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Cutting down the size of your workforce is not usually a happy time – but it can be painless.

An excellent redundancy strategy will not focus solely on who needs to go, but also on those who will stay.  The atmosphere created in the wake of any cull needn’t be unsettled or sombre.  It is possible to have mass departures without hard feelings – and if that is achieved you will not only ensure efficiency and continuity but you will send a positive message to the market – your clients, customers and competitors.

Redundancy is always about the commercial bottom line.  The decision is undertaken to save the business money in the long term, but redundancy can be very expensive.  Most employees will be entitled to multiple weeks of redundancy pay, and depending on their length of service it can be up to 16 weeks of salary that has to be paid in addition to their usual notice of termination.

However, the real expense in redundancy will lie in the legal challenges that the business may expose itself to if it isn’t done exactly right.

Redundancies can only be challenged as an unfair dismissal where it is alleged that the redundancy was not genuine.  However, actions in adverse action can be made if an employee feels they were made redundant for a discriminatory reason.

Roles not Employees
It is important to remember that roles and not people are made redundant. Redundancy cannot be used as an alternative to dismissal for poor performance or misconduct.  If a role is continuing and you make someone redundant you face an unfair dismissal action.

However, if a workforce needs to be reduced and there are multiple similar roles the employer will have to choose who to keep.  There are almost endless attributes that an employer may consider when making such a choice.  Some criteria are reasonable, some may seem unfair and some are unlawful.

Lawful Reasons
Part of your redundancy plan will be to decide on what criteria you are going to use to select employees who will be made redundant.  It may not be necessary to even reveal the reasons you used to select employees, but if you are selecting people based on what will seem to be fair considerations transparency may assist in minimising suspicion of prejudice or unfair discrimination.

Fair and lawful selection criteria might include: volunteers, performance, length of service and salary cost.

Unfair but lawful selection criteria are those which you are entitled to make but which may not be well received by your workforce, such as, keeping relatives/ friends employed or selecting employees you just find annoying for redundancy.

Like all employment decisions it is essential that those selected for redundancy are not being unlawfully discriminated against.  Protected attributes include age, race,  gender, disability and caring responsibilities. None of these attributes can be used as criteria for selecting an employee for redundancy.

However, neither is it necessary or fair to practice reverse discrimination by (for example) retaining employees on parental leave solely to avoid a potential legal claim.  If your business can no longer afford to keep its part-time roles then all part-time roles must be made redundant.  The employees who occupy those roles would be selected for redundancy irrespective of the fact that they may all have caring responsibilities.  It would be wise to consider offering the employees in part-time positions any alternative full time roles that the business does require to be performed.

Prevent Grievance
Preventing grievance is the most sensible approach.  This is important because even if you follow a perfect and entirely lawful process, if someone feels aggrieved they can easily file a claim with the Fair Work Commission.  Employers will be necessarily drawn in to defend the claim.  It will cost the business time and money to do so and those costs are not recoverable even where you win.

The transparent selection of employees with reference to their roles and acceptable criteria such as length of service, performance etc… should prevent grievance and protect you against expensive adverse action claims.  Transparency of process usually assists those who do leave to do so without feeling victimised.

Consider & Consult
Before any decisions are made it is legally and practically necessary for the business to turn its mind to whether there are any alternative solutions to redundancy – AND talk to employees about those considerations.

A failure to consult will breach any modern award that may apply, and even if your employees are award free is still necessary to avoid claims of acting in bad faith.  You may like to call for volunteers for redundancy as a first step.  That ought to identify those you were probably going to lose soon anyway.

In addition to considering whether employees in redundant roles could be redeployed to other roles, employers could offer part-time work or salary reductions.  Even stop-gap measures like accessing leave with out pay and/or annual leave may make more long-term economic sense if the downturn may be temporary.

All possibilities can and should be considered as part of consultation. Anything is possible where an employee agrees, and in the current economic climate employees will often be keen to stay employed at any cost – even if only to avoid being unemployed while applying for alternative jobs.

Generous Redundancies
Some employees and employers are exempted from the redundancy provisions of the Fair Work Act 2009, such as small businesses, casual employees and employees with less than 12 months service.  Different rules apply to businesses run as not-for-profits, and if any business can genuinely not pay the required entitlements there are legal solutions.  Since redundancy is almost always about terminations that are required to ensure the profitability of the business most employees will understand that nothing more than legislated entitlements can be paid.

Of course you can always be more generous, and there may be good reasons for doing so. Paying some additional entitlements can sweeten a deal or soften a blow.

The whole point of redundancy is to allow businesses to reform themselves rather than become unviable.

Don’t Draft a Clause
Hopefully, redundancy is only a remote possibility in the distant future of your business.  Until the problem is bearing down on you it is unnecessary, and even counter productive to consider how your business intends to deal with what is only a hypothetical problem.

There is no need to have a clause about redundancy in your employment contracts, and if you have one it is probably time to remove it.  Since 2010 the National Employment Standards (NES) have applied to all employees in Australia.  The NES contains minimum entitlements to redundancy and cannot be contracted out of.  However, if your employment contracts happen to offer more generous entitlements you will be bound to pay those entitlements.

Write a Plan, Not a Policy
Redundancy policies are not usually a good idea to issue on a “just in case” basis.  Each time any redundancy is required there will be unique circumstances and considerations.  Restrain your Human Resources Manager or Payroll Officer from writing a policy before you need one.

Obviously, once a round of redundancies becomes necessary you will need a plan.  Unlike policies, plans are specific and a very important part of ensuring you comply with the law, minimise risk and achieve your objectives.

The lawyers at HHG Legal Group offer expertise to small and medium businesses in developing redundancy strategies.  If you see us as soon as you notice even a hint of a need for redundancies we can almost certainly save you money, avoid disputes and keep things as harmonious and diplomatic as possible.

If you would like further information in relation to this matter or other legal matters please contact our office on Freecall 1800 609 945 or email us now.


*This information serves as a general guide and does not constitute legal advice. It is based on our research and experience at the time of publication. Please consult our knowledgeable legal team for any specific inquiries or advice relevant to your circumstances, as the content may not have been updated subsequently.