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Redundancy – an employer’s guide to getting it right
Freya Lucas
May 12, 2023
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Redundancy can be a stressful time for employers and employees alike. Along with emotional concerns, there can be legal, reputational and ethical implications if mistakes are made during the redundancy process.
In the piece below, we explore some redundancy basics, ideas about what to look for and what to avoid, and resources for further support.What is redundancy?
A role (not a person) is made redundant when it is no longer needed for the business. In an early childhood education and care context, a role might be made redundant if:
- The provider chooses to have one person take on the responsibility for a role which was previously shared
- Enrolments drop significantly
- A room or rooms are closed
- A service merges with another, larger service
- A service is taken over by a new provider.
Once the role has been made redundant, the person who was filling the role will either be redeployed (given another job) or retrenched (lose their job and not be offered another).
This video, from the Fair Work Ombudsman, offers further information.
Genuine redundancy
To avoid allegations of unfair dismissal, an employer must have an accepted reason for making the position redundant.
If a redundancy is put forward without an accepted reason, the employer is exposed to allegations of improper conduct and may be taken to charge for unfair dismissal.
Choosing a position to make redundant
In the event that a business is in downturn – for example, an ECEC service thatcannot get enough enrolments to be financially sustainable – it is important to think about what skills and qualifications are needed in the present moment, and what might be needed in the future.
For example, it would be unwise to make an early childhood teacher (ECT) redundant, because ECT positions are typically quite challenging to fill, and they are also a requirement for services over a certain number of enrolments.
While there may not be a need for an ECT with present enrolment numbers, if numbers pick up an ECT will be needed quickly, and this could be quite challenging.
As a general rule, the first positions in line for redundancy are those which:
- contribute the least to safety, compliance or income
- have skills that are the easiest to replace
- have duties that can be moved to other positions.
Voluntary or compulsory?
Redundancies can be:
- voluntary – the workers volunteer
- compulsory – the employer chooses.
One benefit of voluntary redundancy is the staff member feels like they've had a level of control in their departure from the company.
Making a fair choice
Employers must use a fair selection criteria to work out which positions are to be made redundant.
Performance and other ‘transparent’ qualities should be relied upon to support these decisions. This is especially important if the person filling the role which is to be made redundant is on long term leave, such as parental or long service leave.
The process for selecting positions to be made redundant should be documented, clear, easy to understand and not based on discriminatory grounds.
Review entitlements
Once a decision has been made about which position/s will be made redundant, the employer should examine workplace policies, any relevant agreements, and employment contracts to learn more about:
- the process for consulting with staff and unions
- how much notice the employer is required to give
- the process for notifying and carrying out redundancies
All awards and registered agreements have a consultation process for major changes to the workplace such as redundancies. Any errors made at this stage could result in unlawful or unfair dismissal claims being made later on.
Use the link provided for information about how to dismiss staff properly.
Minimum notice period
Legally an employer must notify the employee in writing and give the employee the correct notice period (or payment in lieu of notice).
If an employer does not they may be in breach of:
- an award
- a workplace agreement
- the employee's common law employment contract.
An alternative to giving an employee notice is payment equal to the wages for the notice period. This payment is generally used if an employer decides to retrench the employee immediately or before the end of the notice period.
Prepare a proper package
Here is a checklist of all the information that must be provided to a employee if they are retrenched:
- clearly explained entitlements calculated to the last day – list which agreement or award you based the calculations on and when and how you'll make final payments;
- an Employment Separation Certificate that states that employment has ended and for what reason (in case it's requested from Centrelink);
- a written and accurate statement of service, if the employee requests one;
- the offer of time-off for counseling, training and job search services;
- the offer to end their employment immediately by taking pay in lieu of notice, if this works for both of you; and,
- a respectful farewell and an offer to hold a farewell event.
Special tax rules apply to some termination payments – such as unused annual leave. Check with the Australian Taxation Office (ATO) or your tax adviser about 'eligible termination payments'.
Keep in mind that unused sick leave isn't usually paid out unless the agreement or award provides for cashing out unused leave – but this isn't common.
Further information and support
For further information and support about lawful redundancy processes, see advice from the Fair Work Ombudsman, HopgoodGanim Lawyers, or the relevant business guide for your state or territory.
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