A practical guide for employers
Redundancy is one of the most common questions I get asked, and one of the most misunderstood areas of employment law for business owners. More often than not, the question comes up in the context of an underperforming employee. The conversation usually goes something like: “I really need this person out of the business. Can I just make their role redundant?”
The short answer is no. And understanding why matters a great deal.
Redundancy is not a performance management tool
The Fair Work Act 2009 is clear on this point. Redundancy applies when a role is no longer required. It is not a mechanism for removing someone because they are not meeting expectations. If an employee is underperforming, the right path is performance management, not redundancy. Conflating the two is one of the most common and costly mistakes employers make.
If you are managing a performance situation and are not sure where to start, our guide on what to do when an employee is not performing walks through the process.
What does “genuine redundancy” actually mean?
Under section 389 of the Fair Work Act 2009, a dismissal is a genuine redundancy if three conditions are all satisfied:
- The employer no longer requires the person’s job to be performed by anyone because of changes in the operational requirements of the enterprise.
- The employer has complied with any consultation obligations in a modern award or enterprise agreement that applied to the employment.
- It would not have been reasonable in all the circumstances for the employee to be redeployed within the employer’s enterprise, or an associated entity.
All three must be satisfied. Getting one right while missing another is enough to expose the business to an unfair dismissal claim.
Condition one: Changes to operational requirements
The phrase “operational requirements” is interpreted broadly by the Fair Work Commission and has been for a long time. It is not limited to financial distress or declining revenue. Operational changes can include restructuring to improve efficiency, redistributing duties across the business, introducing technology that removes the need for a role, or a reduction in workload that means a standalone position is no longer viable.
A useful illustration of this is the 2023 decision in Paki v Howley Group Pty Ltd [2023] FWC 466. In this case, the employer operated Pandora jewellery retail stores and had created a standalone Sales Training Officer role during a COVID-era recruitment push. When sales declined due to rising interest rates and falling consumer spending, the employer made the role redundant on the basis that sales training could be absorbed by in-store management. The applicant argued the training function still existed and therefore the role was still required. The Commission disagreed. Deputy President Boyce found that the test is not whether some duties survive, but whether the whole job, as it existed, is still required to be performed by anyone. Because the employer had a genuine operational reason for the change, the first condition was satisfied.
This case reinforces a point that catches many employers off guard: you can make a role redundant even if some of the duties continue. What matters is whether the job as a standalone position is still needed.
Condition two: Consultation obligations
Before a redundancy is carried out, most modern awards and enterprise agreements require employers to consult with affected employees about the proposed change. This is not optional, and the consequences of getting it wrong are significant.
In Zaicos v Tamworth Dementia Respite Service Inc [2025] FWCFB 231, the employer dismissed the employee with immediate effect following a restructure prompted by financial difficulty, including a voluntary administration process. The SCHADS Award applied to the employment and contained consultation obligations. The employer provided no consultation prior to dismissal. At first instance, the Deputy President found the redundancy was genuine, reasoning that consultation would not have changed the outcome. The Full Bench overturned that decision on appeal and found that reasoning was wrong in principle.
The Full Bench confirmed that section 389(1) is definitional. Both conditions must be strictly satisfied. Whether or not consultation would have changed the outcome is irrelevant. If the consultation obligation existed and was not met, the redundancy is not genuine, and the unfair dismissal exemption does not apply.
What does proper consultation actually look like? At minimum, it means notifying the affected employee as soon as reasonably practicable after the decision to make a major change has been made, providing relevant information about the proposed changes and their likely effects, and genuinely inviting the employee to respond before the decision is finalised. The specific requirements will depend on which award or agreement applies. Always check it.
Condition three: Redeployment
A dismissal is not a genuine redundancy if it would have been reasonable to redeploy the affected employee into another role within the employer’s business or an associated entity. Employers are expected to actively consider whether suitable redeployment options exist, not simply assume there are none.
