UNDERSTANDING WHAT IS “RETRENCHMENT” AND “REDUNDANCY”
An employee is said to be “retrenched” when his or her job becomes
redundant and the employer either cannot offer the employee any alternative
position or, any alternative position offered by the employer cannot be accepted
by the employee.
The concept of “retrenchment” is usually linked with “redundancy” and
also with the concept of “severance” or “severance pay”.
The following is a brief explanation of what these various expressions mean
in practice.
An employee is often referred to as “redundant” but a more accurate
description is that the job the employee was employed to perform is redundant
(that is, the employer does not want the job performed by anyone, anymore) and
the employee’s employment is then terminated by reason of that redundancy.
That is, a job becomes redundant, not an employee.
“Retrenchment” is the expression to describe what occurs to an employee
whose employment is terminated by reason of his or her job becoming redundant.
“Severance” is the expression, usually seen as “severance pay”,
referrable to the amount or amounts an employee receives upon being retrenched.
In cases of termination by reason of redundancy (that is, retrenchment), the
law requires an employer to treat the employee fairly and lawfully. For example,
an employer is not allowed to single out an employee for retrenchment as an easy
means of avoiding a process of performance review of the employee or to avoid a
claim of unfair dismissal by the employee.
Furthermore, since 1982 that part of the workforce that is regulated by
awards has certain protections in relation to termination by reason of
redundancy. Employees not regulated by awards (e.g. executive level employees)
do not have the same specific protections, but there are court precedents that
now recognise that employers nevertheless do have obligations to such employees
in circumstances of redundancy.
Redundancy and unfair dismissal laws interact in such a way that a retrenched
worker can make a claim for unfair dismissal. However, the court will take the
view that provided the employer has acted in good faith then the employer’s
needs must be respected. However, a claim can be made that the dismissal by way
of redundancy is harsh, unjust or unreasonable on the grounds that:
- the worker was unfairly selected for redundancy;
- the worker was selected for redundancy because of work performance without
having been given the opportunity to respond to the employer’s concerns
about his ability or performance;
- the worker was not properly consulted before the decision to retrench was
made;
- in some cases non-award employees can attack the adequacy of the
redundancy payments made to them.
STANDARD AWARD PROTECTIONS
Most of the Australian workforce is regulated by either industrial awards or
other similar types of registered Industrial instruments (e.g. enterprise
agreements or Australian Workplace Agreements).
The procedures and requirements in relation to retrenchment in relation to
any particular award regulated group of employees depends upon a combination of
statute laws and relevant industrial instruments. Therefore, it is not possible
to be too specific about the requirements that apply to particular employers.
Regard must be had to the applicable industrial award or equivalent instrument.
Nevertheless, there are some basic standards which, generally speaking,
employees who are part of the “Award regulated workforce” should expect to
receive upon retrenchment.
In New South Wales the State’s Industrial Relations Commission has
prescribed, through a test case on redundancy matters, standard procedures in
respect of Award regulated employees. The standard format can be found in many
State Industrial Awards – for example, the Clerical & Administrative
Employees (State) Award. A copy of that Award can be purchased from the New
South Wales Department of Industrial Relations or obtained through Internet
legal services. However it should not be assumed that what is prescribed in this
award will be exactly the same for employees regulated by other awards.
The relevant legal instrument has to be examined. There may be subtle
differences between awards even when they deal with a standard subject.
Furthermore it is important to note that generally speaking those employers
who employ less than fifteen (15) employees at the time that retrenchments are
taking place, are generally exempted from these award standards.
The following are the basic award standards that one would expect to find in
most New South Wales industrial awards:
- Employees will be entitled to Notice of Termination (or payment in lieu of
such Notice). The amount of Notice relates to the length of service and age
of employees affected. Generally speaking, an employee with less than one
year of continuous service is entitled to one week’s Notice, whilst an
employee with five years service will be entitled to four week’s Notice.
An employee over the age of 45 with more than two years service, would be
entitled to an additional week’s Notice.
- Employees will be entitled to one day off in each week of the Notice
period for the purpose of seeking alternative employment.
If an employee leaves the employ prior to the expiry of the notice period for
reasons other than misconduct (e.g. by obtaining another job), the employee
still obtains severance pay entitlements (but not any monetary payment for the
residual notice period unworked).
A terminated employee is entitled to a Statement of Service from the
employer, specifying at least the period of service and the jobs or
classifications undertaken.
The employer is obliged to notify the relevant agency (which was previously
the Commonwealth Employment Service) as to impending retrenchments.
Upon request, the employer is to provide an employee with an “Employment
Separation Certificate” to facilitate the employee obtaining access to
unemployment or other social security benefits.
Awards prescribe minimum severance payments for employees who are retrenched
as a result of redundancy. The Scale applicable to any particular category of
employee can be found in the relevant award, however there are some scales that
do have wide application.
The minimum standards for severance pay currently found in Awards depends
upon whether the Award is a Federal or a State Award. The standard prescribed
for New South Wales Awards (at least in respect of those employers that employ
at least fifteen employees) is as follows:
YEARS
ENTITLEMENT ENTITLEMENT
In addition to this entitlement, an employee who is retrenched is of course
entitled to be paid the monetary value of his or her untaken holiday pay or long
service leave (if accrued). Generally speaking, untaken sick leave is not
payable in monetary form upon termination of employment.
These award standards are minimum only. In many employment situations there
is a specific company policy or even a registered enterprise agreement
describing more generous benefits. For example, it is not uncommon to find that
in some establishments the entitlement to severance pay is much more generous
than the Award standards, such as by reference to a formula of three or four
weeks pay for each year of service.
Carroll & O'Dea has been in legal practice for over 100 years. It holds
Best Practice accreditation from the Law Society of New South Wales. Carroll
& O'Dea takes pride in providing clients with a rare combination of
traditional, personal service and contemporary thinking. The firm is well
equipped to meet the requirements of all clients whatever their interests. The
firm has been blessed to receive instructions from the entire spectrum of the
Australian community; from private individuals through to large organisations,
from religious Congregations through to Government entities.
