There was a time when restructuring, reorganising and redundancies weren’t a regular concern for employers and employees, but in our quick-changing, competitive global economy, they have become commonplace. That’s because major change, or restructuring and reorganising, a company’s structure to make it more efficient, more profitable, or streamlined often needs to happen, whether that’s because of financial pressures or the business wants to expand and capitalise on new opportunities.
There are various forms of restructuring within a business, such as debt restructuring or asset restructuring, but we’re focusing on the restructure of roles or teams. This is known as major change by way of reorganising and restructuring. In Australia, the process of reorganising and restructuring is prescribed in employment legislation; and this has been the case since 1982, when in NSW the Employment Protection Act was made. This Act prescribed that consultation first had to happen with affected employees. Genuine efforts then had to be made to find alternative employment. Redundancy was the blunt tool and the last resort. Legislation now applies across Australia and the 1982 principles of redundancy are enshrined in today’s Fair Work Act legislation. Case law has also helped establish best practice e.g. The Australian Industrial Relations Commission Full Bench Termination, Change and Redundancy Decision of 1984.
The principles of this decision are still relevant today. This means there are some crucial steps and principles that can’t be legally ignored. Failing to get the consultation, reorganising, restructuring or redundancy processes right could lead to complications, delays, and, at worst, personal disputes and unnecessary financial cost. It’s much easier to avoid problems and make the necessary changes smoothly if you fully understand the process, and everyone’s part in it, before you embark on it. In this white paper, we take a broad look at what to do to make major change to a business and any consequential restructuring, reorganising or redundancies, how to make sure you handle them correctly, how to avoid common errors, and highlight some real examples.
The terms restructure and redundancy often get confused for the same thing, but there is a definite difference.
Restructure means changing the operational set-up (structure) to improve the way the business runs, delivers products or services etc. It’s a process. It aims to get the right roles configured the right way and can involve adding new roles, merging two or more existing roles, removing roles that are surplus to requirements, or a combination of these things.
You need a genuine business reason to restructure, e.g. a change in market demands, financial constraints, realigning your brand, wanting to outsource certain business functions, or merging with another company. The reason must be clearly stated during the restructuring process. Restructure process must consider what is prescribed in legislation. S. 389 of the Fair Work Act defines “genuine redundancy”. If there is no proper consultation, an effort to find alternative work, and an offer of this work, the redundancy is not genuine, even if a net reduction of a person occurs.
Redundancy is when a role or position and the person in that role, is surplus to the business’ commercial needs. It’s an outcome, usually of a reorganisation or restructuring process. You can’t make a person redundant and then replace them with someone else in a substantially similar position with a different job title.
You have obligations to find alternate employment for the person you are considering to make redundant, even if it a more junior role but one the employee is capable of doing. The employee can always say no and whether offering an employee another role, which they have rejected, means you do not have to pay an employee retrenchment payments on termination of employment depends on its facts, but the rule-of-thumb is that if a role is 80% or more similar, and the employee refuses the role at substantially the same pay, then there is a strong argument that the employee has no entitlement to redundancy pay.
Redundancy should be treated as a last option, after you’ve explored all reasonable alternatives – such as redeployment. The notice period must be at least the length stated in the National Employment Standards, award, agreement or company policies. The employee is due salary, unused annual leave, and any other entitlements up to the last day of employment. If it’s written in their employment contract, you can offer the employee a payout for their notice period or have them work it. You must pay the employee any redundancy compensation detailed in the terms of their employment contract and/or negotiations between parties.
When a business is sold and the employees are offered employment by the new owner on substantially the same terms and conditions, employment is continuous and no redundancy occurs. The transfer of employees from one business to another when a business is sold or acquired is also known as “Transmission of Business”. In such circumstances the terms and conditions of employment (awards and EC’s) remain the same and all leave accruals (including personal/carers leave) transfers to the “new employer”. Where an employee’s service is recognised by the new employer; all leave accruals are transferred from the “old” to the “new” employer; and the terms and conditions of employment are substantially the same. Employees who choose not to accept the offer from the new employer forfeit any redundancy compensation.
