You may have heard of people who were made redundant. Those who were let go because their position was no longer required by the business. This could have been the decision of the employer (‘compulsory redundancy’) or the decision of the employee (‘voluntary redundancy’).
The focus of this article will be on voluntary redundancy. Firstly, we’ll discuss what is redundancy and what its means for redundancy to be voluntary. Secondly, we’ll go over when might you consider accepting voluntary redundancy. Thirdly, we’ll walk the process and what it means for you. By the end of this article, we hope you have a better understanding of how voluntary redundancy works.
What is Redundancy?
Redundancy occurs when an employer doesn’t need an employee’s job to be done anymore by anyone. This is solely based on the needs of the business and not an employee’s performance.
Redundancy may arise due to:
- The introduction of new technology;
- The business experiencing a downturn; or
- The business being restructured.
What Is Voluntary Redundancy?
Voluntary redundancy occurs when an employer offers financial compensation in return for an employee agreeing to terminate their employment with the business.
Redundancy will usually be voluntary, as opposed to compulsory, when the employer doesn’t want to decide who to let go. Employees who have provided more than ten years of service, or are seniors, will usually be the first to be offered voluntary redundancy.
Why Should An Employee Consider Voluntary Redundancy?
Voluntary redundancy gives an employee control over how they will leave the business. Firstly, an employee will be able to leave on good terms and part ways amicably as the decision was not forced upon them. Secondly, an employee will receive financial compensation and this should relieve some stress when planning next steps.
An employee might consider voluntary redundancy to be attractive if they are approaching retirement or are looking to make a career change.
How Does Voluntary Redundancy Work?
Consultation
When a business intends on making any major structural changes (incl. redundancies), it must participate in the consultation process. The requirements of the consultation process are set out in the applicable award, enterprise agreement or other registered agreement.
Generally speaking, consultation requires:
- 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 negative effects on the employees; and
- Considering the feedback from employees about the changes.
If an employer does not comply with the consultation requirement, the employee’s dismissal may not be considered a “genuine redundancy”. In turn, this may open the employer up to claims for unfair dismissal.
Entitlements
When an employee is made redundant, they may be entitled to a redundancy payment (also referred to as a severance package). Note, however, that some exceptions apply.
A redundancy payment comprises of:
- Compensation for redundancy (calculated based on years of service);
- Unused sick, annual and long-service leave; and/or
- Payment in lieu of notice period.
So long as the redundancy is genuine, the redundancy payout is tax-free up to a certain limit (again, based on years of service).
Conclusion
When presented with the offer of voluntary redundancy, its important to weigh up the pros and cons. Be sure to evaluate your financial situation, eligibility for redundancy payment and the current state of the job market. This will give you some perspective as to whether you can afford to become unemployed. Moreover, it’s important that it is a ‘genuine redundancy’ and that your employer has followed the consultation guidelines.
If you are looking for more tailored advice or guidance through the process, reach out to an experienced employment lawyer.
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