legal claims).

At the very least, consider the three-step process:

1. consider whether the dismissal is due to no longer requiring the person’s job to be performed by anyone because of changes in the operational requirements of the employer’s enterprise;
2. ensure compliance with any obligation imposed by an applicable modern award or enterprise agreement to consult about the redundancy (and it is always preferable to consult in any event!); and
3. consider redeployment - a person’s dismissal will not be a case of genuine redundancy if it would have been reasonable in all the circumstances to redeploy the person.

For more information, please contact HopgoodGanim Lawyers Workplace and Employment team.

1 Scott v Workers' Compensation Regulator [2021] QIRC 110; see also our article Redundancies up for double scrutiny.
2  Kekeris v A. Hartrodt Australia Pty Ltd [2010] FWA 674.
3  Markac v CSR Limited [2010] FWA 4548.
4  Deeney & Others v Patrick Projects Pty Ltd [2019] FWC 1772.
5  Scott v Workers' Compensation Regulator [2021] QIRC 110; see also our article Redundancies up for double scrutiny.
6  At [288].