Redundancy

Redundancy occurs when an employer has made a definite decision that he or she no longer wishes for the job that the employee has been doing to be performed by anyone at all for reasons other than ordinary and customary turnover of labour. Employers must ensure that the decision does not result in an unfair or unlawful termination of employment.

What the law states

The principles applying to redundancy in legislation, awards and agreements are essentially related to retrenchment ('cut-backs') caused by technological change, economic recession or company merger, take-over or restructure. Awards or agreements may provide for redundancy benefits which apply in any or all of the circumstances noted above.

Redundancy may take the form of a transfer to other duties, a voluntary stopping of employment, or a widespread shedding of the labour force.

Employees who are transferred to lower-paid duties because their original jobs disappeared through redundancy will also be able to enforce the job protection provisions in awards. Thus they are entitled to notice and severance pay.

Voluntary redundancy is a special form of resignation which has been induced by an employer who agrees to pay a monetary incentive to any employee who will accept a redundancy package. Employees who retire voluntarily after an offer by an employer are not entitled to the job protection benefits provided by an award, such as severance pay, unless there is a specific agreement between the employer and the relevant union or employees in question. This is because such employees already have the consequential benefits associated with voluntary retirement.

An employer who decides to retrench fifteen or more people for economic, technological, structural or other similar reasons must comply with requirements at law in giving notice of his or her actions and intentions.

Important note: employers need to check the particular award or enterprise agreement provisions in each case.

A redundancy will not be a 'valid' termination if it is either substantively unfair (not economically justified) or procedurally unfair (unfair selection criteria, inadequate notice, etc).

Federal

Division 3 of Pt VIA of the Workplace Relations Act 1996 contains provisions relating to redundancy which apply to every employee in Australia (apart from the limited exclusions noted above).

The main aspects of the legislation are as follows:

• required period of notice;
• notification to Centrelink and unions when an employer decides to terminate the employment of fifteen or more employees for economic, technological, structural or similar reasons;
• provision of a written statement confirming that the employment has been terminated and, if requested by the employee, a short, written statement as to the reasons for termination;
• the power of the Australian Industrial Relations Commission to make certain orders in individual cases regarding severence payments and group retrenchments.

An employer who decides to retrench fifteen or more people for economic, technological, structural or other similar reasons must notify Centrelink in writing setting out:

• the reasons for the terminations;
• the number and categories of employees likely to be affected;
• the period over which the employer intends to carry out the terminations.

This notification requirement applies to voluntary redundancies which are instigated by the employer as well as to forced redundancies.

An employer must not retrench any of the employees before giving this notice.

If an employer does not comply with this requirement, the Federal Court may impose a penalty or order the employer not to retrench anyone except as permitted by the Court Order.

Employers are not specifically required to notify unions of group retrenchments of fifteen or more employees. However, the Industrial Relations Commission has the power to make remedial orders if an employer has not notified each trade union of which an affected employee was a member and given those trade unions an opportunity to consult with the employer. It is therefore good practice for an employer to give the relevant trade unions:

• the same notice as the employer is required to give Centrelink;
• an opportunity to consult with the employer on measures to avert and/or minimise the terminations and to mitigate the adverse effects of the terminations (such as by finding alternative employment).

The requirement to notify Centrelink does not apply to:

• casual employees (but caution should be taken with long-term casual employees);
• daily hire employees in the building and construction industry or daily hire employees in the meat industry who perform work in connection with the slaughter of livestock;
• certain employees employed under the Maritime Industry Seagoing Award 1983.

Federal awards

The Commission has laid out the following guidelines for federal award job protection provisions relating to redundancy:

• increased notice periods for situations of employment termination;
• general standards of notice and pay to apply to redundancy situations where federal awards are involved;
• consultation arrangements on technological change for employees under federal awards.

Note that these provisions have effectively been incorporated into the provisions in the Workplace Relations Act 1996 which apply to all Australian employees. The remaining provisions still apply. Award provisions, on the other hand, do not automatically apply to all federal award employees. They must first be inserted into each individual award by the Commission before they apply to employees under that award. Parties to any particular award may also vary these 'standardised' provisions with the Commission's approval.

Severance pay

The Commission provided a scale of severance payments as follows.

In addition to the period of notice prescribed for ordinary termination in clause 4, an employee whose employment is terminated for redundancy reasons is entitled to the following amount of severance pay:

['weeks pay' means the ordinary time rate of pay for the employee concerned]

Severance payments cannot exceed the amount which the employee would have earned if employment with the employer had proceeded to the employee's normal retirement date.

