Termination vs redundancy: why you should never confuse the two

Ending someone’s employment can be a tough call, but there’s a right and wrong way to go about it.

Firing someone for poor work performance or behaviour can be stressful, and telling someone their role is no longer required is often an emotional experience for everyone in your workplace.

But each scenario must follow a different legal process and there are risks in getting it wrong.

We asked an employment lawyer to explain the difference between termination and redundancy — and your legal obligations.

Termination versus redundancy

In most cases, you must have a justifiable reason for ending someone’s employment. Justifiable reasons may include serious or repeated misconduct, sustained poor performance or redundancy.

If you’re terminating an employment contract for reasons other than redundancy, you should follow a procedure that includes:

  • giving reasonable notice,
  • providing the employee an opportunity to respond,
  • providing a written statement outlining the reasons for termination.

But, if the termination relates to a case of serious misconduct, notice is generally not required.

Trent Hancock, Principal, Jewell Hancock Employment Lawyers, explains that redundancy is a specific form of termination and has different legal requirements.

“A role is redundant when it is no longer required to be performed by anyone within the employer’s business,” he says. “This could arise, for example, when a role is outsourced, when a business is downsizing or when a role becomes entirely automated through new technologies.”

If there is no longer a role for an employee to perform, they may be legally dismissed by reason of redundancy.

“In these circumstances, the dismissal has nothing to do with the employee’s capacity or conduct,” says Hancock. “Instead, their employment ends simply because the job is no longer needed by their employer. As such, it is often referred to as a ‘no-fault’ termination.”

What does the law say about redundancy pay?

If an employee is dismissed by reason of redundancy, they might be entitled to receive redundancy pay under the Fair Work Act 2009 (Cth).

“The amount of the redundancy pay will depend on the length of their continuous service and can range from four weeks’ salary to 16 weeks’ salary,” says Hancock.

An employee will usually only be entitled to receive redundancy pay if they’re employed on a permanent basis by an employer that has 15 or more permanent employees, and/or regular and systematic casual employees.

“This can include employees in associated entities of the employer,” Hancock explains. “An employee is also usually entitled to receive notice of the dismissal, or a payment in lieu thereof, under the Fair Work Act 2009 (Cth).

“Employees might also receive more favourable redundancy and notice entitlements under the terms of their specific employment contract, or any applicable enterprise agreement.”

What are the implications for getting it wrong?

Making an employee’s role redundant requires a genuine business reason. Hancock says getting it wrong can lead to liability for redundancy payments.

“It can also cause the employee to question the true reasons for their dismissal and perhaps make a general protections application to the Fair Work Commission if they believe there was an unlawful motivation for the dismissal that was being disguised by non-genuine redundancy,” he says.

For this reason, it’s vital to assess whether the role is genuinely redundant from the outset. “It is also just as important that an employer follows the correct procedure when dismissing an employee by reason of redundancy,” says Hancock.

“This includes notifying the employee of the proposed reasons for the redundancy, consulting with the employee, considering any input from the employee and genuinely assessing whether the employee could be redeployed into any suitable alternative role.

“If the incorrect procedure is followed, the employee may be eligible to make an unfair dismissal application to the Fair Work Commission.”

Where to go for help

Hancock recommends seeking legal advice before making any employee redundant.

“The Fair Work Commission operates the Workplace Advice Service which can facilitate pro-bono legal advice, specifically for small businesses, about redundancy and unfair dismissal,” he says.

The Fair Work Commission also publishes helpful benchbooks on its website, which are like handbooks to help you understand Fair Work legislation about issues like redundancy and unfair dismissal.

The Fair Work Ombudsman also has some incredibly helpful resources and templates for employers who are contemplating redundancies,” adds Hancock.

Making someone’s role redundant without a genuine business reason can have serious consequences. And while ending someone’s employment is rarely easy, following the legal procedures can reduce some of the stress for everyone.

Information provided in this article is general only and it does not constitute legal advice and should not be relied upon as such. SEEK provides no warranty as to its accuracy, reliability or completeness. Before taking any course of action related to this article you should make your own inquiries and seek independent advice (including the appropriate legal advice) on whether it is suitable for your circumstances.

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