Australia: Redundancy

Last Updated: 15 October 2008
Article by Heinz Lepahe

Given recent events, it is likely some employers will turn their minds to the prospect of restructuring their businesses. Redundancies are an integral part of many restructures.

While it is never an easy exercise, the process of making employees redundant needs to be managed carefully in order to minimise any adverse effect on the employer's business and on the individuals involved. One negative (and costly) effect of a poorly managed redundancy is the successful prosecution of legal action by dismissed employees.

It is timely that we provide our clients with a brief update as to the basic issues concerning redundancies.


A redundancy may occur where a job performed by an employee or employees is no longer needed. Put simply, it is the job and not the employee which is made redundant.

Redundancies may also occur where a business is relocated, or where there is a transmission of business.

Severance pay is typically a product of redundancy. The calculation is usually based on a certain number of weeks' pay for a certain number of years' service. Historically, redundancy laws aimed to recognise and protect older and long-serving employees whose prospects of obtaining alternative employment are generally poorer than those of younger workers.

As recently as 2004, the Australian Industrial Relations Commission prescribed a revised scale for calculating entitlements.

Many industrial awards were adapted accordingly but notably, casual employees remained excluded from any entitlement.

It is important to carefully scutinise the particular award or industrial agreement covering your employees' employment to determine the extent, if any, of your redundancy obligations.

Work Choices

The Howard Government's "Work Choices" legislation, however, made changes to the way employees' redundancy entitlements are protected.

As it currently stands, redundancy is a matter which the Federal Government has specifically allowed to be included in industrial awards (where an employer is bound by the award), but only on prescribed conditions. (There are many matters which may be contained in awards which are no longer allowable.)

Redundancy pay now only applies for an employer with 15 or more employees for the termination of employment which occurs either at the initiative of the employer on the basis of operational requirements, or because the employer is insolvent.

The legislation has therefore affected the rights of individual employees to pursue unfair dismissal in relation to the manner in which they were made redundant. Employer's "operational reasons" can represent an obstacle to individual employee action.

Given the change of government, employers should be aware there will likely be (yet) further change to the legislation. Indeed, the Government has recently announced that redundancy will form part of the National Employment Standards which will apply to all workers engaged by constitutional corporations as from 1 January 2010.

"Operational reasons" and the process of making employees' redundant

Notwithstanding legislative constraints, employers are apparently given a fairly wide scope to undertake redundancies. Occasionally though, an unusual case arises showing the potential scope for litigation by employees and how the courts may look at the way a business has undertaken the task of making employees redundant.

Unsworth v Tristar Steering and Suspension Australia Ltd [2008] FCA 1224 is one such recent case.

Employees in that case sued their employer for an alleged contravention of sections of the workplace legislation designed to protect "freedom of association" – put simply, the right to join or not join a union. The employees alleged that they had been victimised or discriminated against because their employer had not dismissed them, thus denying to them the benefit of very generous redundancy entitlements.

The certified agreement governing the employment of employees at Tristar provided (insofar as is relevant) for the payment of 4 weeks' pay per year for every 1 or more years' service. The judge found that length of service was undoubtedly a significant reason for the retention of particular employees – i.e. those with the longest periods of service were kept on, although they were seriously underemployed.

The employees claimed that Tristar injured or altered the position of each of them by not dismissing them, thus denying them severance pay. The judge found, though, that the case could not succeed – the underlying problem for the employees was the loss of business – rather than any decision of Tristar.

The judge concluded that the relevant clause of the certified agreement made it clear that the employer had the discretion as to which employees would be subject to compulsory redundancy. Ultimately, the judge decided that Tristar simply maintained the employees in their position – it did not "do" anything to "injure" an employee or "alter the position" of an employee. The benefit of a properly drafted agreement is obvious.

The employees also argued their case based on a change of duties and lack of productive work. This argument, however, also failed. The problem for the employees was that Tristar was essentially passive insofar as the particular employees were concerned. The judge found the work involved to be constrained by commercial considerations and in particular, that there was "no suggestion that [Tristar] was contriving not to win work for some ulterior purpose".

Ultimately, the employees' action failed.

This decision highlights the freedom apparently given to employers in respect of action taken for operational reasons. Where genuine operational reasons can be shown, the courts are less likely to interfere.

Notwithstanding, redundancy arrangements need to be carefully designed and implemented. This is particularly so given the probable advent of more employee-friendly changes to the legislation.

We will endeavour to keep clients up-to-date with legislative and government policy changes as they come to hand.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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