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Redundancy

Redundancy


·          Redundancy occurs when an employer either terminates an employee’s employment because the employer no longer requires the employee’s job to be performed by anyone or because the employer becomes insolvent or bankrupt.


·          The National Employment Standards provide that redundancy pay may be payable where employees have more than 12 months continuous service and the employer has at least 15 employees.


·          Apart from the NES, the entitlement to redundancy pay may exist in a modern award or enterprise agreement.


·          Not all employees are entitled to redundancy pay on termination of their employment.


·          Redundancy pay is calculated according to base rates of pay.


·          If an employee’s employment is terminated because the employer has been wound up or made bankrupt, unpaid entitlements, including redundancy pay, may be recoverable through the General Employment Entitlement and Redundancy Scheme.


REDUNDANCY


Introduction


Redundancy occurs when an employer either:


·          Terminates an employee’s employment and does not replace the employee; or


·          Becomes insolvent or bankrupt.


For example, Redundancy can happen when:


·          New technology is introduced;


·          There is a decline in business;


·          The employer relocates;


·          The employer merges with another business or is taken over by another business; or


·          The employer restructures or reorganises its business.


Ultimately, the result is that the employer needs fewer employees.


Entitlement to redundancy pay


With the introduction on 1 January 2010 of the National Employment Standards (“NES”) under the Fair Work Act 2009 (“FWA”), most employees may have an entitlement to a redundancy payment.


The NES provide that where employees have:


·          More than 12 months continuous service; and


·          Work for an employer that employs at least 15 employees –


they may be entitled to redundancy or severance payments.


Further, an employee may be entitled to redundancy or severance pay if any or all of the following circumstances exist:


-          a workplace instrument (eg. an award or enterprise agreement) that applies to the employee contains redundancy pay entitlements.


-          a contract of employment that applies to the employee contains redundancy pay entitlements.


-          a company policy that applies to the employee contains redundancy pay entitlements.


However, the following employees to whom the NES apply are generally not entitled to redundancy pay:


·          Employees whose period of continuous service with the employer is less than 12 months;


·          Employees of an employer, which employs fewer than 15 employees;


·          Employees employed for a specific time, task or season;


·          Employees dismissed because of serious misconduct;


·          Casual employees;


·          Apprentices.


Redundancy and small business


For the purpose of determining redundancy pay, an employer, which at a particular time, employs fewer than 15 employees, is not required to provide redundancy pay on the termination of employment.


In determining the number of employees employed at a particular time, the following must be taken into account:


·       All employees are to be counted;


·       Casual employees are not counted unless they have been employed by the employer on a regular and systematic basis;


·       Associated entities of the employer are taken to be the one entity; and


·       Employees being terminated are counted.


How is redundancy pay under the NES calculated?


Redundancy pay is made up of notice and redundancy payments.


Redundancy


The purpose of redundancy pay is to compensate an employee whose job has become redundant.


Under the NES the amount of redundancy pay equals the total amount payable to the employee for the redundancy pay period.


The rate of pay is based on the employee’s base rate for their ordinary hours of work.


As a general rule the base rate of pay of an employee does not include:


·          Incentive based payments or bonuses;


·          Loadings;


·          Monetary allowances;


·          Over time or penalty rates; or


·          Any other separately identifiable amounts.


The following table sets out the rates of redundancy pay:


Employee’s period of continuous service with the employer on termination

Redundancy pay period

At least

but less than


1 year

2 years

4 weeks

2 years

3 years

6 weeks

3 years

4 years

7 weeks

4 years

5 years

8 weeks

5 years

6 years

10 weeks

6 years

7 years

11 weeks

7 years

8 years

13 weeks

8 years

9 years

14 weeks

9 years

10 years

16 weeks

10 years


12 weeks


The rate of payment of redundancy diminishes after 10 years as employees then have long service leave entitlements that can be paid to them.


Please note, that unless the employee had a pre-existing entitlement to redundancy pay from before 1 January 2010, the length of service of the employee for the purposes of calculating the redundancy pay period is calculated from 1 January 2010.


Further, please note that an award, enterprise agreement, company policy or contract of employment may specify a greater amount of redundancy pay.


Notice


The NES set out the minimum amount of notice, or payment in lieu of notice, that an employer must give to an employee to terminate their employment. This includes redundancy situations.


The employer must either give the minimum period of notice or pay the employee in lieu of receiving that notice at the full rate of pay for at least the hours the employee would have worked had the employment continued until the end of the minimum period of notice.


The following table sets out the applicable notice periods contained in the NES:


Employee’s period of continuous service with the employer at the end of the day the notice is given

Period

Not more than 1 year

1 week

More than 1 year but less than 3 years

2 weeks

More than 3 years but not more than 5 years

3 weeks

More than 5 years

4 weeks


If the employee is over 45 years old, and has completed at least two years of service at the end of the day notice is given, the employee receives an additional one (1) week notice.


Please note that an award, enterprise agreement, company policy or contract of employment may specify a longer period of notice.


Other payments


An employee who is made redundant is also entitled to receive a payment for any accrued annual leave.


Some employee may also be entitled to payments for accrued long service leave and accrued sick leave.


What happens when an employer ceases business?


Employees may be entitled to redundancy pay by their employer if their employment is terminated because the employer has been wound up or made bankrupt.


Often the employer will not have sufficient funds to pay employees’ termination entitlements, including redundancy pay.


The General Employee Entitlements and Redundancy Scheme, or GEERS, is a Commonwealth Government scheme established to help employees who lose their jobs when their employer goes out of business and they are seeking outstanding employer entitlements.


GEERS may provide assistance for:


·          Up to 3 months unpaid wages for the period before the appointment of the employer’s liquidator or trustee in bankruptcy;


·          Unpaid annual leave;


·          Unpaid long service leave;


·          Up to a maximum of 5 weeks unpaid notice payment;


·          Up to a maximum of 16 weeks unpaid redundancy.


Redundancy and transfer of business


This area of employment law is particularly complex.


Generally, if an employee moves from one employer (the old employer) to another employer (the new employer) within three months, and there is a transfer of business (e.g. a transfer of assets or where the two employers are associated entities) involved, the period of service with the old employer will generally count as service with the new employer for the purposes of entitlements under the FWA. If this applies, an employee is not entitled to redundancy pay under the NES in relation to termination of their employment with the old employer.


However, there are exceptions. A new employer that is not an associated entity of the old employer has the option to not recognise a transferring employee’s previous service for the purposes of NES entitlements to redundancy pay. If the new employer does not recognise an employee’s service in relation to redundancy pay, the old employer will be required to pay out the employee’s redundancy pay.


Further, subject to an order from Fair Work Australia, an employee is not entitled to redundancy pay under the NES in relation to the termination of his or her employment with the old employer if:


1.       the employee rejects an offer of employment made by another employer that:


a.       is on terms and conditions substantially similar to, and, on an overall basis, no less favourable than the employee’s terms and conditions of employment with the old employer immediately before the termination


b.       recognises the employee’s service with the old employer for the purposes of redundancy pay


2.       had the employee accepted the offer, there would have been a transfer of employment.


Genuine redundancy for the purposes of deciding whether a dismissal may be unfair


If a dismissal is due to a genuine redundancy it will not be an unfair dismissal. Please refer to our article on Unfair Dismissals for further information.


CONCLUSION


If you are an employee or employer with a question about the law relating to redundancy, Nevett Ford has an experienced team of lawyers who can assist you.