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16 November 2018

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Employment Law


Employment law – Redundancy when a business closes down

We have a client that will be closing down its business. All staff employed at the time will be paid redundancy, however, what is the position with staff that resign beforehand?

The employer advises the staff that the business will close down, but that they can leave now if they want to, that is, the employee resigns before the last date of business. In those circumstances, does the employer still need to pay redundancy? Or is redundancy only payable to employees who have not resigned before the last date of business?


Thank you for the question.

Section 119 of the Fair Work Act 2009 (Cth) sets out the entitlement of national system employees to redundancy pay. Mentor assumes the question relates to national system employees.

The answer depends on whether the employer has provided notice of termination to employees based on redundancy but has relieved the employees of their obligation to work the remainder of the notice period. If so, the obligation to provide redundancy pay would not be disturbed as it cannot be said that employees have resigned their employment.

If an employee then resigned after receiving notice of termination from the employer based on redundancy, the answer further depends on whether the employee is covered by a modern award.

A term common in modern awards provides that an employee who is given notice of termination in circumstances of redundancy may terminate their employment during the period of notice BUT retain the right to receive redundancy pay as if they had remained in employment until the expiry of the notice period: for example, see the Clerks—Private Sector Award 2010 (cl 14.3). Thus, as a first step, the redundancy provisions of any relevant modern award should be checked.

If no modern award applies and an employee chose to resign during a notice period, they would not have ceased employment by reason of redundancy as defined in s 119 of the Act and there would be no obligation for redundancy pay.

Any employer who puts undue pressure on employees to resign, as a device to avoid redundancy payment obligations, risks their actions being viewed as a constructive dismissal, which is termination at the employer’s initiative and risks exposure to a wages claim for redundancy payments. There could also be a risk of a general protections claim, depending on the circumstances.

For further discussion about this issue, see Cement Australia Pty Limited T/A Cement Australia [2012] FWA 1949.