A redundancy occurs when an employer no longer requires a job to be performed by anyone because of changes in operational requirements. Under section 389 of the Fair Work Act, the dismissal is only a "genuine redundancy" if two conditions are met: that operational change is real, and the employer has complied with any consultation obligation imposed by an applicable modern award or enterprise agreement.
If both conditions are met, the dismissal is exempt from unfair dismissal claims. If either is missing, the dismissal is not "genuine," the exemption does not apply, and the employee can bring a claim regardless of the underlying business reason for the role being made redundant. This guide applies to employers in the national workplace relations system, which covers the large majority of Australian businesses.
Brookvale HR Solutions advises employers on redundancy and restructure work as part of termination and redundancy advisory work led personally by Daniel Holbrook. This guide is the procedural how-to that sits behind that advisory work, built for owners who want a working grasp of Australian redundancy laws before acting. It covers the genuine redundancy test, the consultation steps employers need to get right, the small business exemption (which does less than many employers think), the redeployment duty, notice, redundancy pay, and the obligations that continue after the employment ends.
The genuine redundancy test
Understanding redundancy starts with the section 389 test, which has two limbs; both must be satisfied.
The first limb requires that the employee's job is no longer required to be performed by anyone because of changes in the operational requirements of the employer's enterprise. The key phrase is "the job," not "the person." A redundancy targets a position, not an individual. Where the same work is still being done, the role has not been made redundant.
Operational changes that produce genuine redundancies include closure of a business unit, removal of a function (for example, in-house IT replaced by outsourced support), restructure that combines two roles into one, headcount reduction due to declining demand, automation, or sale of the part of the business in which the role sits.
What does not produce a genuine redundancy:
- A decision to "move on" from a particular employee while retaining the role
- Disguised performance management dressed up as a structural change
- A redundancy where the employer hires a replacement into substantially the same role within a reasonable timeframe after the redundancy takes effect
The second limb is the consultation obligation, addressed in the next section. The two limbs are independent: a perfectly valid operational change becomes a non-genuine redundancy if the consultation step is missed.
Consultation obligations under your award or enterprise agreement
Almost every modern award and enterprise agreement contains a consultation clause that applies when an employer proposes a "major change" likely to have a significant effect on employees. Redundancy meets that threshold. The Fair Work Commission's guidance on consultation obligations sets out the standard award template.
The standard consultation clause requires the employer to:
- Notify the affected employees and their representatives of the proposed change as soon as practicable after the decision to consider the change has been made
- Provide written information about the change, its likely effects, and any measures the employer is taking to avert or mitigate adverse effects
- Discuss the proposed change with affected employees and their representatives
- Genuinely consider any views raised in the discussion before finalising the decision
"Genuine consideration" is the part many employers misread. Consultation is not a formality where the employer announces a decision already made. It is a process where the employer invites views, receives them, and gives them weight in the final decision. The Fair Work Commission has repeatedly held that a consultation beginning after the decision is final is not consultation; it is announcement.
Practical compliance steps:
- Identify the applicable award or enterprise agreement and locate the consultation clause
- Prepare a written briefing for the affected employee setting out the proposed change, the reasons, the likely effects, and any measures being taken to mitigate the effect on the employee
- Convene a meeting where the employee has a genuine opportunity to respond, ask questions, and raise views, with notice sufficient for them to bring a support person if they wish
- Document the views raised, the employer's consideration of those views, and the reasons for the final decision
- Confirm the final decision in writing, with notice of termination if applicable
A common SME mistake is to combine the consultation meeting and the exit meeting into a single conversation. The result is that the employer cannot demonstrate genuine consideration of any views raised, because the termination decision was effectively pre-baked.
One further step applies at scale. Where an employer decides to dismiss 15 or more employees for reasons of an economic, technological, structural or similar nature, section 530 of the Fair Work Act requires the employer to give written notification to Services Australia (Centrelink) as soon as practicable after the decision and before any of the proposed dismissals take effect, setting out the reasons, the number and categories of employees affected, and the timing.
The small business redundancy exemption: what it covers
Small businesses making employees redundant (fewer than 15 employees at the time of dismissal, counted on a simple headcount basis including casuals who are employed on a regular and systematic basis) are exempt from the obligation to pay redundancy under section 121 of the Fair Work Act.
The exemption does not extend to:
- The consultation obligation (which sits in the modern award, not the NES); a small business that fails to consult cannot rely on the genuine redundancy defence
- The notice of termination obligation in section 117
- Liability where the redundancy is not "genuine"
- General protections claims where the redundancy is connected to an unlawful reason
The 15-employee headcount is taken at the time of dismissal. The count includes all full-time and part-time employees, casual employees employed on a regular and systematic basis, the dismissed employee themselves, and employees of associated entities under the section 23 test. It excludes irregular casuals, independent contractors, and employees of unrelated corporate entities.
