The kindest cut of all


Australian businesses are not alone in the need to make 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 program wrong not only exposes the organisation to legal risk, it can also materially impact on the organisation’s reputation internally and externally. Keeping retained staff committed and loyal, and being able to continue to hire top talent when needed in the future, are key considerations in any redundancy decision.

The legal risks of any downsizing program can be mitigated by keeping the following three aspects in mind: fair reason, due process and “pay up”.

Fair reason

In Australia, a “genuine” redundancy reason will act as a sound basis to hopefully avoid litigation and, if it can’t be avoided, allow any claim by a terminated employee to be successfully defended. In legal terms, a redundancy dismissal is a dismissal that 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 closure of the business in the particular location will not be viewed as a redundancy.

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

Due process

Once the organisation has formed the view that it may need to reduce the headcount, it is critical that it complies with due process.

Sometimes there are contractual commitments provided to individual employees through express terms in their documentation or in policies that have a contractual effect. In other instances, 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 general perception of the appropriateness of the decisions taken. Having full knowledge of what is required and allowing sufficient time for this to take place properly are the key areas where HR can provide full support to the business.

Pay up

A genuine redundancy reason that is implemented by 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. The employer and the employee should fully understand what must be paid in order to bring the contract to a lawful end.

There are, of course, circumstances when poor documentation and lax record keeping leave 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 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 organisations. Setting a high bar to smooth things over now might make future decisions more difficult or expensive.

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 restructuring program. It’s imperative that thought is given to internal and external communications, along with the management and motivation of the retained staff.

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 that company property, contacts and confidential information are protected can be practically challenging.

None of this is easy, but it’s more likely that the desired outcome will be achieved if thought is given to every aspect of the process, and enough time is allowed to do what is required.

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The kindest cut of all


Australian businesses are not alone in the need to make 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 program wrong not only exposes the organisation to legal risk, it can also materially impact on the organisation’s reputation internally and externally. Keeping retained staff committed and loyal, and being able to continue to hire top talent when needed in the future, are key considerations in any redundancy decision.

The legal risks of any downsizing program can be mitigated by keeping the following three aspects in mind: fair reason, due process and “pay up”.

Fair reason

In Australia, a “genuine” redundancy reason will act as a sound basis to hopefully avoid litigation and, if it can’t be avoided, allow any claim by a terminated employee to be successfully defended. In legal terms, a redundancy dismissal is a dismissal that 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 closure of the business in the particular location will not be viewed as a redundancy.

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

Due process

Once the organisation has formed the view that it may need to reduce the headcount, it is critical that it complies with due process.

Sometimes there are contractual commitments provided to individual employees through express terms in their documentation or in policies that have a contractual effect. In other instances, 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 general perception of the appropriateness of the decisions taken. Having full knowledge of what is required and allowing sufficient time for this to take place properly are the key areas where HR can provide full support to the business.

Pay up

A genuine redundancy reason that is implemented by 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. The employer and the employee should fully understand what must be paid in order to bring the contract to a lawful end.

There are, of course, circumstances when poor documentation and lax record keeping leave 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 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 organisations. Setting a high bar to smooth things over now might make future decisions more difficult or expensive.

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 restructuring program. It’s imperative that thought is given to internal and external communications, along with the management and motivation of the retained staff.

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 that company property, contacts and confidential information are protected can be practically challenging.

None of this is easy, but it’s more likely that the desired outcome will be achieved if thought is given to every aspect of the process, and enough time is allowed to do what is required.

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