Voluntary redundancy occurs when an employee volunteers or agrees to be made redundant.
In most cases of voluntary redundancy, the employer offers a financial incentive to an employee to voluntarily resign subject to a formal Deed of Release (which prevents the employee from bringing a successful claim).
In effect, the business benefits as they do not have to undergo the trauma and turmoil associated with downsizing. Such as reputational risks which arise from such discussions. They are also able to forego the protracted consultation processes that are required to effect a genuine redundancy.
Each company has their own reasons for wanting to offer voluntary redundancy.
From an employer’s perspective, offering voluntary redundancy may save them the hassle of making the difficult decision of deciding who to make redundant. It will also minimise the impact on morale and productivity, as well as bad blood between the organisation and employee. Both of which could have a negative influence on client and staff relationships. Voluntary redundancy will also avoid the risks associated with the breach of unfair dismissal provisions.
However, it is important to note that voluntary redundancy is not a way to avoid paying for redundancy payments and other entitlements owed to the affected employee. Payment of entitlements is still required.
Voluntary redundancy is problematic as it does not guarantee the best outcome for the business.
If the process is not properly considered or planned, the business risks losing its best and brightest, who may opt to depart in order to cash in on the minimum entitlements offered. This talent drain occurs because the best and most experienced employees are precisely those who are most likely to obtain jobs in the open market.
To avoid this problem businesses should endeavour to ensure that the voluntary redundancy is targeted at specific classes of employees. This is also problematic as targeting may result in the breach of anti-discrimination legislation – particularly if the decision is based on age or a particular image.
Voluntary redundancy can be incorporated into a traditional redundancy approach. Whilst this may offset some of the benefits, it also mitigates many of the risks associated with targeting. If you would like to engage with this approach you should speak to an experienced workplace relations consultant.
Should a business wish to consider approaches made by an employee for voluntary redundancy, it is recommended that a formal policy is implemented to ensure consistency and fairness in dealing with each request.
Whilst employers are not legally required to approve each offering for voluntary redundancy – they must be careful about who they approve or else they might be breaching anti-discrimination laws or various provisions of the Fair Work Act.
Employsure is an expert when it comes to managing the voluntary redundancy process. For peace of mind, please fill out the online form to request a free consultation.