As a small-to-medium business owner in Australia, redundancy is one of those decisions you hope you never have to make, but at some point, many businesses do. Maybe the work has changed, a role has become unnecessary, your business needs to improve efficiency, or you need to restructure to stay viable.
Whatever the reason, getting the process wrong can be costly.
A seemingly straightforward operational decision handled incorrectly can result in the redundant employee:
- bringing an adverse action claim (or general protections claim) against the employer
- filing a workers’ compensation claim
- lodging an unfair dismissal claim.
That is where the concept of a genuine redundancy comes in. It is a specific legal test under the Fair Work Act 2009. Understanding it properly before you act is the difference between protecting your business and exposing it to risk.
In this guide, we will break down exactly what a genuine redundancy is, what the law requires, and how to manage the process the right way.
What Is a Genuine Redundancy?
A genuine redundancy is a legally defined form of redundancy under the Fair Work Act 2009. When a redundancy meets the legal test, it acts as a valid defence against an unfair dismissal claim regarding the person’s dismissal. Therefore, the affected employee cannot pursue that avenue simply because their employment ended.
To be genuine, three criteria must all be satisfied:
- The employer no longer requires the employee’s job to be performed by anyone, because of changes in the operational requirements of the employer’s enterprise.
- The employer has complied with any consultation obligations imposed by an applicable modern award or enterprise agreement.
- It would not have been reasonable, in all the circumstances, to redeploy the particular employee within the employer’s business or an associated entity.
We see businesses get tripped up on this more often than any other part of the redundancy process, usually because they’ve got one or two criteria right and assumed that was enough.
Miss any one of these, and you may be looking at a non-genuine redundancy. That distinction matters. If the redundancy is not genuine, the employee retains the right to bring an unfair dismissal application, and your business loses the protection the law would otherwise offer.
The Three Criteria for a Genuine Redundancy
Each of these three tests carries its own nuance, and it is worth understanding what each one really means in practice.
1. The Employee’s Job Is No Longer Required
This is about the position, not the person. The question the Fair Work Commission asks is whether the person’s job, described by its duties, is no longer required to be performed by anyone in your business. This usually follows a genuine operational change.
For example:
- workplace restructure
- new technology or automation
- a downturn in demand
- outsourcing a function
- closure of part of the business.
It is not enough to simply rename a position or shuffle duties around. If most of the same duties are still being performed under a new title, that is unlikely to hold up as a genuine redundancy.
That said, a role can still be genuinely redundant even if some of the employee’s duties continue to be performed. However, those duties must be redistributed among other employees rather than the original job continuing to exist in substance.
Say a business decides to bring its bookkeeping in-house and no longer needs a dedicated payroll administrator. If those duties are absorbed into an existing finance role rather than replaced by a new hire, that is a strong indicator the job genuinely no longer exists. It’s a subtle distinction, and one we spend a lot of time helping business owners work through before they make a final call.
2. Consultation Obligations Are Met Under the Applicable Award
Many applicable industrial instruments (such as a modern award or enterprise agreement) include an agreement to consult regarding major workplace change. This obligation needs to be taken seriously.
Consultation is not a box to tick after the decision has already been made. It means giving the affected employee written notification of the proposed change to their job, explaining how it may affect them, and giving them a genuine chance to respond before anything becomes an irreversible decision.
Even where a specific award or agreement does not strictly require it, we generally recommend consulting anyway. It reduces risk, and it is simply the right way to treat people who are about to go through a difficult experience.
3. Redeployment Was Not Reasonable in All the Circumstances
The final test asks whether it would have been reasonable to redeploy the employee elsewhere in your business, or within an associated entity, rather than making them redundant.
This includes considering:
- other positions that may be available
- whether the employee has the skills to do that role (even with some reasonable training)
- whether a related company under common ownership has a suitable vacancy.
A common mistake here is assuming an employee will not be interested in a lower-paid or less senior role, and ruling it out without asking.
The Fair Work Commission has been clear that this kind of assumption can undo an otherwise well-managed redundancy.
What Happens If a Redundancy Isn’t Genuine?
If any of the three criteria are not met, it is considered a non-genuine redundancy.
In this case, the employee is free to lodge an unfair dismissal application with the Fair Work Commission or potentially explore workers’ compensation claims. From there, the matter may proceed through conciliation or, in some cases, a full hearing. Decisions can also be appealed to a Full Bench of the Commission.
This is the point where we see many employers seeking advice, when it’s already too late to change the outcome. Getting the process right from the outset, with proper documentation and support, is far less costly than defending a claim after the fact.
Redundancy Pay and Entitlements
Where a redundancy is genuine, the employee is generally entitled to a redundancy payment under the National Employment Standards, calculated based on their continuous service with your business.
The amount scales up with length of service. For example, it starts at four weeks’ pay after one year of continuous service, and increases to a maximum before tapering off after ten years.