Employers still need to meet their obligations to follow fair and reasonable process, as they would in other redundancy situations. For more detail about transferring employees, go to https://www.fairwork.gov. au/how-we-will-help/templates-and-guides/ fact-sheets/rights-and-obligations/whenbusinesses-change-hands
Redundancies due to a major change, restructures and reorganisation must be genuine. Section 389 of the Fair Work Act 2009 defines the term genuine redundancy. Find out more here: http://www5.austlii.edu. au/au/legis/cth/num_act/fwa2009114/s389. html
Major change can be one of the most uncomfortable HR processes, but it’s also one of the most straightforward, if you do it well. At its core, restructuring/ reorganisation is a consultation process centred around the work being done in the business and which roles are performing which tasks. It is about change to get the right structural fit for the company’s objectives. It’s not about the people in the roles, or a way to get rid of employees you don’t like or want. Getting the process right will enable you to make the necessary changes smoothly, without opening yourself up to too much legal risk. Restructures/reorganisations can involve a single role or many roles – the process is largely the same, only the scale varies.
It starts with a proposal of changes to the organisation’s structure, individual roles, or responsibilities that is based on a genuine commercial justification. Once you have made a definite decision to make a change, you must consult with every individual who will be or who may be affected by the proposed changes. Be aware that restructures can be highly stressful for everyone involved. If you make the process as painless as possible, people will be able to move on with their lives, and the team that remains (including the employer) can get on with things.
Preparing the information that you’ll present to your team is key. You are telling your employees a story that has to make business sense. Make sure you have a solid commercial reason for the changes, e.g. you are resizing because of a decrease in revenue or a shift in the company’s focus. Also ensure you are giving people all the information they need to understand the proposal and give feedback, especially if you are relying on financial arguments for the change(s). You must provide them with all information that you are considering, with some (but not many) exceptions for highly confidential data. This includes information on why you’ve chosen specific roles for changes and how the changes will roll out.
The initial meeting with employees is all about communicating the proposed changes. You can choose to meet with affected members as a team or as individuals. It makes no difference legally but we strongly advise meeting with affected individuals first, before a team meeting. If jobs are on the line, it’s much more considerate to let people know privately. Once individual meetings are held, then hold a team meeting and include employees not affected by the proposed changes, so that they can be aware that their colleagues are going through a tough time and to be sensitive. Present the case for changes (and the supporting information), the details of the changes, and explain the overall restructure and reorganisation. Make sure each employee has this information so they can take it away to digest and prepare their response. This is usually in the form of a letter, but it can be an email. Be as kind as possible and allow plenty of time for questions. Your team members may well be shocked and upset.
Allow employees time to go through the information and prepare a response. Anything up to 2 weeks is considered reasonable, but it all depends on the scale of the changes. We recommend giving 2 working days (e.g. first meeting Monday morning, second meeting Wednesday morning) as a starter, but if any employees ask for more time, it’s best to consider if you can give it to them.
Like a disciplinary process, this is the chance for employee(s) to give their point of view. While it may seem unlikely that they will present information you haven’t considered or will cause you to alter the proposed restructure, you still have to allow them to give feedback. Unless your employees are part of a union, meet with them individually. They may have suggestions or ideas which negatively affect their colleagues, or they may be very upset and shaken by the process.
By law, you must fairly take the employees’ feedback into consideration. It may be that they have identified a flaw in the proposal or an option you hadn’t considered. We have seen plenty of instances of an employee coming up with a new idea that means the original proposal changes, or the business decides not to restructure after all. If you choose to continue with the original proposal, you need to be able to justify why.
Meet with the affected employees individually and present your decision on the restructure and how their feedback was considered. You must make a ‘fair and reasonable decision’ and be able to prove it. Confirm the changes to roles and/or responsibilities, and the timeframes. If redeployment is an option or new roles are available, this is when you present those options to your employees. You will also have to deal with fallout from affected people, so be prepared, and be kind.
