When a business faces the need to restructure—whether due to financial pressure, changes in strategy, or shifts in customer demand—reducing staff might seem like the only viable option. But making a role redundant isn’t just a commercial decision; it comes with serious legal responsibilities.
Under the Fair Work Act, employers must prove that the redundancy is genuine. This means more than just letting someone go because of budget constraints or internal changes. If the process isn’t handled correctly, employers could face costly unfair dismissal claims, even if the intention was lawful.
So, how do you ensure that your redundancy process meets the legal threshold? In this article, we unpack:
- What qualifies as a genuine redundancy under Australian law
- Common missteps that expose businesses to legal risk
- Practical steps you can take to consult, assess redeployment options, and document your decisions
Before you begin cutting roles, ask yourself: Is it really a genuine redundancy? Let’s explore what you need to know to stay compliant—and avoid the courtroom.
What is a Redundancy?
A redundancy occurs when an employer no longer requires a specific role to be performed by anyone due to changes in the business’s operational needs. It’s important to note that redundancy focuses on the position, not the individual employee.
Example:
If a company decides to outsource bookkeeping to an external firm, it may no longer need an in-house bookkeeper. While the tasks still exist, the role no longer does. This is considered a redundancy.
What Makes a Redundancy ‘Genuine’?
Under the Fair Work Act 2009 (Cth), a dismissal will only be considered a genuine redundancy if all three of the following apply:
- The job is no longer required to be performed by anyone.
- The employer has complied with any consultation obligations outlined in an applicable award or enterprise agreement, and acceptable HR problem
- It was not reasonable to redeploy the employee within the business or an associated entity.
How Employers Can Demonstrate Genuine Redundancy
To minimise legal risks, employers should carefully manage the redundancy process. Here are three key steps:
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Document Operational Changes
Employers must be able to justify that a role is no longer required. Keep detailed records of the reasons for the redundancy, such as financial data, changes in demand, or structural reorganisations. These records can be crucial if the matter goes before the FWC.
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Conduct Genuine Consultation
If the employee is covered by an award or enterprise agreement, you are likely required to consult them before making a final decision.
A genuine consultation means:
- Informing the employee about the potential redundancy.
- Providing them with relevant information in writing.
- Giving them an opportunity to respond and offer feedback.
- Considering their input before making a final decision.
Tip: Document all communications and responses to demonstrate that the consultation was meaningful.
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Assess Redeployment Options
Before proceeding with termination, assess whether there are any suitable vacant roles within your business (or associated businesses) that the employee could reasonably fill.
The key question is not whether the employee could replace someone else or be given preference over others, but whether a vacant position existed that the employee was capable of performing (with or without reasonable training).
If a role was considered but deemed unsuitable, make a record of the reasons why it wasn’t a viable option.
Final Thoughts for Employers
Redundancy may be a valid reason for ending employment, but employers must follow the correct legal process to avoid the risk of an unfair dismissal claim.
Key takeaways:
- Always keep thorough records of operational changes.
- Engage in meaningful consultation before making a decision.
- Carefully review and document any potential redeployment options.
Failing to comply with your obligations may result in the FWC determining that the dismissal was not a genuine redundancy, leaving your business vulnerable to legal consequences.
Need Guidance?
If you’re considering restructuring your business or reducing staff and want to ensure compliance with employment law, we’re here to help. Contact NB Employment Law for a no-obligation consultation and practical advice tailored to your situation.