Unfair Dismissal or Genuine Redundancy?

Australia has some of the strictest employee protection laws in the world. While this provides protection for employees it can, at times, be a barrier and risk for employers.  Allied Legal’s commercial lawyers regularly advise on such issues.   

This article looks at unfair dismissal laws under the Fair Work Act 2009, and the exemption from unfair dismissal. We note that the Fair Work Commission, which (generally) has jurisdiction for claims under the Fair Work Act, is generally employee friendly. It is often the case that dismissed employees will “have a crack” at Fair Work action, due to low costs and user-friendliness. An employer may therefore find itself having to defend a claim even where it has done things “by the book”.

 Unfair Dismissal Threshold

A dismissed employee can take action for unfair dismissal if: 

1. They have been employed for at least 6 months (in the case of large companies) or 12 months (in the case of small companies); and
2. One of the following applies:
   1. They are covered by a modern award;
   2. They are covered by an enterprise agreement; or
   3. Their annual rate of earnings is less than the high income threshold, which is at present $158,500.

In calculating the annual rate of earnings to determine the high income threshold, generally speaking only fixed and guaranteed earnings will count towards annual income. Further, superannuation is not counted. In determining whether you are over or under the high income threshold, you may need to consider whether bonuses can be counted. As a general rule of thumb, bonuses that are discretionary, incentive based, or commission based will not be counted as these cannot be predicted in advance and are not guaranteed. Bonuses that are guaranteed (for example, a fixed quarterly bonus), may count towards the annual rate of earnings. 

Harsh, Unjust or Unreasonable Dismissal

For an employee to successfully claim unfair dismissal, they need to prove that the dismissal was harsh and unjust. The Fair Work Act sets out the process employers can take to ensure that a dismissal is fair, which is commonly referred to as managing someone out, and which involves compliance with the following: 

1. There is valid reason for the dismissal related to the persons capacity or conduct.
2. Notifying the employee of the valid reason (for example, telling them that the performance is below standard).
3. Giving the employee the opportunity to respond or, in other words, explain why their capacity or conduct is below what’s expected of them. 
4. Providing the employee with the opportunity to have a support person at any discussions relating to their dismissal. 
5. Expressly warning the employee that if they do not remedy their unsatisfactory performance, they may be dismissed, and then giving her a reasonable time to fix the problem. This warning cannot be implicit – the FWC will typically look for a statement as clear as “if you do not improve your performance, you will be dismissed”. 

If the dismissal did not comply with the above, the employee may have a claim for unfair dismissal. The remedy awarded can be as high as 6 months worth of wages – the Fair Work Commission will award an amount that they determine is equal to what the employee would have earned were they not unfairly dismissed, with a cap at 6 months. This can be a huge liability for employers, so care should be taken to not dismiss any employee in a way that is harsh, unjust or unreasonable.   

Genuine Redundancy

If a person is dismissed due to a genuine redundancy, their dismissal is not unfair, and a claim for unfair dismissal cannot be brought. A dismissal is a genuine redundancy if: 

1. The employee’s role is no longer required due to changes in the operational requirements of the employer’s enterprise; and
2. If an award or enterprise agreement applies, requirements under the award or enterprise agreement to consult with the employee about the redundancy were complied with; and
3. It would not have been reasonable to redeploy the employee elsewhere within the employer’s business or an associated entity of the employer.  

Whether the FWC considers a dismissal to be a genuine redundancy will be a question of the genuine circumstances. For example, if the employee’s position was filled by someone else after their dismissal, it is unlikely they would consider it to be a genuine redundancy. The employer needs to demonstrate that there was genuinely no need for the role, and that this was the cause of the dismissal. 

Genuine Redundancy – Redundancy Pay

Where an employee is made redundant, they are entitled to redundancy pay, which is set out in the table below:

As well as this, the employee is entitled to be paid out for their notice period. Therefore, making someone redundant can be a significant cost for an employer. To calculate you or a redundant employees redundancy pay entitlement, you can use this calculator.

Need Help? Contact Us 

Navigating Fair Work laws can be difficult. Fortunately, our team of commercial law experts at Allied Legal can help, as we have a wealth of experience acting for both employers and employees. You can connect with one of our commercial law experts by giving us a call on (03) 8691 3111 or sending us an email at hello@alliedlegal.com.au.