Rolling out the changes can take time, depending on their scale. If you are making people redundant, they will have a notice period to work out (or be paid out if it’s written in their IEA). Other employees may be moving into new roles or have new responsibilities. You may also be working through applicants for other available roles.
The last stage is all about looking after the people who remain with the business. The restructuring process is unsettling and team members may have lost colleagues who are their friends. Being sympathetic to the impacts on people is important. You need to ensure you provide time and resources to support those ‘survivors’ and rebuild team culture. You may also be dealing with bringing new employees onboard at the same time. This step is easy to miss but it is crucial to getting your team up to speed again quickly!
As we all know, things don’t always run as smoothly as we’d like. People can ask for more information or more time to consider the proposal. People can dig their heels in and try to slow the process down. Good advice will mean you are prepared with alternative plans and responses, if anything arises.
You have decided you may need to restructure part of your business, which may result in the redeployment or redundancy for one or two of your employees. The following process map steps you through each stage of the process at a high level. This provides an outline of the steps you will take. It should be read as a guide only, as things might change throughout the process, subject to employee responses. This should be followed in all circumstances for Award employees and may be used for non-Award employees on a case-bycase basis.
You have decided you may need to restructure part of your business, which may result in the redeployment or redundancy of several of your employees. The following process map steps you through each stage of the process at a high level. This provides an outline of the steps you will take. It should be read as a guide only, as things might change throughout the process, subject to employee responses. This should be followed in all circumstances for Award employees and may be used for non-Award employees on a case by case basis.
As with any process involving people, there is always the potential to make mistakes when restructuring. Be aware that any shortcut or procedural misstep could open you up to disputes or claims, which could cost you time and money to settle. If the dispute ends up being heard by the Fair Work Commission (FWC) and they find against you, you’ll be looking at a costly award to your employee and a contribution to their costs, plus the potential for any lost wages, as well as paying all your own expenses. At MyHR, we’ve helped hundreds of businesses with the introduction of major change and subsequent restructures/ reorgnaisations and we’re often called in to tidy up procedural missteps. So to help you understand how to get a restructure right, we thought it we’d share some of the most common errors we see. Keep in mind that messing up a restructure is a surefire way to open yourself up to disputes or claims from disgruntled employees, and it could cost you dearly.
Numero uno, if you are proposing to restructure all or part of the business and the changes could affect jobs, make sure you have a genuine, justifiable commercial reason for your proposal. We’ve seen plenty of employers get into trouble because they either base the restructure on personal or non-commercial reasons (more on this shortly) or they cannot justify the financial imperative for change or its benefits.
It could be that the business is losing money and you need to cut costs to keep the ship afloat, or you want to refocus your efforts on a higher potential market, product, or activity. Or you could have made a strategic decision to refocus the business and need to make changes in line with the new strategy. Whatever the commercial justification is, if it’s challenged the FWC will look very closely at it and they will find against you if it’s not legitimate or you don’t have sufficient evidence to back your arguments. Complete due diligence before you undertake a restructure and make sure you have watertight evidence to support your proposal.
Don’t start a restructure because you have a team member who isn’t performing or is a bad fit for the business and you want them out. You need to manage poor performance or behaviour using the appropriate processes. Even if the reason to restructure is genuine, if there is a whiff of potentially managing someone out because they’re bad at their job or clash personally, it can derail the process.
We had a client start a legitimate restructure of their finance department. One of the affected employees had recently had some run-ins with a manager and raised a claim, arguing that the restructure was only a pretext to get them out of the business. Thankfully, the company was able to successfully defend its position because it had done a lot of work to demonstrate the genuine basis of the redundancy. If they hadn’t, they may have had to settle and pay the employee out.
