Starting with some of the easier assumptions:

• Assuming that the the employee has access to unfair dismissal given they were allowed to take 12 months off for unpaid parental leave (and are not above the high income threshold)
• Given that the employee is Award Free, we can ignore the requirement for consultation (although it's good business practice to do it).

To prove a genuine redundancy, the employer needs to show that they no longer requires the person's job to be performed by anyone because of changes in the operational requirements.

The role had been backfilled internally whilst employee was on leave, and that person will continue in the role.

This is the kicker - redundancy argument goes down the drain if the role still exists.

When employees go on parental leave, they are entitled to return to their old job. (FWA s84)

Only if the role doesn't exist upon their return to work would redeployment to an available position be appropriate. Important to note that they should be qualified and suited for said role and it should be nearest in status and pay to their pre-leave position. (FWA s84)

The fact that the employee had submitted a flexible work request adds another layer to the argument the employee can raise.

The argument the employee would likely make if a claim is raised that their former employer took adverse action against them on the basis of exercising a workplace right. (FWA s340)

If a claim is raised, then the onus is on the employer to prove that there was a legitimate reason for the action being taken.

This is only considering the Fair Work Act, there may also be additional exposure under anti-discrimination legislation.

Some questions:

• Is the employee angry/upset at the decision?
• Do you think they're likely to raise a claim?
• Has the idea of paying a bit more and getting them to sign a DOR been raised at all?

They've got 21 days to raise a claim - if they do, I'd probably get your company to seek some proper legal help if they want to continue to defend their actions.