Genuine redundancy in Australia: the employer’s compliance guide

Getting the genuine redundancy test wrong can turn a redundancy into an unfair dismissal case.  Ensure your business remains compliant and minimises risk exposure by fully understanding the legal and practical contexts of redundancies in Australia. 

Compliance and risk avoidance depend on your planned redundancies being classed as “genuine,” in line with the conditions set out in the Fair Work Act. 

Genuine redundancy in Australia is defined in section 389 of the Fair Work Act 2009. Employees can be laid off for a multitude of reasons but, for the termination to be classed as a genuine redundancy, three specific conditions must be met:

1. There is no job requirement

The role itself has been eliminated and no longer needs to be performed by anyone. 

Valid reasons include automation of the role, operational changes, insolvency, a drop in sales requiring fewer staff to manage the workload, restructures to improve efficiency, site closure, business relocation, and many other scenarios – the point is that the job itself has become redundant. The reason must not be personal to the employee. 

2. A consultation has been completed

The employer has consulted about the redundancy in line with the requirements of the modern award or enterprise agreement.

Consultations must be meaningful and held before final decisions are made. During the consultations, employees can be informed of any support they will receive during their offboarding – for example, provision of outplacement services. This can reassure staff that the company is caring for them and supporting them during a time of stress and uncertainty, retaining goodwill, and therefore reducing the risk of future legal action. 

3. Redeployment has been considered

The person could not have been redeployed elsewhere within the employer’s business or an associated entity.

Sometimes, even when redeployment is considered, a poor understanding or assessment of redeployment options may mean that the redeployment criteria is deemed not to have been met. Outplacement providers can offer support with this process. 

Employers must consider whether alternative roles exist, where they are, what they pay, the seniority of the roles, whether roles currently done by contractors could be filled internally, and whether displaced employees have the relevant skills and experience to fulfil the requirements of the identified positions.

The redeployment requirement ties in closely to the consultation requirement, as employers cannot make decisions about whether, for example, an employee would be prepared to relocate without consulting the employee. Recruitment processes during retrenchment periods will also be scrutinised, as displaced employees should be considered before recruiting externally. 

If any of these criteria are not met, the business is exposing itself to unfair dismissal claims that they will not be able to defend themselves against. 

A redundancy is deemed “not genuine” if the job can still be carried out, no consultation has been completed, or redeployment options have not been considered. An unfair dismissal claim may be upheld in that case. 

If an employee has over 6 months continuous employment with a business (or 12 months, if the business has under 15 employees), they are entitled to file an unfair dismissal claim if their employment is terminated. This is a greater risk if redundancy has been used as grounds to terminate an employee for non-genuine reasons, such as poor performance or over-hiring. 

The Fair Work Commission will also rule for unfair dismissal if the dismissal was “harsh, unjust, or unreasonable” or if it was “not consistent with the Small Business Fair Dismissal Code.” 

To minimise exposure to unfair dismissal claims, HR leaders must ensure redundancy processes are managed fairly and compliantly. 

When deciding which roles to make redundant, employers must ensure the selection process is fair and based on facts. Otherwise, even if all 3 conditions for genuine redundancy are met, the business may be exposed to legal claims on the grounds of discrimination. 

The employer must be able to provide evidence of how roles were selected and, obviously, redundancy and redeployment decisions must not be made on the basis of protected characteristics. 

The words “retrenchment” and “redundancy” are often used interchangeably. They essentially refer to the same process of terminating an employment contract. The difference is that “redundancy” is an official, legal term, defined in the National Employment Standards. 

“Retrenchment” is not a legally defined term so, while it is often used to mean “redundancy,” it can also be used to refer to job loss for other reasons, such as seasonal fluctuations in demand. Although “retrenchment” is used when speaking about genuine redundancies, it does not carry the same legal weight. 

If all 3 criteria are met to qualify the redundancy as genuine, the employer must next calculate the financial and tax elements. 

In the case of genuine redundancy, employees may be entitled to redundancy pay. This depends on their tenure and the size of the business. Pay entitlements are calculated on a sliding scale, increasing with length of tenure.

Redundancy payments are tax-free, to a limit set by the Australian Office of Taxation every year. The ATO limit is set as a base amount plus an additional amount per year of service. In 2026, the base amount is $13,598, plus $6,801 per year. 

Payments above the tax-free limit are concessionally taxed as an employment termination payment (ETP), and taxed at the usual marginal tax rate for amounts above certain caps. The tax-free amount is not part of an ETP.

While redundancy pay is often a statutory requirement, it may only be part of a broader severance package presented to departing employees, which can include discretionary benefits alongside the statutory payment. The employer must also provide an employment separation certificate if requested, to enable the departing employee to access Centrelink payments. 

If the worst comes to the worst and an unfair dismissal claim is filed against the business, having all decisions fully documented means that the company will be able to defend its actions. Every redundancy should be supported with the following written evidence: 

• Business rationale for the redundancy. 
• Selection criteria.
• Consultation notes, including dates and minutes.
• Evidence of the redeployment options considered. 
• Notice period.
• Termination letter.
• Confirmation of any payment in lieu.
• Redundancy payment calculations (including unused leave and other entitlements).
• Details of the severance package.
• Employment separation certificate.

Keeping a written record of each individual redundancy places the business in a strong position to defend claims. 

Partnering with an outplacement provider can minimise business exposure to unfair dismissal claims during downsizing exercises. 

Outplacement provides support to terminated employees, guiding them back into meaningful work as quickly as possible. The service is paid for by businesses to support their displaced staff, demonstrating a commitment to their people as they navigate redundancy. Offered as a service to employees, outplacement is also a valuable asset to the business.

Firstly, it protects against unfair dismissal claims by showing that the business cares about its staff and minimising their time out of work. When employees leave feeling supported, valued, and positive, they are less likely to raise claims and grievances. 

Secondly, an outplacement partner can support the employer’s obligation to consider internal redeployment. By identifying vacancies elsewhere in the business and matching skills and experience to open roles, outplacement firms can not only help prevent redundancies, but can also reduce the costs involved in external hiring. 

Careerminds is a global expert in outplacement, redeployment, and coaching. We’re proud that participants on our outplacement programs only take, on average, 11.5 weeks to land a new role. When genuine redundancies are on the cards, we partner with our clients to make the process as stress-free, risk-free, and painless as possible for HR teams and displaced employees. 

Redundancy pay in Australia is tax-free to a limit set by the ATO, and taxable beyond that limit. Find out current limits and rates on the ATO website. 

If a redundancy is genuine, it is not possible to claim unfair dismissal. Genuine redundancy is a valid defence to unfair dismissal claims. To avoid the risk of unfair dismissal applications, businesses must meet the criteria for a genuine redundancy. The Fair Work Commission outlines the criteria that must be met – and if they are, claims will be dismissed. 

A genuine redundancy is one backed by a real business need – specifically, the job must not need to be done by anyone in the foreseeable future. The employer must also hold a consultation and consider redeployment.

A redundancy consultation should be a 2-way conversation about the proposed redundancy process. Employers should cover the rationale for the business change, the potential impact on employees (including redundancy), details of the severance package, the potential for redeployment, a request for input, next steps, and timelines. 

A well-run, genuinely compliant redundancy process, managed in partnership with an outplacement provider, minimises the risk of disputes and protects the employer brand. 

If terminations are on the cards in your business, contact Careerminds today to find out how our global expertise in outplacement, redeployment, and skills development can strengthen your business whilst ensuring legal compliance.