The crux of the restructure process is consulting with all affected employees on the proposed changes, asking for their feedback, and factoring it in to the final decision. Employees can’t give meaningful feedback if they don’t have access to the same information the company has used to inform and shape its proposal. We’ve seen businesses only provide affected employees with a vague justification for a downsizing because they are sensitive about sharing their financial data. This leads to employees asking (rightly) for more information so they can put together a fair response, and turns a reasonably straightforward restructure into a long and laboured process.
While you can withhold some private or sensitive information – e.g. the salaries of other employees – if it is relevant to the decision-making process, by law, you are required to share it. You must also include any criteria or tools you will use to assess team members for new positions or redundancies, and give people a chance to comment. Being transparent is crucial in these situations.
Some organisations mistakenly believe it’s okay to get staff together in a group meeting to announce they are rolling out a new team or business structure, and inform some people they will be surplus to requirements in a few weeks. In Australia, a restructure is only able to be made after the consultation process has been completed, employees have had the chance to give feedback and the business has genuinely considered those responses.
This process differs from some other countries, and can trip up companies who fail to fairly consult employees. We’ve seen numerous clients start looking for new people for roles that would only exist if the proposed restructure goes ahead. Others have had employees find out the restructure outcome, either by accident or poor management, before it had been officially announced. It can be tempting to try and shortcut the consultation process, especially if the outcome seems logical and legitimate, but it’s not worth the risk. Employees may propose a different viable solution or point out oversights or errors in your plans. Not only are you duty-bound to take their feedback into account, it may help your business.
Another common mistake when the company just wants to get on with things is failing to give employees sufficient time to prepare their responses. Part of acting in good faith and following fair, transparent process is allowing your employees time to consider the proposal. Restructures are hard on people, so your team members will need time to adjust and get support (and in some cases, legal advice), as well as prepare their feedback. We recommend starting with a period of two working days between announcing the restructure proposal and getting their responses, but anything up to two weeks is considered reasonable. If employees ask for more time, it’s wise to give it to them. Our best advice: make haste slowly.
By law, you need to consult with everyone whose job could be affected by the proposed restructuring. Even if you think you know which members of the team you’re likely to keep or make redundant, you still have to consult with all the people whose roles are being affected and then make a fair and reasonable decision. Leaving anyone out could provide them with grounds for a claim.
We’ve seen plenty of change processes come unstuck because what the employer thought was in the employment contract, wasn’t actually in the contract. In one case, the employer proposed making a specialist role redundant on the basis there was no longer enough work. However, the employee proved the job description in their employment contract was broader than the employer thought and the restructure could not take place until this was resolved. Before you consider proposing any structural changes, look at people’s employment contracts, the job description, and any other agreed-to provisions in the case of redundancy (notice period, compensation etc.). Keep all job descriptions up-to-date so they reflect the reality of the role. This is not only important if you are proposing to remove roles but also if you propose adjusting their duties.
There have been plenty of cases in the FWC where employers have been ruled to not have properly considered options for redeploying existing employees into new roles. Quite often businesses will invite employees losing their position to apply for new roles alongside external candidates, but if the new role is ‘substantially similar’ (i.e. 80% or more the same) or otherwise within the employee’s capability, you run the risk of a claim if you don’t offer them the role directly. That includes helping the person retrain or up-skill so they can perform the job. Our advice is if there is an option to keep people in the business, even if it requires a bit of development and training, you should almost always offer them that role. If you are proposing to make anyone redundant, do your homework and get good advice before you make a final decision.
Earlier, I mentioned sharing the tools the company will use to select team members for new positions or redundancies. Some employers have landed in hot water because they aren’t fully transparent with affected employees about their assessment methods or they choose to make people redundant based on an arbitrary or biased selection process. There are many ways to go about selecting which employees you will appoint to new or remaining roles, but whichever method you use, it should pass the test of what a ‘fair and reasonable’ employer would do. In restructures, it’s not uncommon for people to talk about ‘last in, first out’ – as in, the most recently-hired person is the first to go – and there are other fair ways to make a decision. You can use a selection matrix, where you map out the key skills, competencies, and experience for the role, assess everyone against the criteria, then select the highest scoring person (or people).
