The Difficulties of Proving a Genuine Redundancy with a Contractor Workforce
In Australian employment law, a genuine redundancy occurs when an employee’s role is no longer required due to operational changes, and the employer has met its consultation obligations under the Fair Work Act. It provides a complete defence against unfair dismissal claims. However, proving a redundancy is genuine becomes far more complex when much of the workforce is made up of independent contractors rather than employees.
1. Employees vs Contractors – Different Legal Footings
The first hurdle is the legal distinction:
- Employees are covered by the Fair Work Act, modern awards, and unfair dismissal laws. Genuine redundancy provisions apply directly to them.
- Contractors, however, are engaged under commercial contracts, not employment contracts. Termination of their services is governed by the contract terms, not redundancy law.
This distinction creates tension. If a business reduces employee numbers but keeps contractors doing similar work, it risks claims that the redundancy was not genuine, but rather a disguised dismissal.
2. The Substitution Problem
A key test of genuine redundancy is whether the employer truly no longer requires the role to be performed. If an employee is made redundant but the same tasks are allocated to a contractor, the Fair Work Commission (FWC) may conclude the redundancy is not genuine.
Employers often engage contractors for flexibility or cost savings, but in a redundancy context this raises red flags. The perception is that the role still exists—it has just been shifted from an employee to a contractor.
3. Sham Contracting Risks
The Fair Work Act contains strict provisions against sham contracting, where an employer misrepresents an employment relationship as a contracting one. If contractors are effectively working as employees (e.g., fixed hours, direct supervision, inability to subcontract), the FWC may treat them as employees. In such cases:
- Redundancies may be challenged as invalid.
- Employers could face penalties for breaching sham contracting provisions.
This risk makes the redundancy process even more fraught for organisations with heavy reliance on contractors.
4. Consultation and Redeployment Obligations
For redundancies to be genuine, employers must:
- Consult with affected employees in line with their award or enterprise agreement.
- Explore reasonable redeployment opportunities.
When contractors remain in the business, employees may argue that redeployment into contractor-type work was a feasible option. Even if impractical, failing to properly document why redeployment was not possible can undermine the redundancy defence.
5. Best Practice for Employers
To reduce the risks when redundancies intersect with contractor use, employers should:
- Clearly define roles – maintain a sharp legal and operational distinction between employees and contractors.
- Avoid direct substitution – do not make an employee redundant only to outsource the identical role to a contractor.
- Document business reasons – record financial, structural, or strategic reasons for shifting work models.
- Consult thoroughly – engage in genuine consultation, even if outcomes seem predetermined.
- Seek legal review – have redundancy processes independently reviewed where contractor-heavy workforces are involved.
6. Conclusion
Proving a genuine redundancy is already a technical process, but in contractor-dominated industries it becomes especially challenging. The overlap between employee entitlements and contractor arrangements creates exposure to unfair dismissal, sham contracting allegations, and reputational risk. Employers who rely on contractors should approach redundancies with caution—ensuring that workforce restructuring is backed by clear evidence, lawful consultation, and transparent decision-making. Ultimately, the safest path is to demonstrate that the decision was driven by genuine operational change, not simply by the convenience of shifting employees into contractor roles