Restructuring and downsizing: Tips and traps

21 March 2024
Erin Lynch, Partner, Sydney

For most businesses, a decision to undertake an organisational change can mean a reduction in operational costs, a reduction in roles, an increase in efficiencies and streamlined decision-making. However, the announcement of a restructure can often leave staff of all levels feeling tense and uncertain. Effectively navigating organisational change is not something that happens by chance, it requires a clear plan, effective communication and a recognition of risks.

This article will help employers plan for organisational change, identify risks and manage communication.

1. Have a plan

We have all seen the news headlines where job loss is communicated via a large group meeting and people are advised they no longer have a job by seeing their name on (or off) a list. This undeniably has far reaching effects, not just from a reputational perspective, but also on the ongoing culture of your organisation and staff morale. While, generally, no one likes hearing that their employment is coming to an end by way of redundancy, there are key planning and communication strategies that you can put in place to make the process a smooth as possible. Our top 3 tips are:

The decision: We encourage you to prepare a (draft) business case document to explain the changes to the operational requirements and the need to restructure as a result. That document would explain, for example:

  • why there is no longer a business need for a particular role; and/or
  • how a downturn in business has impacted a particular team; and/or.
  • the list of objective and lawful criteria for selecting between individuals.

Communication: Ineffective communication is often the ‘Achilles heel’ in restructures. Employers should ensure they are not performing a ‘tick-box’ exercise. Rather, employers should be proactive and engage in consultation with their workforce as early as practicable in the decision-making process. Communications with staff should be measured, considerate and timely.

Plan and pre-empt questions: A business knows its people best. Think about the questions that may get asked during the process and consider the answers to those questions. Talk to your managers and team leaders about the process, as questions might get directed to them.

Have a response to the questions such as:

  • “why me?”;
  • “what if I get another job before my notice period ends?”; or
  • “some of the duties will still be required, so why is my role redundant?”

2. Watch out for the traps

Generally, this process is not with risk. A good restructure process identifies those risks. Based on our experience the top 3 risks are:

A genuine redundancy: Modern awards contain consultation clauses which mandate that an employer consult with employees and their representatives when it intends to make a major workplace change that is likely to have ‘significant effects’ on employees. Similarly, where an award doesn’t apply by virtue of an applicable enterprise agreement, an employer must comply with the consultation terms of that enterprise agreement (where major workplace change occurs). ‘Significant effects’ is broadly defined to include, among other things, ‘changes to the composition, operation or size of the employer’s workforce or in the skills required’. It is a question of degree of the level of change i.e. a change in reporting lines may not reach the threshold of ‘significant effects’.

If an employer fails to comply with the consultation provisions of a modern award or enterprise agreement which applies to its business, it may give rise to an unfair dismissal claim and also attract a penalty for breaching a civil penalty provision. A common trap we hear is the comment, “we pay above the award, the award doesn’t apply”. Just because you pay above the award doesn’t mean that the consultation terms of an award don’t apply.

For those employees with access to the unfair dismissal jurisdiction, employers would need to consider whether reasonable redeployment opportunities exist before terminating an employee’s employment. Terminating an employee for ‘genuine redundancy’ is a defence to an unfair dismissal claim and requires an employer show the redundancy was required because of changes to operational requirements, compliance with applicable consultation obligations, and that it was not reasonable to redeploy the employee within its business or associated entities.

The selection process: In processes that involve a number of employees, employers should have clear and objective selection criteria for determining. There are no legal requirements around selection for redundancy as long as the selection criteria are lawful. That being said, we recommend that selection criteria are aligned with operational needs (e.g. a genuine consideration of the reasons for the restructure and the ongoing business/operational need after the restructure), and that selection criteria are limited to objective criteria that do not directly involve consideration of any protected attributed or characteristics, for example, age or potential pregnancy.

Transferable entitlements and instruments: In some circumstances, one business may be acquired or merge with another business as part of a restructure. Where that occurs, the transfer of business provisions of the Fair Work Act 2009 (Cth) may mandate certain obligations on the ‘new employer’ to recognise service-based entitlements (i.e. annual leave, long service leave and notice) for those employees who are ‘transferred’. Certain ‘transferrable instruments’ (i.e. an enterprise agreement, workplace determinations, a ‘named employer award’, etc) may continue to cover employees who are transferred to the ‘new employer’. The ongoing entitlements and terms and conditions of a ‘transferrable instrument’ can often be downplayed, misapplied, or ignored by the ‘new employer’ following a restructure of this nature, which in turn can lead to disputes.

3. Our tips

There is never a one size fits all approach to workplace change, however our top tips are:

  1. Comply with the consultation provisions in an applicable modern award or enterprise agreement. Obligations apply to award-covered (and generally agreement-covered) employees to provide written communication and to allow for feedback / questions.
  2. Have an initial meeting with key management personnel so that they are aware of the decision. That way, management is across the reasons for the decision and can help answer questions or otherwise speak to staff who may have concerns after the joint meeting.
  3. Individual letters for each employee as well as separate meetings to allow each employee to provide feedback and ask questions before a decision is made on their employment. This is the case even if the ultimate decision is unlikely to be affected by an employee’s feedback because of the circumstances surrounding changes.
  4. If the employer is selecting one or more employees for redundancy from a pool of employees who all perform the same role, we recommend that the employer prepare a selection matrix to compare each of the employees in the ‘pool’ against a range of objective selection criteria.
  5. Ensure thorough consideration is given to redeployment opportunities (where required) Consider roles that are more or less senior than the employees’ current role, roles where the employee may be able to use transferable skills, roles that may require a move (either to a different office, different state, or perhaps even overseas) and roles that may require a reasonable amount of training/upskilling roles. Also, ensure that you consider roles that may be available elsewhere in associated entities.
  6. Where there is a transfer of business, ensure your organisation is cognisant of obligations surrounding the treatment of service-based entitlements.

If your organisation is considering or currently undertaking a restructure, our Workplace Advisory and Disputes team can assist with any queries.


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Authored by:

Erin Lynch, Partner
Thomas Tagirara, Associate

This update does not constitute legal advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek legal or other professional advice before acting or relying on any of the content.

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