Introduction
This article explains the basics of redundancy. It will be useful reading for all employers and employees alike.
First, let us clarify the difference between retrenchment and redundancy – simply, it’s the same thing. “Retrenchment” is the expression used to describe what occurs to an employee whose employment is terminated by reason of his or her job becoming redundant. Similarly, on a technical note, it is not the employee who becomes redundant, but their job, thus leaving them unemployed.
Technicalities aside, here is how it might affect you.
What is redundancy?
An employee is said to be “redundant” when his job is no longer available and the employer either cannot offer the employee any alternative position or, any alternative position offered by the employer cannot be accepted by the employee.
As compensation for leaving employment, the employee is offered ‘redundancy pay’, ‘severance pay’ or ‘severance’. These of course, amount to the same thing – the employer pays the employee to leave.
The law on redundancy
In such cases, the law requires an employer to treat the employee fairly and lawfully. For example, an employer is not allowed to single out an employee for retrenchment as an easy means of avoiding a process of performance review of the employee or to avoid a claim of unfair dismissal by the employee. Instead, similar to a job application, the most appropriate employee must be selected for fair reasons.
Redundancy and unfair dismissal
An employee who has been made redundant unfairly may make a claim for unfair dismissal. It is for the employee to prove that he as unfairly selected and made redundant. However, the court will take the view that provided the employer has acted in good faith then the employer’s needs must be respected. However, a claim can be made that the dismissal by way of redundancy is harsh, unjust or unreasonable on the grounds that:
- the employee was unfairly selected for redundancy;
- the employee was selected for redundancy because of work performance without having been given the opportunity to respond to the employer’s concerns about his ability or performance;
- the employee was not properly consulted before the decision to retrench was made;
- furthermore, non-award employees can sometimes question the adequacy of their redundancy payments.
Award protection
AWAs and CA tend to protect employees. As an employer, it is therefore necessary to consult respective state laws, as well as the industrial award system in place before considering a redundancy.
Of course, there are some basic standards which, generally speaking, employees who are part of the “Award regulated workforce” should expect to receive upon retrenchment.
In New South Wales the State’s Industrial Relations Commission has prescribed, through a test case on redundancy matters, standard procedures in respect of Award regulated employees. The standard format can be found in many State Industrial Awards – for example, the Clerical & Administrative Employees (State) Award. A copy of that Award can be purchased from the New South Wales Department of Industrial Relations.
Furthermore it is important to note that generally speaking those employers who employ less than fifteen (15) employees at the time that retrenchments are taking place, are generally exempted from these award standards.
The following are the basic award standards that one would expect to find in most New South Wales industrial awards:
- Employees will be entitled to Notice of Termination (or payment in lieu of such Notice). The amount of Notice relates to the length of service and age of employees affected. Generally speaking, an employee with less than one year of continuous service is entitled to one week’s Notice, whilst an employee with five years service will be entitled to four week’s Notice. An employee over the age of 45 with more than two years service, would be entitled to an additional week’s Notice.
- Employees will be entitled to one day off in each week of the Notice period for the purpose of seeking alternative employment.
In addition to redundancy notice periods, awards prescribe minimum payments for employees who are retrenched as a result of redundancy.
The minimum standards for severance pay currently found in Awards depends upon whether the Award is a Federal or a State Award. The standard prescribed for New South Wales Awards (at least in respect of those employers that employ at least fifteen employees) is as follows:
Years of service ENTITLEMENT ENTITLEMENT
UNDER 45 45 & OVER
Less than one year “Nil” “Nil”
One year and less than 2 4 weeks 5 weeks
Two years and less than three 7 weeks 8.75 weeks
Three years and less than four 10 weeks 12.5 weeks
Four years and less than five 12 weeks 15 weeks
Five years and less than six 14 weeks 17.5 weeks
Six years and over 16 weeks 20 weeks
In addition to this entitlement, an employee who is retrenched is of course entitled to be paid the monetary value of his or her untaken holiday pay or long service leave (if accrued) but not sick leave.
Of course your business may provide for more generous provisions –these are simply an idea of the minimum standards for NSW. | 
