Restructures and redundancies: traps to avoid

We’ve been supporting many business leaders restructure and tighten their business models this week. The decisions around deciding and communicating redundancies as part of a restructure can be a new and difficult task – and can require consideration of a variety of factors:  

  • are there parameters around who and when I can make redundancies?  
  • what process must I legally follow to make an employee redundant?  
  • how do I choose what positions are made redundant?    
  • what redundancy payment do I need to pay? 

We’ve outlined the answers to commonly asked questions in our blog here.  

Q – What is a Restructure Process?  

A restructure process examines and reviews the employer’s operations and needs. It asks whether the employer has the right amount of staff allocated to the right areas and, if not, why not. 

It is common for an employer to consider restructuring to achieve economic efficiencies. In these situations, an employer will consider whether it has more staff than it needs (or can afford), and whether one or more roles (and their associated costs) can be ‘stripped out’ or reorganised. A common outcome of this process is to for an employer to find out that it can’t sustain the number of positions it currently has for a number of operational and financial reasons. 

During this process, it is important for an employer to identify: 

  • the position/s excess to requirements; 
  • the employee/s that will be affected; and 
  • alternative options for these employees. 

Q – What are the potential risks of redundancies and restructures? 

An aggrieved employee may lodge an unfair or unlawful dismissal claim in relation to their redundancy on the basis that they can demonstrate the redundancy was not due to genuine operational requirements or that there were reasonable redeployment opportunities that the employer did not provide. 

An unlawful dismissal claim may also arise for reasons that the employer has not provided the appropriate notice or payment for notice, or for reasons of discrimination (either direct or indirect) as outlined in the Fair Work Act 2009 (Cth) (“FW Act”). 

Whilst you cannot prevent an employee from lodging a claim for unfair or unlawful dismissal claim, you can minimise the likelihood their claim will succeed by having a clear and transparent document trail demonstrating the process undertaken, the communication and consultation undertaken with employees, and the basis upon which selection for redundancy was completed. 

Q – What are your top tips in minimising risks for unfair dismissal claims?  

There are four top tips to avoid risks of unfair dismissal:  

  1. Make sure the redundancy relates to the job / position, and not the individual attributes, performance, attitude or conduct of the person doing that job;
  2. Consult with the employee performing the role before confirming the decision to make that role redundant;
  3. Share information about the process and the number of employees affected to show its not ‘all about them’. That is, an employer will blunt an allegation an employee has been targeted for redundancy owing to them sharing details about being pregnant if the employer can show to the employee concerned that her entire sales team has been made redundant following a decision to offshore the sales function of the company; and 
  4. Clearly establish (and document) the actual and financial reasons for the restructure leading to the redundancies. 

Q – When can I decide a position is ‘redundant’?  

During the restructure process, once an employer has identified one or more positions are excess to requirements, the employer may decide to make those positions redundant. 

An employer may make a position redundant only where an employer has decided that the job/role is no longer required to be done by anyone, regardless of the employee who occupies that position. Therefore, in order to declare a position redundant, the employer must be able to demonstrate that it no longer exists, is in excess to business requirements and will not be filled by another employee. Parts of a redundant position’s duties, however, may nonetheless be allocated to existing staff. 

A redundancy may not be used to terminate an employee due to their performance or suitability for the role. Employers who make an employee redundant where the job is still available leave and/or will be filled by another employee themselves open to unfair dismissal claims. 

Q – Do I have to find another potential job for any redundant employees?  

Yes. It is a requirement of the FW Act that redeployment options are explored. Redeployment involves identifying another position that the employee may be able to be assigned to. This position might be an existing vacant position, a newly created position or a position within an employer’s ‘associated entity’ (another company).  

When it has been determined a position is redundant, consider where there are any alternatives to redundancy. For example, could you: 

  • reduce your usage of labour hire workers or casual staff first;  tighten up on overtime hours; 
  •  alter work rosters, or your opening hours (note – this might be only possibly by agreement with the majority of your employees or individual staff); 
  • look at possible job-sharing arrangements (by agreement with the two employees concerned); 
  • attempt a decrease in working hours for a determined period of time (by employee agreement);
  •  re-deploy the employee concerned into another, more-needed position/area; or 
  • employ any other method that may avoid the need for an employee being dismissed. 

Remember, an employer must consider the employee’s employment contract obligations before altering working arrangements. 

Q – How much do I have to consult with employees before I make a position redundant?  

Having determined that a position is genuinely redundant and there are no other alternatives to redundancy, you should communicate and consult with affected staff (and their trade union representatives, if required). Communication can take many forms including individual staff meetings, a group staff meeting or provision of material in writing – how it is performed will depend on each business. Please also be mindful that award-covered employees usually will need to consulted in writing. 

Ideally, you will communicate to affected staff: 

  • the reasons leading up to the declaration of redundancy (i.e. the reasons why the redundant positions have been identified as the ones to go); 
  • the employees that will be affected; 
  • possible options for employees to consider to mitigate the redundancies (i.e. would staff consider dropping back their hours, not opening on a Friday, taking a 10% pay cut etc.?); and
  • where there is more than one employee doing the same role, the criteria that will be used to select which individual/s will be made redundant (i.e. which one of the 10 store assistants will be selected for redundancy). 

At this stage, you may also allow employees to put their own ideas forward as alternatives to a redundancy. 

Q – Do I need to provide notice of termination?

Once the decision has been made and communicated to an employee, you need to give notice of termination to the employee/s. The minimum notice of termination requirements are provided under section 117 of the FW Act, and are based on the employee’s service history. We’ve summarised these in our free ‘how-to’ guide here. There may, however, be other modern award or contractual obligations that provide for longer periods of notice.  

Q- What redundancy pay do I need to provide?  

Redundancy pay is compensation payable to the employee for the loss of their job. The minimum amount of redundancy pay is provided under section 119 of the FW Act and is based on the employee’s service history. There may be, however, other award or contractual obligations that provide for greater benefits.  Again, we’ve summarised these in our free ‘how-to’ guide here.

Can we help?

If you’re restructuring, and you’d like us to provide specialist support in ensuring the process is smooth and as risk free as possible, get in contact with our consultant Elise on 0424 013 551. Our clients have found our assistance has allowed a great weight off their shoulders in a difficult time.

Elise Jasper

Elise Jasper

Elise graduated with a Bachelor of Laws (Hons) and a Bachelor of Arts from Monash University, and is passionate about workplace relations. She has been a member of the Industrial Relations Society of Victoria and worked at a well-known mid-tier law firm in a financial services role helping businesses to tackle and solve operational and compliance issues.

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Restructures and redundancies can be extremely challenging, but are unfortunately a necessary part of doing business sometimes. With careful planning and the right communications, restructures and redundancies can be managed well.