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What is the difference between redundancy and retrenchment? 

06/04/2022

Redundancy and retrenchment are two terms that are sometimes confused by employers and employees.

Redundancy occurs when a specific role is no longer required because of operational changes within a business. Once a position is redundant, the employee holding that role can either be redeployed (moved into another job for the same employer) or retrenched (lose their job).

 

Redundancy

We often see employees referred to as being made redundant, but a more accurate description is that the job the employee was employed to perform has become redundant, not the employee.

Many factors can contribute to changes in operational requirements, including the state of the market in which the business operates or steps taken to improve efficiency by installing new processes, equipment, or skills. For example, when a machine or new technology can replace a job currently performed by an employee. When a business identifies jobs that are no longer required due to operational changes, it will likely move to make those roles redundant.

Section 389 of the Fair Work Act requires employers to comply with any obligation in a modern award or enterprise agreement that applied to the employment to consult with the impacted employee about the redundancy. Consultation may include notifying the employee about the proposed changes, providing information about the changes and their expected effects and considering any ideas or suggestions the employee may have about the changes.

For a redundancy to be genuine, the employer must no longer require the role to be performed by anyone. However, an employee can still be genuinely made redundant or retrenched when some aspects of their duties get reorganised or redistributed to other employees within the business.

 

Retrenchment

Retrenchment is the term to describe what happens to an employee whose employment is terminated because their role becomes redundant.

Employers sometimes use redundancy as a tool to unfairly dismiss an employee, so it is handy to understand what is considered genuine circumstances for a role to be made redundant or a worker to be retrenched.

An employee’s dismissal (or retrenchment) will not be considered genuine if it would have been reasonable in the circumstances for the employee to be redeployed within the employer’s enterprise or the enterprise of an associated entity of the employer or if the employee is being targeted for discriminatory reasons.

Employees who believe their dismissal was not the result of their role genuinely being redundant can make an unfair dismissal claim to the Fair Work Commission and the onus will fall on the employer to prove otherwise. However, unfair dismissal applications cannot be made if the retrenchment is a case of genuine redundancy, so seeking advice from an employment lawyer is always recommended.