May 2013

Am I redundant? Who's asking?

As our economy grows and contracts there will be those who lose their jobs through no fault of their own, but only because the positions they held became redundant.  But what does “redundant” mean?  The answer often depends on who’s asking and for what reason.

Did you know that you might be entitled to receive a redundancy payment on termination, but at the same time your termination was not a “genuine redundancy”?  And there are times when you might still have a job but nevertheless be able to receive a redundancy payment.

To explain these conundrums it is worthwhile reviewing how we came to have entitlements upon redundancy, and then we will consider a few recent cases. 

What is redundancy?

The Concise Oxford defines redundant as:

(of industrial worker) liable to dismiss as being no longer needed for any available job.

That’s a pretty close approximation of what it means, from a legal point of view, to be redundant.  But it hasn’t always been the case that redundant employees received a payment upon losing their jobs.  The battles over redundancy payments took off in the 1970s when many workers were made redundant and were then pushed onto an unforgiving labour market. 

After some big industrial disputes it became established that if an employee lost their employment as a result of economic, structural, technological or organisational change, then they would be entitled to a payment to carry them through to their next job and perhaps compensate them for some of the lost service benefits like sick leave.

At the same time it was accepted that in some industries there is a regular and customary turnover of labour, and employees in these industries could not expect to receive redundancy payments.  Seasonal agriculture was the most obvious industry but cleaners and car park attendants often lose their jobs as contracts stop and start.

Workers in well organised industries were able to negotiate redundancy entitlements in their awards or enterprise agreements.  Many of these are quite particular, but they usually contain a common exception that a displaced worker is not entitled to a payment if their employer is able to find them suitable alternative employment.

What is suitable alternative employment?

Quite some time ago the NSW Department of Education ceased employing cleaners to maintain schools and instead entered into contracts with cleaning companies.  The Department argued that in securing its former employees work with those cleaning companies it had satisfied the requirement of “suitable alternative employment”. 

The NSW Industrial Commission disagreed; employment with a privately owned cleaning company in a competitive industry is far less secure than employment as a cleaner with a government department, even if the rates of pay and other conditions are the same.

The Fair Work Act and the NES

These competing threads were drawn together under the Fair Work Act: the National Employment Standard (NES) now specifies a minimum entitlement to “redundancy pay”, if the employer terminates the worker’s employment because the employer “no longer requires the job done by the employee to be done by anyone” (small business employers, less than 15 employees at the time, are exempt). 

This doesn’t mean that the tasks of the job are no longer done at all, but rather that the tasks are no longer done by the one person.  Distributing an employee’s tasks to others to reduce staff numbers is a redundancy.

What is important about this definition is that the entitlement only arises upon termination of employment.  So even if the work has ceased, there is no entitlement to the payment until the employment is terminated.

There is a let out if the employer “obtains other acceptable employment for the employee”.  And if there is a transfer of employment then there is no payment if the new employer recognises past service.  Employers can to apply to Fair Work Australia for relief from making the payment if they cannot pay the amount of redundancy pay. 

The conundrums

The NES payment arises upon termination of employment if the employer no longer requires a job done by the employee to be done by anyone.  Termination means dismissal, so maybe the employee could bring an unfair dismissal claim? 

Yes they can, but not if the dismissal was a “genuine redundancy”.  But what is a genuine redundancy is not the same as a redundancy that requires a redundancy payment. 

To be genuinely redundant the termination has to be because:

  • the person’s job will no longer be required to be performed by anyone;

  • because of changes in the operational requirements of the employer’s enterprise;

  • and the employer has complied with any obligation to consult about the redundancy;

  • and it was not reasonable to redeploy the person elsewhere within the business or an associated entity.

So an employee could be given a redundancy payment but at the same time is not excluded from bringing an unfair dismissal claim if there has been no consultation or no effort to find alternative employment. 

Last year Commissioner Cambridge of Fair Work Australia (Whiteside v G.  James Glass [2012] FWA 3580) made it clear that even if a position was redundant it was still necessary to satisfy any obligation in an award to consult and also to consider redeployment.

Making a redundancy payment is no inoculation against an unfair dismissal claim.

Recent cases – Awards and contracts

There are circumstance cases where an employee might be able to recover a payment for redundancy even though their employment was ongoing.  These cases usually arises where terms more favourable than the NES have been negotiated in an award or enterprise agreement. 

In Smith v Onesteel Limited (2013) NSWDC 18 an employee was simply moved from a shut-down workshop to the paint shop.  The employee was receiving the same money with no loss of service or benefits, but he wasn’t happy in the position for lots of well-founded, though personal, reasons.  He resigned. 

The court found the terms of the redundancy process in the Award had not been followed, so even though there was ongoing work the employee had been made redundant upon the transfer, and it did not matter that there was a good job on offer.

The lesson for employers is to give careful consideration to redundancy clauses in enterprise agreements and perhaps bring them in line with the definitions of the Fair Work Act.

And it’s not just the terms of enterprise agreements.  In a very recent case, Gamboni v Bendigo and Adelaide Bank Ltd [2013] VSCA 92 (2 May 2013), a tightly worded position description combined with a contract that incorporated all policies, resulted in a senior manager receiving a significant redundancy payout even though the Bank wanted the employee to continue in a senior and important position.

Avoid overly detailed contracts, and stick with the basic principles when it comes to redundancy.

Redundancy – compensation or windfall?

Some very generous redundancy schemes have been negotiated, and there have been some big payouts.  The question must be asked whether redundancy benefits are no longer being viewed as a cushion against hard times but rather an entitlement. 

Deputy President Sams, speaking from a position of having significant industrial experience, took the opportunity to express his view in a recent decision, McGrath and Anor v Sydney Water Corporation [2013] FWC 793 at [430]:

Generous redundancy packages often prove to be a “double edged sword” in so far as preserving jobs and employment are concerned.  Like sick leave, I do not see redundancy benefits as entitlements.  Redundancy should never be seen as a means of securing a financial windfall, when a positively acceptable and comparable job is the available alternative.  This is my very strong philosophical view underpinned by the beneficial and historic purpose of redundancy pay, which is that employees, who do not accept comparable alternative employment, have no claim to redundancy entitlements.

Wise words indeed.

Our take home message

The NES definitions are robust and workable, having been developed over decades of industrial negotiation.  It may be worthwhile sticking with the simplicity of the NES rather than negotiating a standalone scheme.

But if an employer wishes to avoid an unfair dismissal claim then there must be consultation and an effort to redeploy – only then will the redundancy be “genuine”.

Author: Mark Paul

Our expertise