Federal redundancy entitlements increased in March 2004

Federal award redundancy entitlements were significantly increased by a decision of a Full Bench of the Australian Industrial Relations Commission on 26 March 2004. This decision changed the standard safety-net requirements that had applied since 1984 and also extended coverage by the requirements to small businesses (albeit with lower entitlements to apply to businesses with fifteen or fewer employees).

The new provisions will be inserted into federal awards upon application to the Commission. The initial batch of awards involved in the test case was expected to be varied in May 2004. In the event of proposed redundancies, it is essential in the meantime to check whether the old or new provisions apply to the award in question. The new standard is also likely to be included in any new federal common-rule awards that may come into operation from 1 January 2005 onwards.

The new severance pay scale is shown in the table below.

[* The amount of severance pay after ten or more years is reduced, because under the standard long-service leave provision in federal awards, employees with ten or more years of service are entitled to pro-rata payment for accumulated long-service leave upon termination of employment]

Other significant features of the decision are as follows:

• federal award employees of businesses with fewer than fifteen employees will be entitled to severance pay for the first time, albeit with a lower entitlement - up to a maximum of eight weeks pay after four years of service;
• the existing exclusion of casual employees from severance pay entitlements has been retained;
• employers will still be able to seek a variation of their severance pay obligations based on their incapacity to pay, but may now do so on either a group or an individual basis;
• employers bound by federal certified agreements may also be affected, as most certified agreements apply in conjunction with relevant parent awards; and
• the Commission did not introduce any severance pay loading for employees aged over 45, in contrast to the New South Wales provisions.

Employers need to be careful with redundancy situations that arise between the date of the decision and the date that it comes into force in awards that cover their employees, in order to avoid claims that a redundancy has been accelerated to avoid coverage by the new standard.

New South Wales

Generally, a federal award prevails over a State law or State award. However, the Workplace Relations Act 1996 specifically provides that if a State law or State award contains termination provisions, then any federal award which also makes provision for termination will not 'be taken to show an intention to cover the field to the exclusion of that State law or State award'.

In New South Wales, State award employees are covered by job protection provisions requiring employers to give fair notice and pay reasonable severance pay if their employment is terminated because of redundancy, economic recession or a company takeover or merger. Most job protection provisions will be found in the awards or agreements governing the terms of employment of the relevant employee. New South Wales award employees and their employers should check the relevant award or agreement to determine employees' rights to notice of termination, compensation in lieu of notice and severance payments. The scale is as follows:

[Note: There is an allowance in each case of a 25 per cent increase where the employee is aged 45 or over]

Enterprise agreements

The Commission does not have the power to insert employment protection provisions into enterprise agreements (although there is nothing to stop the parties including such provisions themselves). If an enterprise agreement does not deal with employment protection, the employment protection provisions in the relevant award may still apply. Note, however, that the parties to enterprise agreements who would otherwise be covered by an award will still be covered by the Employment Protection Act.

Employment Protection Act

The Employment Protection Act requires employers to either:

• pay the employee at least as much severance pay as Sch 1 of the Employment Protection Act (see scale below) provides;
• notify the Registrar of the Industrial Court (using the prescribed form) at least seven days before giving the employee notice, unless the employee is to be dismissed without notice (that is, payment in lieu of notice is made) (see sec 7).

An employer need not notify the Registrar if:

• the employer is the Crown or a public authority;
• the employer has less than fifteen employees immediately before the decision to retrench;
• the Industrial Commission has made an order under the Employment Protection Act which covers the employee;
• the employer's business was transmitted (such as by being sold) from one employer to another and the employee, by staying with the business, leaves the old employer;
• the termination is as a consequence of the employee's misconduct;
• the employee is a casual employee;
• the employee was employed for a specified period which has run its course or for a specified task which has been completed;
• the employer has a policy which requires retirement at a particular age (which the employee has reached) of which the employee was aware and which has been in place for at least twelve months;
• the employee was engaged on a trial basis and the termination was within the trial period or no more than seven days after its expiration (this exemption only applies to terminations within the first six months of employment on the trial basis);
• the employee has been continuously employed by the employer for less than twelve months.

If an employee is dismissed summarily (that is, instant dismissal) or the employer fails to notify the Registrar, as required, before the termination, the employer must notify the Registrar within seven days after the termination. The notice should specify the reasons for the termination (sec 8).

This requirement does not apply if the employee has been employed for less than twelve months.

A Scale of Severance Payments is set out in Sch 1 of the Employment Protection Regulations (NSW). It provides as follows:

Victoria

From 1 January 1997, the Victorian Government referred its industrial relations powers to the Federal Government. This means that the Victorian industrial relations system was abolished from that date and Victorian employees seeking a remedy for unfair or unlawful dismissal relating to redundancy are covered by the provisions of the federal system from that date.

