What’s the difference between restructuring and redundancy?

People often use the terms restructuring and redundancy to refer to the same thing, but there is a difference. So let's take a look.

Restructuring

Restructuring (or reorganisation) means changing the operational set-up (structure) of a business to improve the way it 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, retrenching 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, merging with another company. The reason must be clearly stated during the restructuring process.

Restructure process must consider what is prescribed in legislation. Section 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's role occurs.

However, if you follow the correct process and can prove that any redundancy is genuine, your business will be protected from claims of unfair dismissal.

Redundancy

Redundancy is when a role or position, rather than a person, 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 an obligation to find alternate employment for any person you're considering to make redundant, even if it's a more junior role that the employee is capable of doing.

The employee can always say 'no' and their rejection of the offer may mean you do not have to pay them retrenchment payments on termination of employment.

This will depend on the facts of the case, 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 they have 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 employee 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.

In all cases!

The process of reorganising and restructuring is prescribed in the Fair Work Act 2009. You have to consult with all employees who may be affected before any decision is made, and any redundancies due to a major change, restructure or reorganisation must be genuine. Section 389 of the Act defines the term 'genuine redundancy'.

You need to take steps to avoid and minimise negative effects on affected employees and you also need to make genuine efforts to find alternative employment for anyone in a role proposed to be made redundant.

Give affected employees a detailed proposal, reasonable time to consider it, and the opportunity to comment on it before you make any decisions. Take people’s feedback into consideration (don’t treat the proposal as a done deal before you’ve asked for and considered feedback).

Never use a restructure or redundancy to manage performance or behavioural issues or to get rid of a problem employee. There are proper, effective ways to manage performance and disciplinary issues.

If the restructure or redundancy was not for genuine reasons and/or you didn’t follow fair and reasonable process, an employee may have grounds for a claim for unfair dismissal.

The Fair Work Ombudsman closely scrutinises an employer’s reasoning for a restructure and redundancies, as well as the consultation process followed.

If they find against you, you'll potentially be looking at a hefty award to your employee, plus a contribution to their costs and any lost wages. You will also have to pay your own expenses, and you’ll get no compensation for the time you and your staff spent dealing with the issue.

Document all your reasoning and decisions, and share all relevant, supporting information with the employees. Offer them all the compensation detailed in their award, enterprise agreement or employment contract.

Like any significant people process, make sure you get some sound professional advice on any major change proposal before you implement it.