Businesses in Queensland sometimes face unforeseen challenges resulting from evolving market demands, economic environments and operational requirements. One of the ways employers can address these challenges is by reducing employee hours. While this can be an effective strategy to manage costs, it can also trigger certain legal obligations, particularly concerning redundancy payments.
What is a genuine redundancy?
Redundancy occurs when an employer reduces their workforce due to operational factors such as financial difficulties, restructuring, or changes in business needs. Redundancy typically means a position is no longer required, leading to termination of employment.
However, there are scenarios where redundancy doesn’t involve an employee’s job loss, but rather a significant reduction in working hours. This is where partial redundancy comes into play. A reduction in working hours may not be as straightforward as a full redundancy, but under specific conditions, it may trigger the need for a partial redundancy payment. In such cases, employers must consider whether the reduced hours constitute acceptable alternative employment under the Fair Work Act 2009, ensuring that the new conditions do not make a significant impact on the employee.
When can a reduction in hours lead to partial redundancy payments?
A reduction in hours may be considered a form of redundancy under the Fair Work Act if it results in the following:
Inability to maintain full-time employment: If full-time employment can no longer be maintained due to the reduced hours, it will be considered a redundancy. For example, if an employee’s regular full time job is now only available on a part time basis, and the employee is unable or unwilling to accept the reduced hours, they are entitled to redundancy pay based on the changes to their employment.
Significant change to the position or employment terms (casual or part time): If an employer reduces an employee’s guaranteed hours substantially (for example, by 50% or more), this will be seen as a significant change in the terms of their employment. If the changes are severe enough, they may be considered a redundancy even if the employee continues to work with the company.
Permanent reduction: To be considered a partial redundancy, the reduction in hours needs to be permanent. If the reduction is temporary, such as during a seasonal slowdown, and there is an expectation that hours will return to normal, the employer may not be required to make redundancy payments. However, if the reduction is permanent, it could be viewed as a redundancy, especially if the change is unilaterally imposed by the employer.
Involuntary reduction: Redundancy payments typically apply in situations where the employee did not voluntarily agree to a reduction in hours. If an employee chooses to work fewer hours or the employee accepts a part time role willingly, it is less likely to be considered a redundancy.
Where the above occurs, an employer may not be required to make a full redundancy payment but, instead, a portion of the redundancy payment they would owe the employee if changes resulted in the employment terminating. Only the Fair Work Commission can determine the amount to be paid, but a common partial payment calculation is the proportion of hours lost through the redundancy against the employee’s ordinary hours applied to the full redundancy payment they would have received if their employment had ended.
Partial redundancy payments can also be made where an employee that would be made redundant accepts a lower paid job. A similar calculation can be made in this circumstance.
Employer considerations when reducing an employee’s hours
Employers should be cautious when reducing employee hours, as these changes can trigger redundancy entitlements. To avoid potential disputes regarding redundancy payments, employers should consider the following:
Meeting consultation requirements: Under the Fair Work Act, employers are required to consult with employees about significant changes to their hours or employment conditions. This includes discussing the reasons for the reduction in hours and exploring alternative solutions where possible.
Offering alternative employment: If there is a need to reduce employee hours, the employer should consider offering other acceptable employment, redeployment opportunities, or flexible working arrangements that might avoid the need to make a position redundant.
Facilitating employee agreement: Employees must agree to the changes, otherwise they will be entitled to the full redundancy amount.
Establishing a notice period: As the employee’s role is being made redundant, they are still entitled to a notice period before the change is to take place. This means that the employee is entitled to maintain their current wages for the hours they would have worked until that notice is serviced. Employees can choose to waive this entitlement.
Communicating clearly: Employers must clearly communicate any changes to employees’ working hours and the reasons behind the decision. It is recommended that this is conducted in writing to ensure transparency between the employer and employee.
Seeking advice: Employers should seek advice from industrial organisations, including Business Chamber Queensland, before reducing employee hours, particularly when the reduction is substantial or permanent. Understanding obligations under the Fair Work Act and any applicable Modern Awards or Enterprise Agreements can help employers avoid costly disputes down the line.
Tips for navigating full or partial reductions in working hours
Employers should approach any changes to employment conditions carefully and engage in meaningful consultation with affected employees. Employees, on the other hand, should be aware of their entitlements and seek advice if they feel their rights are not being respected. Ultimately, clear communication, careful planning, and adherence to legal frameworks will help ensure a fair and lawful process for both parties.
Note that casuals are not entitled to redundancy pay, but employers are still expected to engage them in the redundancy consultation process if changes are significant and they have regular and systematic work. This is because casuals can still make a claim for unfair dismissal if their employment did not end through genuine redundancy, which requires the employer and casual employee to have engaged in consultation.
Disputes regarding redundancy and partial redundancy payments are dealt with by the Fair Work Commission. The Commission has, on past occasions, awarded full redundancy payments to employees who have experienced changes but maintained employment, agreeing to the proposed changes. It is recommended that meaningful consultation be engaged in to avoid matters escalating to industrial disputes.
How Business Chamber Queensland can help
If you need support in managing a redundancy process, our Workplace Advisory team can help.
Our Workplace Advisory team provides insight, support and resources to guide you in making informed business decisions, helping you avoid issues around workforce management. Business Chamber Queensland Business Essentials and Business Evolve members can make unlimited calls to our Workplace Services Hotline for Human Resources support. Plus, all Business Chamber Queensland members can access Workplace Consulting Services at discounted rates.
