Industry Specific Redundancy Schemes 1

There are some unusual provisions in modern awards and these can deliver unexpected differences in entitlements for employees than what you might expect. For employers in the building and construction and plumbing and fire sprinkler industries, one such surprise is the industry specific redundancy schemes that apply in lieu of the National Employment Standard on redundancy. Here we unpack that.

Most employees in the country have their redundancy entitlements determined by the National Employment Standards which provides for up to 16 weeks of payment depending on how long the employee has been with the company for.

There are, however some exceptions to this; they are employees who receive their entitlements via an external fund that their employers make regular contributions to, like Incolink, or employees whose work is covered by an Industry Specific Redundancy Scheme provided for in a modern award. This is the first of a series of blogs about these exceptions and, in this one, we deal with those applying under the Building and Construction General On-site Award 2020 and the Plumbing and Fire Sprinklers Award 2020.

What is an Industry Specific Redundancy Scheme?

The Fair Work Act 2009 provides that the National Employment Standard on redundancy is displaced by an industry specific redundancy scheme where that is provided for in a modern award or an enterprise agreement. These schemes existed prior to creation of the relevant modern awards and have just been carried over into modern awards. They can have different rules and different levels of entitlement to those prescribed in the National Employment Standard.

What is different about the scheme in the building and plumbing awards?

The particular type of industry specific redundancy scheme that is in the building and plumbing awards was ostensibly created on the basis that employees in the industry typically worked from project to project and therefore were unlikely to accumulate sufficient continuous service with one employer to qualify for redundancy in the normal way. This is certainly not the case with the building and construction businesses which we service as they engage most employees on a continuing basis because they need them on that basis. 

There are three primary differences that apply under this industry specific redundancy scheme as compared to the National Employment Standard:

• There is a different definition of redundancy and
• There is a different set of entitlements to redundancy pay and
• There is no small business exemption

The normal definition of a genuine redundancy is “when the employer or business no longer requires the job to be performed by anyone” as prescribed in the National Employment Standard which provides for up to 16 weeks redundancy pay based on length of continuous service. There is no entitlement in the first year of service.

In contrast, the definition of redundancy in the building and plumbing awards is “an employee who ceases to be employed by the employer for reasons other than those of misconduct or refusal of duty”. That industry specific redundancy scheme provides for a lesser maximum amount of redundancy pay (capped at 8 weeks after 4 years’ service) but also provides for pro rata payment in the first and subsequent years for each completed week of service.

There is also no small business exemption so that employers with less than 15 employees are also up for redundancy payments (unlike under the National Employment Standard).

On face value, you might think that employees covered under these awards are worse off than they would be under the National Employment Standard and, for an employee with more than 5 years service who is genuinely made redundant in the normal way, that would be true.

However, the different definition of redundancy in this industry specific redundancy scheme means that it is not just that genuine redundancy that attracts a redundancy payment.

The building and plumbing awards also state:“Provided that an employee employed for less than 12 months will be entitled to a redundancy/severance payment of 1.75 hours per week of service if, and only if, redundancy is occasioned otherwise than by the employee.”  

So what does all of that mean?

It means that any employee whose employment terminates for any reason other than “misconduct or refusal of duty”  is entitled to a redundancy payment:

• In the first 12 months of employment and thereafter, if the employer initiates the termination eg if an employee is terminated due to genuine redundancy or on performance grounds or on incapacity grounds or due to loss of an essential qualification or any other reason except: misconduct or refusal of duty” plus
• After the first 12 months of employment, if the employee initiates the termination eg if the employee resigns, retires or dies.

So, for example, if you have an employee who resigns after completing 4 or more years of service, you are up for 8 weeks in redundancy pay on top of their other final entitlements. 

What can employers do?

There are a few options.

The first is to make contributions to a redundancy fund like Incolink. They fund then manages any claims made by the employee for redundancy payments. The downside to this is that the costs can be quite high.

Another alternative is to have your own enterprise agreement. Through an enterprise agreement you can alter or replace Award terms with ones that align more closely with how your company operates this would allow you to replace the Industry Specific Redundancy Scheme with the NES term which has the more defined meaning to redundancy.

It is also possible for employers who pay their employees significantly above the minimum rates specified in the Award to offset an employee’s entitlement to redundancy payments. Any attempt to do so should be spelt out in an employment contract and the employee affected should be made aware of what they are agreeing to in that contract. You, of course, also need to verify that you are actually paying sufficiently above award to set off the redundancy payment.

How can we help?

At Ridgeline HR we have a long history of assisting clients with navigating the intricacies of the Fair Work Act and Modern Awards and we can help businesses to manage their obligations to employees in any of the ways we have mentioned in this blog.

If you need assistance with understanding your obligations to your employees or changing how you meet your obligations to employees regarding the Industry Specific Redundancy Scheme or any other HR related matter please don’t hesitate to contact us on 1300 108 488 or at enquiries@ridgelinehr.com.au

In subsequent blogs, we will deal with other Industry Specific Redundancy Schemes applying in other industries, some of which provide for higher redundancy pay than the National Employment Standard and some that provide redundancy pay for small business employers who would otherwise be exempt under the National Employment Standard.