Successfully Managing Redundancy – Part 1: Mitigate risks when undertaking a redundancy

Dismissing a staff member is never easy. However, undertaking a redundancy is arguably one of the most complex processes for a manager to navigate. The problem is that the process is fraught with risk. A few people may welcome being made redundant, particularly if they need the money and believe that it will be easy for them to find a job elsewhere. But most will find the experience to be traumatic, inflicting a large amount of stress and anxiety on the individual.

The Fair Work Act (Act) provides that an employee cannot bring an unfair dismissal claim if the dismissal was a ‘genuine redundancy’. However, time and time again we see businesses coming unstuck when undertaking this process. Failing to navigate a genuine redundancy can have significant financial and legal implications for your business. In some circumstances, your involvement in the redundancy process can have significant legal consequences for you as the decision maker. So what are the pitfalls? And what can you do to avoid them?

The Act provides that a dismissal is a genuine redundancy if:

  • you no longer require the job to be performed by anyone because of changes in the operational requirements of the business;
  • you have complied with your obligations (if any) to consult about the redundancy; and
  • it would not have been reasonable for the person to have been redeployed elsewhere within the business.

A genuine redundancy, within the meaning of the Act, protects the business from an unfair dismissal claim. However, you will first have to prove that the dismissal was a case of a genuine redundancy.

In this three part series, HR Assured will provide you with everything you need in order to effect a genuine redundancy. This first article will consider circumstances when it is appropriate to make someone redundant and the risks associated with undertaking a redundancy process. Our second article will take an in depth look at how your obligation to consult about the redundancy and to consider options for redeployment may impact on the redundancy process that you undertake. Finally, the third article in this series will examine what you need to do in order to finalise the redundancy process and what employee entitlements you will need to pay upon the cessation of employment.

When should you consider undertaking a redundancy process?

The Act provides that a genuine redundancy occurs where the employer no longer requires that job to be performed by anyone because of changes in the operational requirements of the business. There are a range of situations where you may consider undertaking a redundancy process, including where you:

  • experience a downturn in business due to lower sales or production;
  • undertake a restructure in order to improve efficiency or reduce labour costs;
  • decide to relocate the role, either interstate or overseas;
  • introduce new technology, resulting in the job being replaced by a machine; or
  • decide to sell or close the shop or business.

Importantly, a redundancy may be genuine even when certain duties continue to be performed by other employees, provided the ‘job’ undertaken by the redundant employee no longer exists. The question is therefore whether the job itself survives the changes in the operational requirements of the business, rather than the tasks or duties undertaken by that employee.

On this basis, you may consider undertaking a redundancy process where you decide to replace an existing full time role with a part time or casual role. This would occur when you want to reduce the agreed number of hours in an existing part time role or when you decide to split the tasks and duties currently undertaken by an employee amongst two or more existing roles. The key requirement for undertaking a redundancy process is that you no longer require that job to be performed by anyone – i.e. you are not making someone redundant to hire someone else to perform that the same job in the future.

How long do you have to wait before hiring someone for the same role?

Strictly speaking, there is no fixed period of time that you have to wait before hiring someone to perform the same job after making that job redundant. However, doing so will expose you to the risk of an unfair dismissal claim on the basis that it was not a case of genuine redundancy.

An employee will generally have 21 days to bring an unfair dismissal claim, although this can be extended in exceptional circumstances.  The other factor to consider is whether continuous service will be recognised for the purposes of leave entitlements. In particular, the legislation dealing with Long Service Leave entitlements generally provides that service will not be broken where the employee is made redundant and then subsequently rehired within a 3 month period, however this varies between the States and Territories.

Any objection by the employer that the dismissal was a case of a genuine redundancy will be closely scrutinised, particularly where someone else is subsequently hired to perform the exact same role. For this reason, it is important to consider the length of time that has passed since the redundancy was effected and whether there have been changes in operational requirements that would justify hiring someone to perform the same role.

Why do people get it wrong?

For many businesses, redundancy is viewed as a quick and simple method to exit a difficult employee out of the business. However, this also presents significant risk.

As we will explore further in the second article, the Act provides that it will not be a genuine redundancy where the employee could have been redeployed elsewhere within the business. As such, a proper redundancy process requires you to consider whether there are any other roles available for the employee you are making redundant. On this basis, businesses may find themselves being faced with a difficult choice between being stuck with an underperforming employee or cutting corners in the redundancy process and risking a costly unfair dismissal claim.

Another consideration is whether there is risk of a general protections claim or a claim under Australia’s strong anti-discrimination laws. It is important to remember that redundancy is a form of termination of employment.  Although some people may welcome the redundancy payment, many will find the experience stressful and traumatic.

For this reason, it is important to ensure that appropriate steps are taken to mitigate any risk of a general protections claim or a discrimination-based claim. High risk situations include where you make someone redundant while they are on parental leave or sick leave, or soon after they have exercised a workplace right such as by making a bullying complaint and querying their pay and other entitlements. In such circumstances, the legislation will act as a shield. You are not prevented from making employees with a protected attribute redundant, however, it is important to take additional steps to establish a genuine business case for the redundancy.

How HR Assured can help:

HR Assured is a complete people management solution for your business. Backed by our parent company, FCB Group, HR Assured provides you will the tools and processes you need to effectively manage your staff.

As a client of HR Assured, you will have access to HRA Cloud, HR Assured’s complete Human Resources Information System. This web-based HR system provides you with access to information, advice and best practice guidance on all Australian employment relations matters. In particular, our Termination for Genuine Redundancy checklist guides you through the steps needed and provides you with the legally required employment documents that you will require in effecting a genuine redundancy.

The workflows and checklists in HRA Cloud integrate seamlessly with HR Assured’s other services, providing you with the complete people management solution that your business needs. HR Assured’s Telephone Advisory Service is staffed exclusively by experienced workplace relations consultants, providing you with 24/7 access to advice and guidance when it is convenient for you, while insurance and representation covers you in the event that you receive a claim.

The best part?

HR Assured provides you with peace of mind knowing that your people management needs are being managed by Australia’s most experienced HR experts. This gives you the time and money to focus on what you do best – growing your business!

For more information on the recommendations and what this means for you, clients should contact the HR Assured team. If you’d like more information about the benefits of becoming an HR Assured client contact us today for an informal chat.