Common mistakes when restructuring

When it comes to restructuring your business, there is a best-practice process you should follow.

While the process hasn’t been defined to the letter in employment legislation, the Fair Work Act 2009 is very clear about what constitutes a genuine redundancy. This is when the employer no longer requires the job to be performed by anyone due to operational requirements, and the employer has complied with any obligation to consult with the employee about the redundancy. The employer must then make genuine efforts to find alternative employment; redundancy is the last resort.

All modern awards and registered enterprise agreements have a consultation process that employers need to follow when there are major changes to the workplace e.g. in structure, organisation, technology, programming, or production, that are likely to significantly affect employees. This should occur as soon as there is potential for redundancies, and employers must advise affected employees of the proposed changes and seek and consider their feedback on the proposal.

Despite these clear legal prescriptions, employers can, and frequently do make mistakes when making major changes to their business.

At MyHR, we’ve helped hundreds of businesses with major changes, restructures and reorganisations and we’re often called in to tidy up procedural mistakes. So to help you understand how to get restructuring right, we thought we’d share some of the most common errors we see.

Be aware that any shortcut or procedural misstep could open you up to disputes or claims from disgruntled employees, which could cost you plenty of time and money to settle.

Not having a genuine commercial reason

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 Australian 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 Fair Work Commission (FWC) will look very closely at it and they will penalise you if it's not legitimate or if 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.

Learn more about the major change process.

Basing a restructure on performance issues

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.

Find out more about using a restructure to get rid of an employee

Not providing all relevant information

The crux of the restructuring process is consulting with all affected employees on the proposed changes, asking for their feedback, and factoring it into 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 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.

Already decided on an outcome

Some organisations mistakenly believe it’s okay to get workers 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.

If the planned changes to the business involve redundancies, then the restructure is technically only a proposal until employees have had a chance to give feedback and the business has genuinely considered those responses.

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, but it may also help your business.

Not giving employees enough time to respond

Another common mistake when the company just wants to get on with things is failing to give employees time to prepare their responses.

Part of acting as a fair and reasonable employer is allowing your employees time to consider major changes. 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.

Unless the changes are a result of an emergency or massive change to the business, we recommend starting with a period of two days between announcing the restructure proposal and getting responses.

If employees ask for more time, it’s wise to give it to them (anything up to two weeks is considered reasonable).

Our best advice: make haste carefully.

Not taking everyone affected through the process

By law, you need to consult with everyone whose job could be affected by the proposed structural changes.

Even if you think you know which roles you’re likely to keep or make redundant, you still have to consult with all the people whose jobs are being affected and then make a fair and reasonable decision.

Leaving anyone out could provide them with grounds for an unfair dismissal claim.

Not reviewing employment documents

We’ve seen plenty of change processes come unstuck because what the employer thought was in the employment contract or job description wasn’t actually in the document.

In one case, an employer made a financial controller redundant and then hired a qualified accountant for a position with a different title, but with identical duties to the role made redundant. While part of the basis for making the role redundant was the requirement for a tertiary qualification in accounting, this was not included in the job advertisement for the new role. Accordingly, it was deemed not to be a case of genuine redundancy. 

Before you consider proposing any structural changes, review relevant employment documents, including the applicable award or agreement, employment contracts, the job description, and any other agreed-to provisions in the case of redundancy (notice period, compensation etc.). In addition, ensure that the documentation for the new role(s) reflects the changes that were the basis for the change, for example, particular skills or qualifications, 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 make roles redundant, but also if you propose adjusting their duties.

Not understanding the obligation to redeploy employees

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 it would be reasonable in the circumstances to redeploy the employee, you run the risk of a claim if you don’t offer them the role directly. 

In determining whether redeployment was reasonable several matters may be relevant, including:

• whether a job, position or other work exists to which the employee can be redeployed,
• the nature of any available position,
• the qualifications required to perform the job,
• the employee’s skills, qualifications and experience, and
• the location of the job the employee’s residence and the remuneration (pay and entitlements) offered.

You must also consider whether it is reasonable to redeploy an employee to an associated entity. Also, roles with lower income and less responsibility must be considered. 

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.

Selection process not fair or transparent

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 - but there are other, fairer ways to make a decision.

You could use a selection matrix, where you map out the key skills, competencies, and experience for the role, assess everyone against the criteria, and then select the highest-scoring person (or people).