Under the National Employment Standard, many workers are entitled to receive redundancy pay if let go from an organization. Businesses must understand the rules for redundancy pay in order to ensure they comply with Section 119 of the Fair Work Act 2009.
Understanding Redundancy Pay Obligations
Redundancy pay is required when an employer no longer requires the employee or there is no longer a need for the employee’s position within the organization. Employees also receive redundancy pay if they are terminated because an employer becomes bankrupt or insolvent.
Redundancy pay must be paid only if:
- An employer has 15 or more employees.
- The employee worked for the employer for at least one year, and the job was not a temporary position with a specified duration, a training position, or an apprenticeship.
Redundancy pay is not required if the employee was terminated as a result of serious misconduct, if the employee was a casual employee, or if the employee is covered by an industry-specific redundancy scheme to whom a modern award applies.
An employee who is transferred to a new employer who recognizes a period of service with the old employer is not entitled to receive redundancy pay. Rejection of an offer of new employment can disqualify an employee from receiving redundancy pay if the new employer would recognize the period of service with the older employer and if the new job has equivalent terms and conditions as the old one.
How Much is Redundancy Pay?
Redundancy pay is determined based on the length of time an employee is in the job. An employee who provided continuous service for an employer for one year is entitled to four weeks redundancy pay. The number of weeks increases, up to 12 weeks of redundancy pay for someone who has worked for an employer for at least 10 years.
The amount of redundancy pay an employee receives should equal the total amount payable for the redundancy pay period at the base rate of pay for ordinary work hours.
Legal Issues Related to Redundancy Pay
Redundancy pay may seem straightforward: simply determine if the employee is eligible and calculate the number of weeks based on the worker’s years or service. However, complicated questions can arise related to redundancy pay.
One of the key legal questions is whether the termination is a “genuine redundancy” under the Fair Work Act. This means, among other things, that the employer must comply with all obligations to consult about the redundancy that could be applicable under an enterprise agreement or award. The decision to make the employee redundant must not have had anything to do with the employee’s competence nor with any misconduct or personal acts by the employee.
A termination is a genuine redundancy only when it would not be reasonable to redeploy the terminated worker within the employer’s company or an associated entity. This could include vacant positions in different divisions of the company, as well as different jobs for which an employee may need some retraining as long as the retraining would be reasonable.
The employer also must not require the employee’s job to be performed by anyone in the future. While the specific job tasks done by a particular employee may still be necessary, there must no longer be a need for a dedicated employee to complete those tasks. This can occur when a company restructures and the tasks previously done by the terminated worker are distributed among other employees.
The key factor in determining whether a redundancy is genuine or not, is that the job the employee was terminated from cannot continue to exist; if it does, the redundancy is not a genuine one. If an employer wants the job to continue but to be done by someone else, this is not a genuine redundancy.
Employers must also be aware that redundancy and payment in lieu of notice are not the same. An employee who is terminated is entitled to be notified in writing a set period of time before the termination occurs. The required notice is based on the length of the employee’s service, with those who have worked for less than a year entitled to one week and those who have worked for five years entitled to four weeks notice. If an employer terminates an employee without the required notice, the employer must pay the worker the amount of money they would have received by working through the end of the notice period. This is separate from and in addition to redundancy pay if the employee is eligible for both.
Owen Hodge Lawyers can help employers and employees to determine when a genuine redundancy occurs, when payments are required, and what entitlements an employee should receive after a termination. We also advises clients on all issues related to the Fair Work Act, including severance and redundancy pay. Call us today on 1800 770 780 or contact us via [email protected] to speak with an employment lawyer who can provide assistance with issues arising from employee termination.