Under the former Victorian legislation, employment agreements were not required to contain general redundancy standards and the former Victorian Employee Relations Commission could not deal with redundancy as an 'industrial matter' unless all parties to the matter agreed. In practice, however, most agreements contained redundancy provisions, but the standards adopted by the Victorian Termination, Change and Redundancy Case were less generous than the equivalent federal standards, as they did not provide for extra notice for employees over 45 years of age.

Note that agreements made under the former Victorian system continue in operation until they are renegotiated or until their expiry date, when transitional arrangements apply in relation to the changeover to federal coverage.

Queensland

Legislation
Under the Industrial Relations Act 1999, Queensland law in relation to redundancy is very similar to the federal law (see above). There are, however, some variations, such as the amount of monetary compensation that can be awarded to an employee is set out in a different way; employees with less than one year of continuous service with their employer are not covered by the severance and separation benefits provisions of the Industrial Relations Act 1999 and there is no distinction between the 'unfair' and 'unlawful' dismissal in the Queensland Act - both are considered to be terms meaning harsh, unjust or unreasonable.

Awards
Although there is no standard provision on employment protection in Queensland awards, the Industrial Commission (Qld) has declared a policy establishing standards which could be adopted in particular awards. The clauses established by the declaration of policy are based largely on the award made by the Australian Industrial Relations Commission in the Termination, Change and Redundancy case, Supplementary Decision 1985. Employers should note that because of amendments made to the former Workplace Relations Act 1997 in September 1998, the Queensland Industrial Relations Commission is not restricted to dealing with 'allowable' award matters and so can deal more broadly with 'industrial matters', including redundancy and consultation about technological and structural change.

On 15 October 2003, the Commission issued a formal Statement of Policy providing that applications can be made (no earlier than 1 December 2003) to vary Awards to include the following new scale of payments, based on years of employment:

South Australia

Section 82 of the former Industrial Relations Act 1972 allowed the Industrial Commission to insert award provisions relating to automation or similar technological change. The South Australian Industrial and Employee Relations Act 1994 (which repealed the Industrial Relations Act 1972) includes unfair dismissal provisions based on elements of the ILO Termination of Employment Convention. The main effect of these provisions is to protect employees from harsh, unjust or unreasonable dismissal. Schedule 8 of the Act (Rules for Terminating Employment) provides minimum notice periods as follows:

These amounts are increased by one week if the employee is over 45 years of age and has completed at least two years' service with the employer.

A dismissal cannot be regarded as harsh, unjust or unreasonable if the reason for the dismissal was redundancy and a redundancy payment has been made in accordance with a relevant award or enterprise agreement.

Awards
A draft clause for job protection provisions in South Australia is based on the federal job protection provisions (with some minor variations) and uses the same scale of severance payments.

Enterprise agreements
Redundancy and employment protection provisions may be negotiated between the parties to an enterprise agreement.

Western Australia

The Minimum Conditions of Employment Act 1993 requires employers to inform employees of significant changes to their operations which will affect them or make them redundant. The employer must discuss with the employee the likely effect of the decision on the employee and measures which might be taken by either party to avoid or minimise a significant effect. (This does not mean that the employer is bound to disclose any information that could seriously harm the employer's business.) It also allows an employee who has been informed of impending redundancy to take paid leave of up to eight hours in order to be interviewed for other employment. (The eight hours need not be taken consecutively.)

Awards
The Industrial Commission (WA) confirmed a case-by-case approach to employment protection provisions in awards. This decision left each case to be considered on its merits. Aggrieved parties can bring matters of concern to the Commission's attention without the necessity of an existing award or agreement clause. Employers should keep in mind that the Commission does not have the power to award redundancy payments to non-award employees. The Commission has held that an additional two-week period of notice should be extended to employees over the age of 45 who are made redundant.

Enterprise agreements
Redundancy and employment protection provisions may be negotiated between the parties to an enterprise agreement.

Tasmania

There is no specific reference to redundancy in the Tasmanian Industrial Relations Act 1984, however, the Tasmanian Commission has held that it has jurisdiction to hear such cases as an 'industrial matter'.

Awards
The Tasmanian Industrial Commission has adopted a case-by-case approach to employment protection provisions.

Enterprise agreements
Redundancy and employment protection provisions may be negotiated between the parties to an enterprise agreement.

Territories

The provisions of the Federal Workplace Relations Act apply.

Federal awards predominate in the Northern Territory and Australian Capital Territory so reference should be made to the federal Job Protection case for award employees in the Territories in respect of likely job protection provisions.

Redundancy/retrenchment policy

Some form of redundancy/retrenchment policy should be in place in relation to all employees. Such a policy gives both employers and employees guidance as to what their rights and obligations are, at least in the broad sense. The policy may leave open the determination of specific points once a particular redundancy/retrenchment situation presents.