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Downsizing – the key employment law challenges

By   /   October 14, 2013  /  

downsizing-featuredAustralian businesses are not alone in the need to take difficult decisions about staffing numbers and employment structures. These challenges are being navigated globally and many organisations have been facing the challenges of implementing reductions in their workforces. In addition, employee branding is a long-term investment for successful companies. Getting a downsizing programme wrong not only exposes the organisation to legal risk but it can also materially impact on the organisation’s reputation, both internally and externally. Keeping retained staff committed and loyal, and being able to continue to hire top talent when needed in the future, is a key consideration in any redundancy decision.

The legal risks of any down-sizing programme can be mitigated with the following three aspects clearly in mind: fair reason, due process and “pay up”. Taking each one in turn:

Fair Reason

In Australia, a “genuine” redundancy reason will act as a sound basis to hopefully avoid litigation and, if it cannot be avoided, to allow any claim by a terminated employee to be successfully defended. In legal terms, a redundancy dismissal is a dismissal which is “not on account of any personal act or default of the employee”. In essence, this requires a strategic decision that the role is no longer needed to be performed in the same way going forward. This is a fairly straightforward test to satisfy unlike in some countries in Asia, for example, where anything less than the total closure of the business in the particular location will not be viewed as a redundancy under local law.

Of course, the decision must be “genuine”. It should not simply mask a back-door attempt to dismiss an under-performer nor should it be based on any discriminatory criteria.

Due Process

Once the organisation has formed the view that it may need to reduce headcount, it is critical that due process is complied with. Sometimes there are contractual commitments provided to individual employees through express terms in the contractual documentation or in policies that have contractual effect. Sometimes the mandatory process is contained in an enterprise agreement or a relevant award. Part of the due process may require consideration of all the options including redeployment or the tabling of “voluntary” redundancy options. Whether legally required or not, the fairness and integrity of the process will be critical to the perception both internally and externally as to the appropriateness of the decisions taken . Having full knowledge of what is required and allowing time for this to take place properly is one of the key areas where HR can provide full support to the business.

Pay Up

A genuine redundancy reason which is implemented adopting an appropriate process will invariably result in a termination with minimum legal risk as long as all legally due payments are made. Usually, the amount due to the outgoing employee is relatively straightforward to calculate and both the employer and the employee fully understand what must be paid to bring the contract to a lawful end. There are, of course, circumstances when poor documentation and lax record-keeping leaves room for debate and argument. There may also be claims for enhanced payments due to previous

custom and practice . Many organisations also take the view that, even if there is no obligation to make any enhanced payments over and above the statutory/contractual minimum, being prepared to pay additional sums can make the implementation of the decisions easier and quicker to achieve. That said, it is important to remember that what happens today will be remembered in the future if the need to make further redundancies arises again as it will for many organisation. Setting a high bar to smooth things over now might make future decisions more difficult or expensive.

Concluding Thoughts

As highlighted above, the difficult decision to reduce staff numbers can be implemented in Australia with minimal legal risk. However, for an organisation its people are critical to its success . Mitigating legal risk and claims is only a small part of any redundancy or re-structuring programme. The thought given to communications both internally and externally and how to manage and motivate retained staff is critical. Balancing business risk and the need to treat staff fairly and compassionately is often a challenge. The simple issue of ending email access and ensuring company property, contacts and confidential information are fully protected can be practically challenging . While none of this is easy, the greater the thought given to every aspect of the process and allowing enough time to do what is needed, the more likely that the desired outcomes will be achieved. Failing to make these difficult decisions is not an option for many businesses so embracing what is needed is the responsibility of every business leader.

Pattie Walsh_lrPattie Walsh

Head of Employment, Asia Pacific

DLA Piper

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