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What is redundancy? |
Redundancy is the termination of an employee's employment on the basis that the work of that employee is no longer required by the employer. A redundancy can arise due to the introduction of new technology, the restructure or sale of the business, or because of economic circumstances. |
What is the employee entitled to?
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Employers are bound by the terms of the contract of employment, or the applicable award if there is no contract, to provide the employee with certain basic entitlements. These are to:
- Notice; and
- Redundancy/Severance Pay
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| Notice |
Notice requirements will vary between different awards, and employers should check the applicable award before terminating an employee on redundancy. |
Employers are able, in the absence of notice, to pay to the employee compensation, which is equal to, or that exceeds the amount which the employee would have otherwise been paid, had the employment continued in accordance with the required notice period. |
Redundancy/Severence Pay |
Most NSW Awards set a scale of minimum severance payments for permanent employees that bind employers of 15 or more employees. Employers with a staff level of less than 15, are generally exempt from the severance pay provisions. |
The Federal system also sets out minimum severance payments due to permanent employees upon redundancy, which do bind employers of less than 15 employees. |
Unlike the NSW provisions, employers who employee less than 15 workers are caught under the Federal provisions, however there is a maximum of 8 weeks pay for continuous service extending beyond the 4 year period. |
Employee's rights |
Employers should always seek independent legal advice when making an employee redundant and calculating a severance package. If the employer fails to provide the employee with any of their entitlements, fails to provide the employee with their full entitlements, or if the employer fails to meet any of its other obligations, the employee may be entitled to bring an unfair contract claim, unfair dismissal claim, or breach of contract claim. |
Transfer of Business |
On the transfer of business it is often uncertain if the employees of the old employer become redundant and new employment begins with the new employer, or whether the entitlements of the employees who are then employed by the new employer are carried forward or not. |
The High Court in Minister for Employment and Workplace Relations v Gribbles Radiology Pty Limited; Gribbles [2005] HCA 9 has indicated that for employees entitlements to be carried through, the new employer must be a successor of the business. |
To be a successor of the business, and therefore bound by the terms and conditions of the employment agreement between the first employer and the employees, the second employer must enjoy some part of the first employer's business. It is not enough to show that the employer carries on the same business activity, but it must be proven that the second employer enjoys part of the tangible or intangible assets the former employer used to carry on the business. |
Employers when taking over a business, should therefore ensure that due diligence is undertaken to investigate all relevant industrial instruments, and to ascertain any future obligations to which they may be subject with respect to the employees ie. continuous service. |
Amcor v CFMEU |
Amcor, upon the transmission of the business to Paper Australia, wrote to all of its employees, terminating their employment. Attached to the termination letter, was an offer of employment from the new employer, Paper Australia, asserting that the same terms and conditions will be enjoyed by the employees. |
The High Court found that the employees were not entitled to severance pay, because there was no redundancy. Essentially the services provided by the employees to the new employer were:
- being provided by the same employees,
- was exactly the same work,
- was being carried out at exactly the same place; and
- were remunerated in exactly the same fashion.
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| It was held that no job had been made redundant, and therefore no employee was entitled to severance pay from the old employer upon termination. |
It must be noted however that the new employer, engaged the employees on exactly the same terms and conditions, preserving all of their benefits, including continuity of service. |
Mass Redundancies
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When an employer is faced with implementing a mass redundancy, they must be very careful in the selection process they undertake in making the redundancies, so as to avoid the risk of an unfair dismissal claim. |
The process needs to be fair. A fair process should include:
- Notify and consult with all employees of the relevant class;
- Determine objective, fair and reasonable selection criteria for deciding which employee of the relevant class is to be made redundant;
- Obtain all relevant material concerning each employee;
- Carry out an objective analysis of the strengths and weaknesses of each employee - against the objective fair and reasonable selection criteria;
- Choose in accordance with selection criteria;
- Inform the selected person of the redundancy;
- Consider alternatives to termination;
- Seek input from the selected person on alternate employment;
- Examine and implement ways to minimise the impact of redundancy on the selected person;
- Seek input on ways to minimise the impact of redundancy;
- Allow the selected person to leave in a dignified manner
- Provide selected person with appropriate termination payment.
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peter.mcnamara@cml.com.au
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