The exemption applies only to the NES redundancy pay entitlement. It does not exempt the employer from any redundancy pay obligation arising from a modern award, enterprise agreement, employment contract, or workplace policy that promises redundancy pay over and above the NES.
Redeployment: your obligations and the limits
The third element of the section 389 test is that the dismissal will not be a genuine redundancy if it would have been reasonable in all the circumstances for the employee to be redeployed within the employer's enterprise or the enterprise of an associated entity.
The redeployment duty is active, not passive. A business cannot rely on the absence of an employee application for a vacancy. The duty is to consider redeployment, identify any roles that exist or could reasonably be made available, and offer redeployment where reasonable.
What counts as reasonable redeployment:
- A vacant or shortly-to-be-vacant role for which the employee has the skills, or could acquire them with a reasonable amount of training
- A role at the same or lower level (a demotion may be reasonable redeployment; the test is whether it would have been reasonable for the employee to accept it)
- A role in a different location, where commuting or relocation would be reasonable in the employee's circumstances
- A role within a related entity, where the relationship between the entities is close enough that employees move between them in the normal course
What is not required: creating a role that does not exist, displacing another employee to create a vacancy, offering a role the employee plainly cannot perform even with training, or offering a role at a wildly different location with no relocation discussion.
Where an employee declines a reasonable redeployment offer, the redundancy may still be genuine. Where an employer fails to consider redeployment, the redundancy is not.
Notice of termination, final pay and the section 119 redundancy pay calculation
A genuine redundancy still requires notice of termination or pay in lieu. The minimum notice periods in section 117 are 1 week (under 1 year of service), 2 weeks (1 to 3 years), 3 weeks (3 to 5 years), and 4 weeks (over 5 years), with an additional week if the employee is over 45 and has more than 2 years of continuous service.
Notice is separate from redundancy pay. Employees with at least 12 months of continuous service receive redundancy pay under section 119; the entitlement runs from 4 weeks (1 year of service) to 16 weeks (9 to 10 years of service), then drops back to 12 weeks for 10 years and over (because employees with 10+ years generally have access to long service leave). The amount of redundancy pay is calculated at the employee's base rate of pay for working their ordinary hours, excluding loadings, overtime and penalties. Employees are entitled to whichever is more generous where an award or agreement provides above the NES scale. For the year-by-year breakdown, use the redundancy pay calculator on this site or refer to the Fair Work Ombudsman redundancy page.
Final pay on redundancy includes wages or salary up to the last day of employment, accrued annual leave (paid out), accrued long service leave where the employee meets the state eligibility threshold (QLD requires 7 years for pro-rata access on termination), payment in lieu of notice where notice is not worked, and redundancy pay where the employer is not exempt. The employee may be entitled to a tax-free component on a genuine redundancy payment, indexed annually. An Employment Termination Payment summary should be issued where the payment made to the employee exceeds the tax-free component.
A practical point on the leave payout: accrued annual leave is paid at the ordinary rate plus any applicable leave loading where the award or contract provides for one. The loading sits separately from the notice and redundancy calculations and is sometimes missed in payroll runs, producing a small underpayment that compounds with the larger termination payment.
Redundancy is one of the most procedurally exposed actions an employer can take. The financial penalty for getting it wrong (unfair dismissal compensation up to 6 months' salary, capped at half the high-income threshold, plus reinstatement risk in some cases) is typically larger than the cost of running a proper consultation in the first place. Call Daniel on 1300 23 44 23 before communicating any redundancy decision, even where the operational reasons are clear-cut.
Post-redundancy obligations
The employment relationship ends on the final day of employment, but several obligations continue.
Reference obligations: an employer is not legally required to provide a reference, but where one is provided it must be truthful and reasonable. A misleading reference can give rise to negligent misstatement liability to the next employer who relies on it. A refusal to provide any reference at all where the employee was a genuine redundancy can give rise to a separate argument that the redundancy was actually a performance exit.
Access and records: business records held by the former employee (work product, customer information, devices, credentials) must be retrieved through a process that does not breach the employee's privacy or property rights. A documented exit checklist prevents the post-termination dispute about who owns what.
Confidentiality and restraint: where the employment contract contains a confidentiality clause or a post-employment restraint, those obligations survive the end of employment and remain enforceable subject to the standard reasonableness test; enforcing one is a matter for legal advice. A redundancy does not waive a restraint, but a restraint applied to a redundancy is generally harder to enforce than one applied to a resignation.
Separation certificate: required by Centrelink for the former employee to claim income support. The certificate should describe the reason as "redundancy" and include the period of employment and the gross income paid.
Redundancy is one of the few areas of employment law where the procedural mechanics matter as much as the underlying business reason. A valid operational need can still produce a non-genuine redundancy if the consultation step is skipped or the redeployment duty is ignored. For the broader context including performance and misconduct exits, see the full termination of employment guide.
