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Redundancies – What Employers Need to be Aware of

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In this economic climate, many businesses are looking to minimise their costs, leading to the current rise in redundancies. In response, the Federal Government last week allocated $298.5 million to help employees made redundant re-enter the workforce.

Many employers believe that making some of their workforce redundant is the only way to minimise business costs and survive in the current economic climate. Employers, however, need to be aware that making employees redundant should only be considered after all other options have been explored. If redundancy is the only viable option available, employers need to ensure that they manage the redundancy process appropriately otherwise they may incur civil penalties or be required to defend unlawful or unfair dismissal applications.

Alternatives to redundancy

Making employees redundant should be considered as a last resort to cost-saving. The risk that employers run in terminating employees is that they may not be ready to take advantage of opportunities when the market improves, leaving them struggling to attract, train and retain the right staff. Other options that employers should consider include the following:

* Encouraging employees to take their annual leave if business is quiet

* Negotiating with employees to agree to a reduction of their work hours in the short term or

* Putting a hold on hiring replacement staff and distributing work among remaining employees.

If redundancies are necessary, employers need to consider, among other factors, the following:

(i) Redundancy – genuine operational reasons

There are certain risks that employers may be exposed to when terminating employees on the ground of redundancy. One of the major risks that employers can face an unfair dismissal claim. Employers will be exempt from such claims if they can establish that the redundancy was carried out for genuine operational reasons (from 1 July 2009, this will be amended to ‘genuine redundancy’) which are defined as reasons of an economic, technological, structural or similar nature. When carrying out a redundancy, it is important to be aware that it is not the employee that becomes redundant, but rather the actual job or position.

(ii) Redundancy management process – consulting with employees and selecting employees

It is important that employers have a process implemented when carrying out redundancies to ensure that they are compliant with the notion of procedural fairness as well as relevant legislation.

Employers also need to ensure when determining which employees to make redundant that their selection criteria are fair and compliant with anti discrimination laws, to avoid exposure to any unlawful termination claims. For example, the selection criteria should not discriminate on grounds such as age, sex, pregnancy, race, marital status, disability or union membership. Instead, the criteria should be based on the needs of the business and be objectively assessed (such as employee’s skills, qualifications, training, etc).

(iii) Redundancy entitlements

Employees who are made redundant are usually entitled to notice of termination, payment in respect of any accrued and unused statutory entitlements (such as annual leave and long service leave), and for most employees, severance pay. To determine an employer’s obligations in relation to these entitlements, it is necessary to refer to the relevant legislation or statutory industrial instrument whether that is an Award, Collective Agreement or a Notional Agreement Preserving State Award. In some circumstances, an employer may be relieved from paying severance pay, such as where there is suitable alternative employment for affected employees or the employer is financially unable to pay.


Redundancies can be an effective way of minimising business costs in economic times like these. However, employers should first explore other options which may be more beneficial for their businesses in the long term. Where redundancies are inevitable, employers should be aware that if they do not have an effective redundancy process planned and do not properly manage the process at each step, their businesses may be exposed to greater costs.

Author: Natalie Novak