The High Court significantly expanded this obligation in Helensburgh Coal Pty Ltd v Bartley [2025] HCA 29. Helensburgh Coal had restructured its operations at the Metropolitan Colliery in New South Wales in 2020 following a pandemic-driven decline in coking coal demand. Ninety employees were dismissed, and the company continued to engage contractors to perform work at the mine. Twenty-two former employees challenged their dismissals, arguing that they could have been redeployed to perform the work being carried out by those contractors.
The Fair Work Commission agreed. Helensburgh Coal appealed through to the High Court, arguing that section 389(2) did not allow the Commission to consider whether the company could have restructured its workforce to create redeployment opportunities. The High Court unanimously dismissed the appeal. It held that the Commission is entitled to consider a broad range of circumstances when assessing whether redeployment would have been reasonable, including whether the employer could have made changes to how it used its workforce, such as reducing contractor use to create positions for redundant employees. Redeployment is not confined to filling a position that already exists and is already vacant.
For employers who use contractors or labour hire alongside direct employees, this decision changes the calculus materially. Before proceeding with redundancies, you now need to genuinely assess whether there is work being performed by non-employees that a redundant employee could reasonably perform.
What are the risks if a redundancy is not genuine?
An employee who believes their redundancy was not genuine can apply to the Fair Work Commission for an unfair dismissal remedy. This avenue is available to employees who have completed the minimum employment period (six months for businesses with 15 or more employees; 12 months for small businesses with fewer than 15 employees).
If the Commission finds the dismissal was harsh, unjust or unreasonable, it can order reinstatement or compensation. The compensation cap for unfair dismissal is the lesser of 26 weeks’ pay or half the high income threshold. For dismissals occurring on or after 1 July 2025, the cap is $91,550 (this increases each July, refer to here for the latest figure). In practice, most awards are lower than this, but the cost in management time, legal fees, and reputational impact can be significant regardless of the dollar amount.
Separate to unfair dismissal, an employee may also bring a general protections claim under Part 3-1 of the Act if they believe the redundancy was motivated, in whole or in part, by a protected attribute or activity, such as making a workplace complaint, exercising a workplace right, or a protected attribute like pregnancy or union membership. General protections claims carry greater risk for employers because they are not subject to the same compensation cap that applies to unfair dismissal.
The most common redundancy mistakes
Using redundancy to exit an underperforming employee. If the role still needs to be done, or a replacement is hired shortly after, the redundancy is almost certainly not genuine.
Having a legitimate operational reason but failing to consult. The Zaicos decision makes clear that even a genuine business restructure becomes an unfair dismissal if the consultation obligations in an applicable award or agreement are not met.
Not considering redeployment properly. Following Helensburgh Coal, the inquiry into redeployment is broader than many employers have historically assumed. A genuine assessment is required.
Assuming the small business exemption removes all risk. Businesses with fewer than 15 employees at the time of termination are not required to pay redundancy pay under the National Employment Standards (NES). However, the small business exemption only covers redundancy pay under the NES. Consultation obligations under any applicable modern award still apply, and small business employees can still bring unfair dismissal claims after 12 months of employment. Some modern awards, including the Building and Construction General On-site Award 2020, also contain redundancy pay provisions that apply to small business employers independently of the NES. Always check the applicable award.
A practical checklist for employers
Before proceeding with a redundancy, work through these steps:
- Confirm that the role is genuinely no longer required because of operational changes, not performance issues. Document the business reason clearly.
- Identify which award or enterprise agreement, if any, applies to the employment. Review the consultation clause and follow it.
- Actively assess whether any suitable redeployment opportunities exist within the business or any associated entities, including a considered look at whether work currently performed by contractors could reasonably be offered to the affected employee. If no redeployment is available, document why each option was considered and ruled out.
- Confirm notice entitlements and calculate redundancy pay correctly, checking both the NES and any applicable award. Seek specific advice before proceeding if there is any ambiguity.
Redundancy can be a necessary and lawful step for a business. Done correctly, it protects the business and treats the employee with the dignity the situation warrants. Done without proper process, it creates significant legal and financial exposure that is almost entirely avoidable.
If you are working through a restructure and need guidance on the process, get in touch.
This article is educational in nature and does not constitute legal advice.