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Initiating a restructure that will end in redundancy might seem like an easy way to exit an employee who underperforms, is disruptive, or doesn’t fit into the team or company environment. But here’s some plain advice: it isn’t!
Plenty of employers run into legal trouble when they exit an employee in a restructure and the person raises an unfair dismissal or general protections claim to challenge the redundancy.
Unless the business can prove the restructure was based on a genuine commercial reason and that the process was fair and reasonable, you could face an expensive settlement or be on the wrong side of a ruling by the Fair Work Commission (read: even more expensive!).
In short, restructuring is not the tool for handling an employee’s bad behaviour or poor performance.
You need to manage performance or behavioural issues using the proper processes (and make sure your recruitment practices are solid so you minimise the chances of hiring the wrong people in the first place).
What are the risks of making an employee redundant in a ‘sham restructure’?
Employees who feel they have been unfairly dismissed because their role was made redundant have a couple of avenues for legal recourse. The first is an unfair dismissal claim, which is open to all employees who have been employed for at least 6 months (or at least 12 months if they work for a small business).
The employee must apply to the Fair Work Commission within 21 days after the dismissal took effect and will have to prove the dismissal was not a “genuine redundancy” (as defined in section 389 Fair Work Act).
Most unfair dismissal claims are settled privately, or at conciliation, and employers found to be at fault may have to pay the employee compensation (typically between 5-7 weeks pay), and/or reinstate them to their role. The maximum compensation is either 6 months wages or the compensation cap (currently $87,500), whichever is lower.
The other claim an employee can make is a general protections application, which typically focuses on the reason for the dismissal, e.g. was the redundancy because of the employee’s age or sex or because they were a union member or exercised a workplace right, such as taking sick leave?
The employee has 21 days after the dismissal taking effect to apply and most general protections claims are settled between the two parties. However, there is the potential for cases to go to arbitration or federal court and there is no compensation cap for general protections applications: employees can claim loss of income, payment of general damages for the hurt, humiliation and distress, as well as potential civil penalty orders against the company or individuals.
Beyond the legal consequences (and the cost and time involved in responding to claims), getting a reputation for unfairly firing staff will damage your company culture and make it much harder to hire new people when you need them.
What is a genuine redundancy?
The Fair Work Act defines a genuine redundancy as one when the employer no longer needs the job to be done by anyone, and they have followed any consultation requirements in the modern award or registered agreement that applies to the role.
Employers are also required to explore options for redeploying the affected employee in another role within the employer’s business (or an associated entity).
If the employer satisfies these requirements, the employee isn't able to make an unfair dismissal claim, i.e. the Fair Work Commission will dismiss the claim if it is satisfied the redundancy was genuine. The employee may still be able to make a general protections claim for adverse action.
When is it appropriate to restructure a business?
Restructuring is a process that aims to ensure the company has the right roles set up in the right way to meet its business objectives and customers’ needs.
Restructures are generally triggered by changes to the organisation’s operational requirements, things like advances in technology, financial pressures, new opportunities, market changes, or other internal factors.
In Australia, there is a clear restructure process that businesses need to follow for most employees. If the planned changes result in people losing their jobs, there needs to be a genuine commercial imperative for the redundancies and the company has to consult with employees, including notifying affected employees of the changes, discussing with affected employees how the changes will impact them, asking for their feedback, and considering the feedback in its final decision.
In responding, employees must have access to the information the company used in forming the proposal (unless it's confidential information and its disclosure would be contrary to the employer’s interests).
Employers and employees must act in good faith, treat people as equals, and follow fair and reasonable process.
It’s important to remember that restructures focus on roles, not the individuals who do them. Even if you have a legitimate reason to restructure, if you exit an employee and replace them with someone in largely the same role, you’ll have a tough time justifying the redundancy was genuine.
Remember also that employers are obligated to investigate all options for redeploying existing employees whose roles are no longer needed. Redundancy should be the last option.
Discrimination risks during restructures
When choosing which roles will be made redundant, it’s vital to ensure the selection process is fair and reasonable and not discriminatory, i.e. not based on a prohibited reason, such as the employee is on maternity or sick leave.
Failing to do so could open the organisation up to the risk of a general protections claim or other action under state or federal anti-discrimination laws.
If challenged, you will need to be able to prove how you selected a role for redundancy, and if more than one employee is performing the role, what the process was for selecting an employee (or employees) for redundancy.
Similarly, if you are offering or not offering redeployment opportunities to an employee, the decision must be made on a factual and demonstrable basis.
Addressing employee issues
How to deal with poor performance
If an employee isn’t performing as expected, you need to address the issue before you consider dismissal.
Getting the employment relationship off to a solid start and then maintaining it with regular, open communication makes issues easier to identify and resolve.
We stress the importance of having a dynamic performance review system that accurately measures employees’ performance and offers them regular feedback and guidance.
Performance reviews not only clarify objectives and provide a way to measure achievement, they give managers and employees the opportunity to solve problems together.
If an employee’s performance gets increasingly poor and they show little sign of improvement, they may need more targeted performance management – such as a performance improvement plan (PIP) – to get them back on track.
Get more tips for dealing with problem employees.
Fixing bad behaviour
Like poor performance, it’s always better to address negative behaviour early, before it escalates.
This may not be the easiest or most comfortable option, but it is better than letting it get established (at which point it could be affecting the whole team or business). Remember, the standard that you walk past is the standard that you accept!
If the employment relationship is strong, you should be able to manage most issues without requiring a formal process.
It often boils down to making the person aware of the problem and then working with them to change the undesirable behaviour into something more constructive.
Delivering an abrasive tirade might, at times, seem like the best approach, but it could well jeopardise any resolution. It’s far more effective to have people participate in the process to give them a real sense of choice and control.
Of course, misconduct such as bullying, harassment, or being intoxicated at work will leave you no option but to take disciplinary action or look at dismissal (if it’s really serious and you can no longer trust them to do the job).
Likewise, persistent niggling behaviour and an unwillingness to change will also require a more formal response.
Get advice on managing issues before you need to take disciplinary action.From there: counselling and disciplinary
We’ve written a lot about the disciplinary process as it’s a procedure that can cause employers headaches.
At its heart, disciplinary is about sending a clear message to a team member that their performance or behaviour is not acceptable and then working to find a productive way forward.
The process is clearly laid out in employment law and must be fair and reasonable at all times. It’s important to get the process right, including presenting your concerns to the employee, allowing them to respond, and then taking that response into account in making a decision. It may result in giving them a written warning, or you may decide to conclude the disciplinary with no warning because there was a reasonable explanation or mitigating circumstance.
Done well, the disciplinary process should motivate the employee to improve. If they don’t, you can hold them closely to account through repeated disciplinary processes.
Before you look at dismissal, you need to give the person written warnings leading up to a final warning that spells out that termination is not only an option, but a likely outcome.
Obviously, going through a succession of disciplinary processes won’t be a quick fix, and it may be tempting to go with a”one-and-done” restructure instead, but following correct procedure is far more legally robust. It’s also healthier for your company’s culture and reputation.
