In the world of HR we’re often asked what is redundancy? And what is the difference between redundancy, unfair dismissal and unlawful termination?
An employee has been unfairly dismissed if the Fair Work Commission is satisfied that all of the following has occurred:
- the person has been dismissed
- the dismissal was harsh, unjust or unreasonable
- if the employer is a small business, the dismissal was not consistent with the Small Business Fair Dismissal Code
- the dismissal was not a case of genuine redundancy.
What is harsh, unjust or unreasonable?
In considering whether a dismissal was harsh, unjust or unreasonable, the Fair Work Commission must take into account all of the following factors:
- whether there was a valid reason for the dismissal related to the employee’s capacity or conduct
- whether the employee was notified of that reason and given an opportunity to respond
- any unreasonable refusal by the employer to allow the employee to have a support person present to assist at any discussions relating to dismissal
- if the dismissal related to unsatisfactory performance by the employee, whether they had been warned about that unsatisfactory performance before the dismissal
- the degree to which the size of the employer’s enterprise and the degree to which the absence of dedicated human resource management specialists or expertise would be likely to impact on the procedures followed in effecting the dismissal
- any other matters that the Fair Work Commission considers relevant.
Who can make an unfair dismissal application?
To be eligible to make an unfair dismissal application an employee must be both:
- covered by the national workplace relations system
- eligible to apply.
Only employees covered by the national workplace relations system are covered by the unfair dismissal laws. Other employees may have access to remedies under relevant State legislation.
An employee is eligible to make an application to the Fair Work Commission for unfair dismissal if they have completed the minimum employment period of:
- one year – where the employer is a small business employer. A small business is defined as any business with fewer than 15 employees. This is calculated on a simple headcount of all employees who are employed on a regular and systematic basis.
- six months – where the employer is not a small business employer.
In addition, at least one of the following must apply:
- an award covers the person
- an enterprise agreement (or other industrial agreement) applies to the person
- the person’s annual rate of earnings is less than the high income threshold (from 1 July 2017 this is $142,000.) This threshold will be indexed each financial year starting on 1 July.
Who is not eligible to make an unfair dismissal application?
The following persons are not eligible to make an unfair dismissal application:
- independent contractors
- employees who resign and were not forced to do so by the conduct of their employer
- those employed under a contract for a specified period of time, for a specified task, or for the duration of a specified season, and the employment has terminated at the end of the period, task or season
- an employee to whom a training arrangement applied and whose employment was for a specified period of time or limited to the duration of the training agreement, and the employment terminated at the end of the training arrangement
- employees who have been demoted but the demotion did not involve a significant reduction in their remuneration or duties and who remain employed by the employer who demoted them.
In addition, a person may not be entitled to an unfair dismissal remedy if the person was:
- dismissed in the case of a genuine redundancy (see Redundancy and unfair dismissal below)
- dismissed by a small business employer who has complied with the Small Business Fair Dismissal Code in relation to the dismissal.
What is the Small Business Fair Dismissal Code?
The Small Business Fair Dismissal Code (the Code) is a legislative instrument declared by the Minister for Employment.
The Code provides the following:
It is fair for a small business employer to dismiss an employee without notice or warning when the employer has reasonable grounds to believe that the employee was guilty of serious misconduct. Serious misconduct includes theft, fraud, violence and serious breaches of occupational health and safety procedures. For a dismissal to be deemed fair, it is sufficient, though not essential, that an allegation of theft, fraud or violence be reported to the police.
In other dismissals, a small business employer must give the employee a valid reason based on their capacity or conduct to do the job if they are at risk of being dismissed. The employee must be warned verbally (or preferably in writing), that they risk being dismissed if there is no improvement. Further, the employer must provide the employee with an opportunity to respond to the warning and give them a reasonable chance to rectify the problem, having regard to the employee’s response. Rectifying the problem might involve the employer providing additional training and ensuring the employee knows the employer’s job expectations.
Employees can have another person present to assist them in discussions in circumstances where dismissal is possible. However, the other person cannot be a lawyer acting in a professional capacity.
If the employee makes an unfair dismissal claim to the Fair Work Commission, the small business employer will be required to provide evidence of compliance with the Code. This evidence may include that a warning has been given (except in cases of summary dismissal), a completed checklist, copies of written warning(s), a statement of termination or signed witness statements.
What is an unlawful termination?
The relevant Commonwealth workplace laws prohibit an employee from being terminated on certain grounds, including those that are discriminatory. Generally, an employee has protection from unlawful termination under the General Protections provisions of the Fair Work Act 2009. However, if a person does not have a protection under these provisions, they are still protected from unlawful termination, as described below.
Unlawful termination is when an employee is dismissed by their employer for reasons including:
- a person’s race, colour, sex, sexual preference, age, physical or mental disability, marital status, family or carer’s responsibilities, pregnancy, religion, political opinion, national extraction or social origin (some exceptions apply, such as where it’s based on the inherent requirements of the job)
- temporary absence from work because of illness or injury
- trade union membership or non-membership
- participation in trade union activities outside working hours or, with the employer’s consent, during working hours
- seeking office as, or acting as, a representative of employees
- being absent from work during maternity leave or other parental leave
- temporary absence from work to engage in a voluntary emergency management activity
- filing a complaint or participating in proceedings against an employer.
