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How to avoid common redundancy pitfalls

Redundancy is a complex process that requires careful consideration and planning. Redundancies can be difficult for both employers and employees, and if not managed properly, can result in negative outcomes such as low morale, decreased productivity, and even legal implications.

To avoid common pitfalls of a redundancy, it is important to have a clear understanding of the legal requirements, communicate effectively with employees, and be transparent about the reasons behind the changes. Below are some of the most common mistakes that businesses make when carrying out the redundancy process.

  1. Incorrect use of the redundancy process

First and foremost, redundancy is about a role and not about the individual performing that role.

All too often, businesses who have identified performance and/or conduct issues with a particular employee have fallen into the trap of believing that the redundancy process can be used as a ‘quick fix’ to exit the employee from the business.

The consequences of terminating an employee by way of redundancy for any other reason than a genuine redundancy may result in an unfair dismissal claim.

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So, before considering the redundancy route, ask yourself: Is there a genuine redundancy?

Section 389 of the Fair Work Act 2009 (Cth) stipulates that an employee’s dismissal will be considered a genuine redundancy if:

  • an employee’s role is no longer needed by the business, due to a change in operational requirements;
  • the business has complied with the relevant modern award or enterprise agreement (if any) to consult with the employee about the redundancy; and
  • the business has offered the employee a suitable alternative role (where available).
  1. Failing to follow a thorough consultation process

Understandably, emotions can run high during the redundancy process and some employers may find facilitating consultation conversations with an employee uncomfortable, difficult and time consuming. As a result, employee consultations may become rushed, or avoided altogether.

However, communication is key and proper employee consultation is the hallmark of any procedurally fair redundancy process. Not only does it allow the employer to explain why redundancy is being considered by the business, but importantly, it gives the employee the chance to have their opinions heard, ask questions and discuss redeployment options (if any exist).

Most modern awards and enterprise agreements will include a provision for consultation. By way of example, clause 34.1 of the General Retail Industry Award 2020 requires employers to consult with employees about a major change in production, program, organisation, structure or technology that are likely to have a significant impact their ongoing employment. Specifically, the employer must:

  1. give notice of the changes to all employees who may be affected by them; and
  2. discuss with the affected employees, and their representatives (i.e., support person) (if any):
    1. the introduction of the changes;
    2. their likely impact on employees;
    3. measures to avoid or reduce the adverse effects of the changes on employees.
  3. commence discussions as soon as practicable after a definite decision has been made.

For clarity, the statutory requirement to consult will not apply to award free employees. However, it is still recommended to consult as a matter of best practice.

  1. Failing to use a fair selection process for redundancy

In a scenario where there is more than one employee is being considered for redundancy, and only one vacancy for redeployment exists, a business will need to consider adopting a comprehensive and fair selection process.

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Not selecting an employee for redeployment, who would otherwise possess the skills required, due to pregnancy, their caring responsibilities or their tendency to exercise workplace rights (e.g., raise complaints, take leave, etc.) will place the business at risk of a general protections claim.

Businesses carrying out a redundancy should consider a skills matrix, setting out a list of criteria required for the redeployment role and compare impacted employees against this criteria.

  1. Failing to take into account the financial implications of a redundancy

Businesses that dive into redundancy without careful consideration may get caught out by the associated hidden costs.

Apart from the usual payments employees are entitled to upon termination, such as notice and any accrued but untaken leave entitlements (such as annual leave and long service leave), redundant employees may also be entitled to redundancy pay.

Dependant on the size of the business, permanent employees with at least a year of service will become entitled to redundancy pay. The payment owed to an employee is subject to their length of service. It is important to keep in mind that some modern awards or enterprise agreements may have their own industry-specific redundancy schemes.

Want to know more?

If you are considering redundancy in your business, or just simply wish to know more about the process, come along to our free ‘Restructuring and Redundancy Essentials’ webinar on Monday, 3 April 2023 at 12.30pm (AEDT). The webinar, presented by Legal Practice Director, Lindsay Carroll and Workplace Relations Advisor, Remy Atkinson, is perfect for business owners, HR professionals and retail operations executives and covers a range of topics, including practical tips on restructuring and managing the redundancy process

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