Redun­dan­cy — when don’t you have to pay it?

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.

Next steps

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.