Redundancy and Small Businesses

Redundancy can occur when an employer either:

•    No longer needs an employee’s job done by anyone
•    Becomes bankrupt or insolvent
•    Introduces new technology and an employee’s job is no longer needed (can be done by a machine)
•    Slows down to lower production or sales
•    Relocates either overseas or interstate
•    Restructures or reorganises due to a takeover or merger

A small business is treated differently to other organizations. Defining whether or not your business is categorized as a ‘small business’ is indispensable when figuring out which options are available to you.

The Small Business Fair Dismissal Code came into operation on 1 July 2009 and is a very useful tool for small businesses dealing with redundancy.

A Small Business is defined as having fewer than 15 employees, including casual employees who are employed on a regular basis. Employees of a small business cannot make a claim for unfair dismissal within the first year of their employment. If an employee is dismissed after this initial period and the employer has followed the Small Business Fair Dismissal Code then the dismissal will be deemed to be fair.

Employees who have been dismissed due to business downturn or their position is no longer required cannot bring a claim for unfair dismissal. The redundancy must be genuine though. Hiring a new employee for the position is not a genuine redundancy.

If an employer believes on reasonable grounds that an employee’s behaviour is severe enough to justify immediate dismissal, they can do so without notice or warning. Serious misconduct includes theft, fraud, violence and serious breaches of occupational health and safety procedures. For a dismissal to be deemed fair an allegation of theft, fraud or violence should be reported to the police. The employer must have reasonable grounds for making the report.

In other instances, the small business employer must give an employee a reason why they are at risk of being dismissed. The explanation must be a valid reason based on the employee’s ability to conduct the job. The employee must be warned verbally or ideally in writing, that they are at risk of being dismissed if there is no improvement.

The small business employer must offer the employee an opportunity to respond to the warning and a reasonable chance to rectify the problem. This may involve the employer providing supplementary training and ensuring the employee knows their job description and what is expected of them.
In consultations with an employee where dismissal is possible, the employee can have another person present to assist, the other person however cannot be acting in a professional capacity.


A small business employer will be obligated to provide evidence of compliance with the Code if the employee makes a claim for unfair dismissal, including evidence that a warning has been given (except in cases where the employee has been dismissed due to serious misconduct).

This may include copies of written warnings, a statement of termination or signed witness statements.