Redundancy and Retrenchment

The terms “redundancy” and “retrenchment” are sometimes used interchangeably, though they have quite different meanings under Australian law. When a certain position is no longer required in a business due to operational changes, this is known as a redundancy. If the position becomes redundant, the employee may need to be redeployed to another position or retrenched. While it is not unusual for someone to say they were made redundant, it is more accurate to say that their position was made redundant. This article looks at the differences between redundancy and retrenchment in the Australian workplace.

Reasons for redundancy

An increasingly common reason for a position to become redundant is that an employer introduces new technology to their processes, especially given new developments in artificial intelligence and robotics. For example, an employer may invest in automated machinery that can efficiently perform the tasks previously completed by several employees. When an employer identifies that a role is no longer required due to the introduction of technology, they will likely make that role redundant.

Although technology is having an increasingly significant impact on the Australian workforce, the most common reasons for retrenchment remains workplace restructuring and operational changes flowing from changes in the market. If a business is struggling, it may need to scale back operations and reduce costs urgently by retrenching some employees. A business may find that there is decreased demand for one of its services and make a strategic decision to discontinue that service. In that case, it is common for specialist roles in that service to be made redundant, and for some specialist roles to be outsourced. For example, a business may notice that their in-house data analysis is a costly expense that could be outsourced to a data analysis firm. Consequently, the employer makes these data analyst positions redundant, and the employees are retrenched if they cannot be redeployed to other comparable positions within the organisation.

Consultation

Section 389 of the Fair Work Act 2009 requiresemployers to comply with any provision in a modern award or enterprise agreement to consult with an impacted employee about the redundancy. This consultation might involve notifying the employee of proposed organisational changes, disclosing further information about the effect of these changes and giving serious consideration to any suggestions the employee might have about the changes.

Sham redundancies

On occasion, employers use redundancy as an excuse to unfairly dismiss an employee. A termination is not a redundancy just because an employer labels it as such and pays out a redundancy pay. As such, it is important to recognise the difference between a sham and genuine redundancy. It is a sham redundancy if any of the following is true:

• the position is still required in the organisation
• the employer did not consult with the employee about the redundancy when this is required under the applicable award or enterprise agreement
• the employer made no attempt to redeploy the employee within the organisation or with an associated entity or
• the employer’s motivation in the redundancy was unlawful, for instance because the employee exercised a workplace right such as requesting flexible work, or made a complaint about their employment.

A redundancy is only genuine when the employer no longer requires anyone to work in the position. However, there is an important proviso related to the redistribution of duties. A role may still be redundant if some of the duties of the position still need to be completed but are redistributed to other employees within the organisation. The key factor is that the position that was responsible for these duties is no longer required.

Redundancy is also not genuine if the employer could have reasonably redeployed the employee within the organisation or an associated entity, or if the employee was targeted for termination for discriminatory reasons. Employees who believe the redundancy was not genuine can make an unfair dismissal claim or a general protections claim to the Fair Work Commission. When such a claim is made, the onus is on the employer to prove that the redundancy was genuine. To prove that the retrenchment is a genuine redundancy, the employer might need to provide evidence, such as financial records of the business’ losses, a new organisational chart, or restructuring plans.

Retrenchment

Retrenchment describes the termination of a worker’s employment after a role is made redundant. Once a role is redundant, the employer can redeploy the employee elsewhere, or retrench the worker. During a retrenchment, employers must follow the legal regulations for terminating employees. For instance, if the employer intends to terminate more than 15 employees, they must give formal notification to Services Australia. The employer should also try to undertake ethical retrenchment by using a fair selection process to decide which employees should be retrenched and communicating this to all staff for transparency.

Redundancy pay

Employers must provide a retrenched employee with either the correct period of notice or payment in lieu of notice. Employers who fail to provide adequate notice can be in breach of the applicable industrial instrument.

Additionally, employer usually need to provide payments under redundancy pay entitlements. Redundancy pay is calculated based on the employee’s length of continuous service with the employer (not including periods of unpaid leave). The rate of redundancy pay is set out in the terms of the employment contract, enterprise agreement or modern award, but must comply with at least the minimums outlined in the National Employment Standards (NES). Redundancy pay is not available in some circumstances, such as when the employee is a casual worker, or where the employer is an exempt small business.

The most significant difference between the two terms is that retrenchment affects employees, while redundancies target positions. Please contact the experienced team at Go To Court with any questions about redundancy and retrenchment or other employment law matters.