Want to bring former employees back into the fold but unsure about your legal obligations? Read this.

No organisation likes making redundancies. They’re emotionally charged, can damage your reputation and, most importantly, it often means having to say ‘goodbye’ to a talented portion of your workforce.

Mass redundancies have been an unfortunate reality of 2020 for several organisations across the globe and while many are still picking up the pieces, some have bounced back faster than predicted. As a result, they may be ready to start hiring again and what better way to make up for letting someone go than putting them back on the books?

It sounds great in theory. And while there are certainly many cases of organisations rehiring former staff – sometimes referred to as boomerang employees – it’s not a cut and dried process.

HRM spoke with Fay Calderone, employment partner, and Anthony Bradica, tax partner at law firm Hall & Wilcox, about the legal considerations to keep in mind.

1. Was it a genuine redundancy?

It’s first worth identifying if the initial redundancy was a genuine redundancy or not. HRM has previously unpacked the difference and reported on a case where the line between genuine redundancy and unfair dismissal was blurred.

Reopening a position could rock the boat, legally. When a redundant position is recreated within a short timeframe, it may expose the employer to claims that the termination was not genuine, say Calderone and Bradica.

While an employee has only 21 days after dismissal to lodge an unfair dismissal claim, the Fair Work Commission can, in limited circumstances, allow for an extension (read more about such extensions here).

Calderone and Bradica recommend employers document their redundancy process and the objective grounds on which the decision was made, keeping in mind the genuine redundancy criteria, which include:

• No longer requiring the employee’s job to be performed by anyone, because of changes in the operational requirements of the business.
• Complying with any consultation obligation in a modern award or EA (read HRM’s guide to consultation obligations during a crisis here).
• Inability to identify any suitable redeployment opportunities at the time of the termination, within your business or any associated entities.

It’s important to understand the legal considerations of rehiring. Find out more with AHRI’s Intro to Intro to HR Law virtual course.

2. Continuity of service issues and returning payments

Generally, the termination of an employee by way of a genuine redundancy, and the subsequent re-employment of that employee, is not sufficient to maintain a continuity of service for the purpose of the Fair Work Act. 

Unless you’re re-employing them on the basis of “continuity of employment” (i.e. you are treating it as though the redundancy was never made), then the re-employed person is not required to return any statutory redundancy payment.

Where annual leave entitlements are paid out on termination, there is no requirement for an employer to recognise previous service for the purpose of annual leave accruals on re-employment. 

Despite personal/carer’s leave accruals not being paid out on termination, a termination by way of redundancy will break the employee’s continuity of service for the purpose of accrual of such leave. 

While uncommon, exceptions to this can be found in some modern awards and enterprise bargaining agreements (EBAs) which provide for accrued but unused personal/carer’s leave entitlements to be recognised on re-employment within a specific period of time. So make sure you fully understand your obligations under the relevant EBA or Award.

3. Continuity of long service leave entitlements

While long service leave (LSL) entitlements differ from state to state, each state has provisions which recognise previous services when an employee is terminated and then re-employed by the same employer within a specific period of time. 

For the majority of states and territories, this time period is two months. However, Queensland and Tasmania provide for a period of three months, and Victoria provides a period of 12 weeks. 

Most commonly, employers are only required to recognise the employee’s previous service for the purpose of any accrued but unpaid LSL accrual, while the break period is not treated as service for the purpose of such accrual.

The relevant state or territory legislation should be checked for the precise requirements.

4. Tax on redundancy payouts

There are generous tax concessions in circumstances of genuine redundancy.

They require certain conditions to be met, one of which is that, at the time of the dismissal, there must not be any arrangement – whether formal or informal, enforceable or not – between the employee and the employer (or between the employer and a third party) to employ the employee after the dismissal. 

For example, the genuine redundancy requirement will not be met if an employee is made redundant from their job with one company in a group, but the employer and employee have agreed at the time of termination the employee will be re-employed by an associated company.  

5. Rehiring after COVID-19

Proceed with caution and diligence, say Calerdone and Bradica. Seek advice on a case-by-case basis because much of this will turn on the facts.  

If the employer is able to demonstrate there was a genuine redundancy at the time of termination, but due to a positive turn of events there was opportunity to re-employ staff, and a decision is made in good faith on that basis, it would seem reasonable and manageable to do so. 

Extraordinary times call for extraordinary measures. We are certainly living and working through those. 

Part two of this article speaks with organisations and employees who have made the re-hiring process work. Keep an eye out over the coming weeks.

This is an extract of an article that appeared in the November 2020 edition of HRM magazine.