Both restructuring and redundancy are tricky processes to navigate for any sized business. It’s unwise to go down these paths without the right knowledge or expert guidance to make sure your organisation doesn’t stray into non-compliance.
Employees are afforded several protection rights during restructuring processes and redundancy decisions, therefore the onus is on the employer to adhere to the correct procedures and apply them in an equitable manner. As such, it is imperative that businesses are up to date on the key issues when dealing with this topic.
What is restructuring?
Businesses do have an inherent right to restructure. Making changes that enable an organisation to be the most efficient it can be is a normal and accepted part of business.
Restructuring is where a business changes its structure or processes as a result of changes in its business environment. Sometimes the reason for those changes can be obvious, like the impact of COVID-19, but not always. Changes can, for example, occur as a result of:
- The introduction of new technology (a machine can now do all or part of the employee’s job)
- A change in business processes (e.g. as a result of health and safety requirements)
- The business slowing down or losing profit and needing to adjust its expenses or operations to meet this financial situation
Actions taken as part of a restructuring can include refinancing bank facilities, introduction of new equity capital, staffing reorganisation, closure of non-performing branches or locations or investment in new plant or technology.
A key component of a restructure is keeping the same people being employed but doing different jobs for different pay. Businesses may have to look at adapting a business model with less management and less administration functions, or people could be taking on more duties for the same or less money in order to keep their jobs.
This differs from the concept of redundancies. Restructuring can sometimes lead to redundancy if the requirement for employees to do a particular job is eliminated and they cannot do another job instead (redeployment).
What is a redundancy?
Even though ‘restructuring’ and ‘redundancy’ are words often heard together, they are very separate things. Employers can think about it in these terms – redundancy is not about the employee, it is about the job that they are doing. There has to be a cessation of the role the employee is performing.
The Fair Work Act is very clear about what constitutes a ‘genuine redundancy’. An employee’s termination of employment can not be classified as unfair dismissal on the grounds of being harsh, unjust or unreasonable if it can be demonstrated by an employer that the termination was a result of a genuine redundancy.
Be aware that employers do have a responsibility under the Fair Work Act to explore redeployment options before making an employee redundant. 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).
Determining genuine redundancy
In order to be considered a genuine redundancy, employers must be able to satisfy to the Fair Work Commission that:
- The redundant position is no longer required to be performed by anyone (including a more qualified person)
- The employer has strictly complied with any obligation in any applicable modern award or enterprise agreement to consult with the affected employees
- It would not have been reasonable in all of the circumstances for the employee to be redeployed either elsewhere within the employer’s business, or within the business of an associated entity
If an employer is able to meet the statutory definition of a ‘genuine redundancy’ then an employee will not be able to successfully argue a claim of unfair dismissal.
To better understand what constitutes a genuine redundancy and what doesn’t, we can take a quick look at two cases brought before the Fair Work Commission.
Case # 1
McIlwraith v Toowong Mistubishi Pty Ltd [2012]
The employee’s position as a Financial Controller was made redundant. The employer then hired a qualified accountant to a position titled Dealership Accountant. The duties identified in the job advertisement for the new position were identical to those of the position made redundant. The employer placed considerable emphasis on the requirement of a tertiary qualification in accounting; however the job advertisement did not specify this requirement.
Finding – Termination was found not to be a case of genuine redundancy as the employee was replaced with a more qualified person
Case # 2
Markac v CSR Limited [2010]
The employer required fewer process worker positions due to the projected future needs of the firm. The employer ranked its employees based on a skills assessment. The employee scored poorly in a number of areas in the skills assessment and was consequently made redundant.
Finding – Termination was found to be a genuine redundancy due to the significant downturn in business and no one else was hired to replace the employee.
How to properly carry out the redundancy process
Redundancies are emotionally and financially tough on everyone involved. Management must first rule out redeployment as an option and determine that a redundancy would be classified as genuine under the definitions of the Fair Work Act before taking any action.
If the employee is covered by a modern award or enterprise agreement, there will usually be an obligation to consult with the employee before making the role redundant.
Consultation means a meaningful discussion with the employee before the role is made redundant with a genuine consideration of any suggestions or comments from the employee. The obligation to consult arises once a business has decided to make changes but must be done before a final decision is made. This allows the employee, who is likely to lose their job, an opportunity to be heard before a definite decision is made.
Redundancy pay may or may not be required. Most permanent employees are eligible for redundancy pay. Those who usually do not qualify include casual employees, employees of a small business (15 employees or less) and anyone who has been employed for less than a year. Employers can use the Fair Work’s Redundancy Calculator to accurately determine how much redundancy an employee is entitled to
Failure to properly carry out a redundancy process, or pay entitled redundancy payments, could result in claims of unfair dismissal and even discrimination, so it is important for businesses to get it right. Here are a few helpful do’s and don’ts.
Do:
- Get professional HR and legal advice about the process to make sure you get it right
- Take your time and don’t rush the decision
- Critically look at your business and resourcing needs
- Have a clear business case as to why the role is no longer required
- Document your decision at a management meeting
- Put everything in writing
Don’t:
- Use redundancy as an excuse get rid of a troublesome employee
- Carry out any actions in a hurry
- Avoid the conversation and the need to consult
Before making any decisions regarding restructuring your business or making an employee redundant, it’s best to seek professional guidance. For advice, talk to the experts at Harrisons today.
Claire Harrison is the Founder and Managing Director of Harrisons, a flourishing HR consulting business that sprouted in 2009 from Claire’s passionate belief that inspiring leaders and superstar employees are the key success factor to any business. With over 20 years’ experience, Claire has worked as a HR Director of multi-national organisations, as a Non-Executive Board Director, and a small business owner. Claire’s corporate career includes working with companies such as BHP, Westpac, Fonterra and Mayne Nickless.