This mistake needs its own section. It’s a pretty basic one and will land you in hot water as quickly as you can say: “you’re surplus to requirements”. We understand the negative effect a troublesome or unproductive employee can have on a business, and the temptation to exit them quickly, but initiating a restructure that ends in their redundancy is not the right approach. Restructures can get contentious, especially if they end in redundancy. Remember, restructuring is not about the people performing (or underperforming) in roles; it centres around making changes to roles (or teams) so the company can best meet its commercial objectives. Even if you have a sound reason, if there is a hint the restructure is managing someone out because they’re bad at their job or clash personally, it can seriously affect the outcome.
Poor performance, bad attitude, and misconduct need to be handled using the appropriate processes. A solid employment relationship is the best foundation, so employees clearly understand their roles and the company’s expectations, and how their efforts contribute to their own success and that of the business. Then an effective system for tracking and rewarding performance, and regular (two way) feedback should mean issues are easier to spot, raise, and resolve in mutually beneficial ways. You may not need formal procedures, such as counselling, performance management or disciplinary action, but if an employee’s behaviour, conduct, or performance takes a serious dive, proper process can get things back on track. In the end, if you have the right systems in place and the employment relationship is strong, you have a good chance of turning poor performance and negative behaviour around before you need to think about dismissal.
To ensure a redundancy is justified, employers must be able to prove the reason was genuine and it was done in a procedurally fair way. Making an employee redundant should be considered the last option after all reasonable alternatives, like redeployment, have been explored. It’s not unusual for businesses to invite people whose position is being made redundant to apply for new roles alongside external candidates, but if the new role is ‘substantially similar’ (i.e. 80% or more the same) or otherwise within the person’s capability (including less senior roles), you run the risk of a claim if you don’t offer them the role directly.
The FWC have made numerous rulings confirming that employers must look at all options for redeploying employees. Employees may just need a bit of training and development to be able to perform the new role. If, after carefully following all the steps in the restructure process, redundancy is the only viable option, make sure you meet any terms stipulated in the person’s employment contract, award, company polices, or other relevant industrial instruments. These include the minimum notice period, unused annual leave, and any other entitlements up to the last day of employment. You may choose to pay the employee out in lieu of having them work their notice period. The right to the redundancy compensation is written into the FWA, it must be paid.
Remember to have some empathy for anyone being made redundant. While people will generally understand if the reason is bona fide (even if they don’t like it), no one likes being mistreated or misled. It could also leave a bad taste or erode trust with the people remaining at the business. In an application against Virgin Australia Airlines Pty Ltd in July 2020, the FWC was required to determine if an employee had a claim for Unfair Dismissal due to the employers failure to comply with the requirements of the FWA. The questions asked and answered were:
Was the job lost to operational requirements?
FWC found the employer no longer required the job to be performed by anyone else because of changes in the operational requirements of the enterprise. 389 (1) (b) met.
Was there consultation about major workplace change?
The evidence established the employer provided the applicant with a comprehensive consulation pack and position descriptions. The employer also held a consultation meeting and invited feedback. The employer subsequently confirmed decisions and outcomes in writing. No challenge was made that there was any non-compliance. FWC found the employer adopted a process to implement its operational restructure which met the consultation obligations in the Award and Subsection 389 (1) (b) of the FWA.
Was reasonable redeployment considered?
FWC found there was an invite to identify any positions as redeployment prospects. Discussions with management followed. There were two redeployment opportunities identified. Employee rejection of the redeployments was OK as one job required a huge amount of away-from-home time and the other was part-time and a significant reduction of pay. No reasonable redeployment could be arrange despite genuine attempts. Subsection 389 (2) was met.
https://www.fwc.gov.au/documents/decisionssigned/html/2020fwc3934.htm shows how this process needs to be managed to ensure a genuine redundancy. All employers need to be very mindful of this.
