24 August 2015 Redundancy - when don’t you have to pay it?

By Warwick Ryan, Partner and Simon Obee, Solicitor

In Brief

There is increasingly an expectation amongst employees that they will be paid a lump sum – over and above pay in lieu of notice and any leave entitlements – when their role in the company has been terminated (other than for issues of misconduct). 

In the past, this right was limited to award employees or those under various company schemes, but with the introduction of the Fair Work Act in 2010, the payment of redundancy became a universal right in such circumstances. 

In previous articles, I have discussed when a redundancy arises.  It arises where the job the person was doing no longer needs to be done.  This usually is because it is either outsourced or staff numbers are cut and the duties involved in that role are shared equally amongst other staff.  It may just be that the company ceases to make that line of product or provide that service.  A final situation may be that a business unit is sold. 

in such circumstances do all employees get paid redundancy?

The answer – like so much in law – is yes and no.  Employers are not obliged to pay redundancy in some specific circumstances:

  • Where they have fourteen or less employees at the time of the termination
  • Where the company is sold, the employees are taken on and their prior service is recognised by the new employer
  • Where they are on a fixed term contract that has expired
  • Where they are casual

There is a further exception which is available to the employer to the Fair Work Commission where an employer can argue that they were proactive in finding new roles for the employees and therefore should be excused from paying redundancy.

The question is how proactive you have to be?

In a recent decision of the full bench of the Federal Court, the Court considered the circumstances of a company that had lost a contract. 

The contract had gone out to tender again and a new tenderer had been successful.  In that case, the employer took some steps to put the employees in contact with the new tenderer and 49 of the staff were successful in finding such a role.  However, the new tenderer didn’t recognise prior service with the employer.  The question was whether the actions of the employer were significant enough as to allow them to be exempted from the payment of redundancy.  The Court – controversially – found against the company and required them to pay redundancy to their staff (even though they had new roles). 

Unfortunately, the full bench of the Federal Court didn’t make any effort to set out what sort of steps it would expect the company to take. 

The Courts seemed to distinguish between merely creating an opportunity and taking steps to actually secure employment with the new company.

The full bench assured us that they weren’t setting too high a bar.  I am not certain so sure.  The difficulty with their decision is that it further encourages employers to look closely at permanent casual arrangements to avoid such liabilities and in some respects it diminishes the incentive on employers to take any steps at all unless they are certain that they have the full cooperation of the potential new employer – that is not always easy to achieve.


We would recommend that you do more than just contact the perspective employer. Rather, we suggest you work collaboratively with their HR or management to secure interviews for your staff, that you assist the staff with preparation of CV's.  It may be timely that you organise for some of those interviews to occur on your premises. 

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This article is not legal advice and the views and comments are of a general nature only. This article is not to be relied upon in substitution for detailed legal advice.

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