The Fair Work Ombudsman can investigate unlawful termination complaints.
Unlawful termination applications must be made to the Fair Work Commission within 21 days of the termination.
Should an employee be given notice of termination?
Generally, an employer must not terminate an employee’s employment unless they have given the employee written notice of the day of termination, or payment in lieu of that notice.
The amount of notice is based on the length of service of the employee.
What entitlements are owing on termination?
When an employment relationship ends, employees should receive the following entitlements in their final pay:
- any outstanding wages or other remuneration still owing
- any payments that are being made in lieu of notice of termination by the employer – this is generally between one – five weeks pay, depending on the age of the employee and how long they have been employed on a continuous basis by the employer
- any accrued annual leave and long service leave entitlements
- any severance pay entitlements if the employee has been made redundant and the employee has an entitlement to redundancy under relevant Commonwealth workplace laws or an industrial instrument.
If an employee believes that they have not received payment for all of their entitlements at the time their employment ends, the Fair Work Ombudsman can investigate and take action to make sure that all legal entitlements under relevant Commonwealth workplace laws are paid. An employer may be liable to a penalty of up to $54,000 per contravention if they have not complied with their obligations under relevant Commonwealth workplace laws.
What is redundancy?
Redundancy occurs when an employer decides they no longer want a job an employee has been doing to be done by anyone, and terminates their employment (except in cases of ordinary and customary turnover of labour). The job itself, not the employee, becomes redundant.
Redundancy may happen when an employee is terminated because:
- the job someone has been doing is replaced due to the employer introducing new technology (i.e. it can be done by a machine)
- staff reduction for a particular task occurs due to a downturn in business
- a merger or takeover happens and the position is no longer required
- the business restructures or reorganises and the position is no longer required (this may include where tasks performed by a particular employee are distributed between several other employees)
- of the insolvency or bankruptcy of the employer.
What redundancy pay might be payable?
As of 1 January 2010, an employee covered by the national workplace relations system, who has at least one year of continuous service and who works for an employer that employs 15 or more employees may be entitled to redundancy or severance payments (to a maximum of 16 weeks pay) under the National Employment Standards (NES).
When is redundancy pay not payable?
An employer who is a small business employer is not required to provide redundancy pay on the termination of an employee’s employment. A small business employer for the purpose of determining redundancy pay is an employer who, at a particular time, employees fewer than 15 employees. When calculating the number of employees employed at a particular time, the following factors are to be taken into account:
- all employees employed by the employer at that time are to be counted
- a casual employee is not be counted unless, at that time, he or she has been employed by the employer on a regular and systematic basis
- associated entities are taken to be one entity
- the employee being terminated and any other employees being terminated at that time are counted.
In addition, redundancy pay will not be payable to any of the following:
- an employee whose period of continuous service with the employer is less than 12 months
- an employee employed for a specified period of time, for a specified task, or for the duration of a specified season
- an employee whose employment is terminated because of serious misconduct
- a casual employee
- an employee (other than an apprentice) to whom a training arrangement applies and whose employment is for a specified period of time or is, for any reason, limited to the duration of the training arrangement
- an apprentice
- an employee to whom an industry-specific redundancy scheme in a modern award applies
- an employee to whom a redundancy scheme in an enterprise agreement applies if:
- the scheme is an industry-specific redundancy scheme that is incorporated by reference (and as in force from time to time) into the enterprise agreement from a modern award that is in operation
- the employee is covered by the industry-specific redundancy scheme in the modern award.
An award that is in operation may include a term specifying other situations in which redundancy pay does not apply to the termination of an employee’s employment.
What happens if my employer goes bankrupt?
An employee may be entitled to redundancy pay by an employer if their employment is terminated because of the liquidation or bankruptcy of the employer.
In some circumstances, the business may not have sufficient funds to pay employees’ outstanding entitlements, including redundancy pay.
The Fair Entitlements Guarantee started on 5 December 2012. Eligible employees may be able to claim:
- up to 13 weeks unpaid wages
- unpaid annual leave
- unpaid long service leave
- up to 5 weeks unpaid payment in lieu of notice
- up to 4 weeks unpaid redundancy entitlement per year.
Redundancy and unfair dismissal
Where a case is a genuine redundancy, it will not be considered an unfair dismissal.
The Fair Work Act 2009 provides that a person’s dismissal is a ‘genuine redundancy’ if all of the following conditions were met:
- the employer no longer required the person’s job to be done by anyone because of changes in the operational requirements of the employer’s enterprise
- the employer complied with any obligation in an applicable workplace instrument (e.g. award or agreement) to consult about the redundancy
- there was no reasonable opportunity for the person to be redeployed within the employer’s enterprise or the enterprise of an associated entity of the employer.