Made Redundant? Can Employers Reduce an Employee’s Redundancy Payment?

Redundancy occurs when an employer no longer requires an employee’s job to be performed by anyone because of changes in the operational requirements of the business and consultation with the employee has occurred.

1. What is a genuine redundancy?

Redundancy occurs when an employer no longer requires an employee’s job to be performed by anyone because of changes in the operational requirements of the business and consultation with the employee has occurred (if required in the relevant modern award or enterprise agreement).

In addition, a redundancy cannot be considered a genuine redundancy if it would have been reasonable to have them redeployed to a new role within the business or an associated entity of the employer.

2. Who is entitled to redundancy pay?

Full-time/part-time employees are entitled to a redundancy payment if they are terminated due to a genuine redundancy, unless one (1) of the following occurs:

  • the employee’s continuous service is less than 12 months,
  • the employee was employed for either a set period of time, an identified task or project, or a particular season,
  • the employee was terminated because of serious misconduct,
  • the employee was actually a casual employee,
  • the employee is part of a business that employees less than 15 employees.

The amount payable to an employee who is made redundant is based upon their years of continuous services to the employer.

3. Can an employer reduce the amount payable to an employee who is entitled to a redundancy payment?

Section 120 of the Fair Work Act 2009 provides an employer the opportunity to reduce their employee’s redundancy pay if the employer:

obtains other acceptable employment for the employee; or
cannot pay the amount specified under section 119 of the Fair Work Act
If an employer wishes to reduce their employee’s redundancy pay, they must make an application to the Fair Work Commission (FWC) who will consider the circumstances of each individual case and determine whether the redundancy pay is to be reduced to a specific amount or alternatively removed entirely. We go through each of the available options below.

4. What is acceptable other employment for the employee?

The FWC has determined that for an employer to rely upon this potential variation to an employee’s redundancy pay, the employer is required to obtain the redundant employee an offer of employment to the employee that contains sufficient information for the employee to either accept or reject the offer.

In Stabler & Howlett Veterinary Surgeons Pty Ltd T/A Stabler & Howlett Veterinary Surgeons [2019] FWC 1208 the employer made an application to the FWC to reduce the redundancy payment on the basis that the employee rejected an opportunity to be redeployed in another role in the organisation. At the time of the application, the employer had only discussed the new role and no formal offer had been made.

The FWC determined that negotiations alone were not enough to constitute a formal offer of the role, particularly given the first time the offer was made in writing was in a letter to the employee acknowledging that the offer was rejected.

When sourcing alternative employment, the FWC has recognised the alternative employment will need to be acceptable to the redundant employee. When determining whether the employment is acceptable, the FWC will look at:

  • rates of pay,
  • location,
  • hours of work,
  • workload,
  • seniority/job status,
  • fringe benefits, and
  • any other relevant matters.

When considering the above factors, it is likely that if the employee is disadvantaged in the new role in any way, the FWC will consider that the alternative employment is not suitable and therefore will not make an order varying the redundancy payment on this basis.

5. What if you cannot pay the redundancy?

The FWC’s decision in Mason Architectural Joinery Pty Ltd [2020] FWC 1897 affirms that a business that is under significant financial strain that cannot pay their employee’s full redundancy entitlement is eligible to reduce the redundancy payment. In this matter the business was significantly impacted by the Covid-19 pandemic and had not received any new jobs for two (2) months (although this had improved in the time between the redundancy and the hearing). The FWC reduced the redundancy pay to one (1) week instead of the legislated seven (7) in this case for the redundant employee.

The FWC will thoroughly examine the business’ cash flow and records to determine whether it is capable of paying the redundancy. Projections based on future cash flow alone are unlikely to satisfy the test and this burden is not an easy one for employers to overcome. We recommend that you engage legal advice before making an application to the FWC on the basis of not being able to pay the redundancy of an employee.

6. Considerations & actions for employers

If you have over 15 employees and are considering making an employee redundant, the first step to consider is whether the role is genuinely being made redundant and to also consider the financial implications of making the employee redundant. If you wish to make an application to reduce the entitled redundancy either by finding alternative employment or as a result of your financial position we recommend that you consult with us to assess the circumstances of the request.

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If you have any specific queries regarding whether you could reduce your employee’s redundancy payout or in relation to redundancy at all, we offer a Free Case Evaluation for all new enquiries.

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The information in this article is not legal advice and is intended to provide commentary and general information only. It should not be relied upon or used as a definitive or complete statement of the relevant law. You should obtain formal legal advice specific to your particular circumstance. Liability limited by a scheme approved under Professional Standards Legislation.

Senior Associate Solicitor