Businesses with fewer than 15 employees are generally exempt from the National Employment Standards redundancy pay requirement, although this can vary depending on the applicable award or enterprise agreement, so it is always worth checking.
We check this for every client before a figure ever gets discussed with an employee, since getting it wrong at this stage is an expensive mistake to walk back.
On top of redundancy pay, employees are also entitled to unused annual leave and, where applicable, unused long service leave as part of their termination of employment.
Tax Free Limits and Employment Termination Payments
Part of a genuine redundancy payment is tax-free, up to a limit set by the ATO each financial year. Anything above that limit is generally treated as an employment termination payment and taxed accordingly. Tax treatment can get complex quickly, so we always recommend checking current figures with the Fair Work Ombudsman or your accountant before finalising a payout.
Why Businesses Use HR Support for Redundancies
A redundancy rarely happens in isolation. It usually comes at a time when your business is already under pressure, whether that is a downturn, a restructure, or a shift in how the work gets done.
Handling it well protects more than just this one decision. It protects the trust your remaining team has in how the business treats its people.
This is where proactive human resources (HR) support earns its keep. Outsourced HR gives you a strong focus on planning ahead, managing performance and developing your employees.
At Human Outsource, we ensure redundancy is a properly considered step in a bigger workforce strategy, not a reactive scramble. It also helps you retain the good people you want to keep, because how you handle an exit says as much about your culture as how you handle a promotion.
There is also the practical reality of your time. As a business owner, you are already the financial controller, the operations lead and the default HR manager.
Working through the legal test for a genuine redundancy, running consultation properly and getting the paperwork right takes hours you do not have to spare.
With Human Outsource managing the process, you get that time back to focus on running your business, while we focus on mitigating the risk and getting the process right.
How Human Outsource Helps You Manage a Genuine Redundancy
If you are considering a redundancy, here is what we recommend before you act, and how we support you through each step.
How We Guide You Through It
Document the operational reasons driving the change clearly and honestly
We help you build a clear, defensible business case for the change, so the reasoning holds up if it is ever questioned.
Check whether an applicable modern award or enterprise agreement applies, and what consultation it requires
Our HR Advisory Services review your obligations under the relevant award or agreement, so nothing is missed.
Run a real consultation process, not a formality, and keep records of it
We guide you through genuine consultation, including written notification and proper documentation, so the process reflects the law rather than just the letter of it.
Honestly assess redeployment options across your business and any associated entity
This is a judgement call, and it is exactly the kind of human decision an outsourced HR Manager is there to make with you, not just for you.
Get the redundancy pay and termination paperwork right the first time
We handle the calculations and paperwork so entitlements are accurate and nothing is left exposed.
If a redundancy is ever challenged, our Fair Work Commission Support and Advocacy service represents your business through the process, from responding to a claim through to conciliation.
Getting each of these steps right protects your business and treats your people fairly, and that is exactly where we come in.
Get Expert Support With Your Redundancy Process
Redundancy is never an easy decision, but it does not have to be a risky one.
At Human Outsource, we combine strategy, empathy and human judgement to help Australian businesses manage redundancies properly, from the first conversation about operational change through to the final redundancy payment.
If you are considering a redundancy and want to make sure the process is genuine, compliant and handled with care, explore our HR Advisory Services.
If a position has already been made redundant but the process wasn’t handled correctly, our Fair Work Commission Support & Advocacy service can help you navigate these circumstances with clarity and confidence.
What Is a Genuine Redundancy? FAQs
No. Redundancy is a decision made by the employer, not something the employee needs to consent to. This makes it different from a resignation or retirement, where an employee is leaving voluntarily. As long as the three criteria of a genuine redundancy are met, the employee’s agreement is not required.
It can, but doing so soon after a redundancy can undermine the claim that the job genuinely no longer exists. If a business advertises a very similar role not long after making someone redundant, this can raise questions about whether the redundancy was genuine in the first place.
The Fair Work Ombudsman (FWO) and the Fair Work Commission (FWC) are separate bodies with different roles.
- The Fair Work Ombudsman is the regulator that enforces workplace laws, investigates underpayments, and provides free advice and resources on employer and employee rights.
- The Fair Work Commission is the independent tribunal that hears and decides disputes, including unfair dismissal applications and genuine redundancy claims.
In short, the Ombudsman helps you understand and comply with the law, while the Commission is where a dispute is formally heard and resolved.
Generally, no. Casual employees are typically excluded from redundancy pay entitlements under the National Employment Standards, regardless of how long they have worked for the business. This is separate from the small business exemption.
If no applicable award or enterprise agreement covers the role, there may be no strict obligation imposed to consult under the Fair Work Act. Even so, we generally recommend consulting anyway, as it reduces risk and reflects good workplace practice.
A redundancy payout can affect how quickly an employee becomes eligible for certain Centrelink payments, particularly if the payout exceeds the tax-free limit and is treated as income over a set period. Affected employees should check their specific circumstances directly with Services Australia.
