How to Steer Your Company Through Recession and Redundancy
Recession and redundancy are two words many business owners dislike to hear. Sadly, these are words that we will hear more of as we continue our journey through 2020. The news this week that Australia is officially in recession was not unexpected, however, still came as a shock to many. To make matters worse, Treasury and every economist expects the June quarter to be worse, which means Australia will inevitably suffer a recession of two consecutive quarters of negative growth.
What is a Recession?
In economics, a recession is a business cycle contraction when there is a general decline in economic activity in two successive quarters. According to Forbes, “during a recession, the economy struggles, people lose work, companies make fewer sales and the country’s overall economic output declines.” Chief Economist Sarah Hunter from BIS Oxford Economics says now that we’re in a recession, Australia has “two overbearing forces: an economy built on too much insecure work, and an economic crisis that has its roots in a problem that’s not going away any time soon”.
How to Handle a Redundancy in a Recession
Handling a redundancy during a recession is no different from any other times. Redundancy is an issue that many employers can find challenging to manage, and there are several reasons why redundancy might occur. Likewise, there are several different things that employers need to adhere to when it comes to redundancy.
What is Redundancy?
A redundancy occurs when an employee’s job is no longer required for the business. There are many reasons why redundancy may occur.
Redundancy happens when an employer either:
- doesn’t need an employee’s job to be done by anyone, or
- becomes insolvent or bankrupt.
Redundancy can happen when the business:
- slows down due to lower sales or production
- closes down
- relocates interstate or overseas
- introduces new technology (e.g. the job can be done by a machine)
- restructures or reorganises because a merger or takeover happens.
Steps to Consider When Making a Redundancy
1. Confirm it is genuine redundancy.
A genuine redundancy is when:
- the person’s job doesn’t need to be done by anyone
- the employer followed any consultation requirements in the Award, enterprise agreement or other registered agreement.
When an employee’s dismissal is a genuine redundancy, the employee isn’t able to make an unfair dismissal claim.
A dismissal is not a genuine redundancy if the employer:
- still needs the employee’s job to be done by someone (e.g. hires someone else to do the job)
- has not followed relevant requirements to consult with the employees about the redundancy under an award or registered agreement or,
- could have reasonably, in the circumstances, given the employee another job within the employer’s business or an associated entity.
2. Consult with affected employees.
All awards and registered agreements have a consultation process for when there are significant changes to the workplace, such as redundancies. The consultation process sets out the things the employer needs to do when they decide to make changes to the business that is likely to result in redundancies. This has to be done as soon as possible after the decision has been made to make these changes.
As per the Fair Work Act 2009 s.119, 139, consultation requirements include:
- notifying the employees who may be affected by the proposed changes
- providing the employees with information about these changes and their expected effects
- discussing steps taken to avoid and minimise adverse effects on the employees
- considering employees ideas or suggestions about the changes.
If a business is considering redundancy of 15 or more staff, employers must give written notification to the Department of Human Services of the proposed dismissals. More information, and a notification template, can be found on the Department of Human Services website.
3. Offer suitable alternative employment.
If you have an alternative job, position or work available within the company at the time of making a redundancy, and the job could be suitable for the employee affected; then this must be considered and discussed with the employee as part of the consultation or at a subsequent follow-up meeting. A dismissal may not be a case of genuine redundancy if it would have been reasonable in all of the circumstances for the person to be redeployed to a new role within the employer’s enterprise, or the enterprise of an associated entity of the employer.
4. Calculate redundancy payment.
When an employee’s role becomes redundant, they are entitled to a payment in lieu of their service being no longer necessary. The most crucial facet that is considered in deciding on a redundancy payment is the employee’s length of service. However, the National Employment Standards (NES) do also set out a minimum redundancy or severance payment for employees based on various employment length of service. As an employer, you should be aware that these standards outline the fact that for an employee to be eligible for a redundancy payment, they have to had been working with the business for at least one year. But it is also essential that you check for exceptions in the relevant Award or agreement.
Redundancy payments are calculated based on what is outlined in the Fair Work Act 2009. It is worked out that given a certain number of years, or year, that an employee has been working, they will be entitled to a certain number of week’s pay. The weeks of pay is then calculated at the ordinary hours of work in which they would have worked for those weeks.
The rates are outlined below.
|Period of continuous service.||Weeks of pay.|
|At least one year but under two years||4 weeks|
|At least two years but under three years||6 weeks|
|At least three years but under four years||7 weeks|
|At least four years but under five years||8 weeks|
|At least five years but under six years||10 weeks|
|At least six years but under seven years||11 weeks|
|At least seven years but under eight years||13 weeks|
|At least eight years but under nine years||14 weeks|
|At least nine years but under 10 years||16|
|At least 10 years||12|
5. Calculate redundancy notice.
Leading up to an employee’s redundancy, there are some specific guidelines which you need to stick to. This is to ensure that there is a positive relationship with the employee at their departure, as well as protection for your business. When ending employment because of redundancy, you need to provide adequate notice or make payment in lieu, which is to be included in their full redundancy payment.
The minimum notice period in the NES is based on how many years your employee has worked for you (continuous service).
|Period of employment.||Minimum notice period.|
|Less than one year||1 week|
|One – three years||2 weeks|
|Three – five years||3 weeks|
|Over five years||4 weeks|
You should take note at this point that if a particular agreement or contract with an employee stipulates a more extended notice period, then that is the notice period which needs to be applied. On top of this, it is essential to know that if an employee becoming redundant is over 45 years old and has worked with your business for at least two years, they are entitled to an extra week’s notice.
6. Provide the employee with a letter of termination.
Once you have satisfied your consultation requirements mentioned above, you must provide the employee(s) with a letter of termination.
Who Does Not Receive Redundancy Pay?
While most employees who become redundant are entitled to redundancy, it is not the case with all employees. In some instances, redundancy payment is not necessary due to the nature of the employee’s employment arrangement. Some employment types which do not require a redundancy payment are outlined below:
- employees whose period of continuous service with the employer is less than 12 months
- employees terminated because of serious misconduct
- employees employed for a stated period or project
- trainees engaged only for the length of the training agreement
- a particular season
- casual employees
If you are running a small business with less than 15 employees, you may also find that you are exempt from the typical redundancy payment laws. However, it is best to seek professional advice as there can be relatively significant business consequences for not handling redundancies properly.
Letter of Termination Due to Redundancy
You must provide an employee terminated due to redundancy a letter which should include and address the following issues:
- the reason for the redundancy, e.g. downturn in business and that their position will no longer be required;
- address that you have made attempts to find a new role for the employee within the organisation but that this is not possible;
- the redundancy payment and notice that you will be providing to the employee as well as any other payment the employee will be receiving up to their termination; and
- any other entitlements, for example, superannuation, accrued and unused annual leave.
Once you have made the position redundant, you need to be aware that the employee may still be able to make an application for unfair dismissal, for example, if they believe that the redundancy is not genuine.
HR Expert Viewpoint
To be deemed a genuine redundancy, it is crucial to comply with the processes in the Fair Work Act to make an employee redundant properly. Undertaking this process correctly is a significant risk management step to reduce the risk of an unfair dismissal claim.
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