Restructuring can be a strategic decision to improve efficiency, cut costs, or adapt to market changes. However, it carries significant risks, especially in Australian workplaces where strict compliance with employment laws is crucial. Business owners, managers, and HR professionals need to approach restructuring carefully to mitigate the potential for legal claims, operational disruption, and employee dissatisfaction.
In this blog, we will examine the risks associated with workplace restructuring, emphasise the importance of consultation requirements, and discuss the legal pitfalls of using restructuring as a means to remove problematic employees.
Why Restructure?
Before delving into the risks, it’s important to understand why businesses choose to restructure. Common reasons include:
- Cost reduction through workforce downsizing
- Improving operational efficiency by realigning roles or departments
- Adapting to market changes or evolving technology
- Addressing financial pressures or underperformance
While restructuring is often necessary, businesses must navigate the process with care to avoid unintended consequences, including legal claims or damage to employee morale.
Legal and Consultation Risks: The Importance of Compliance
In Australia, consultation is a legal requirement during restructuring, particularly when redundancies or significant changes to employees’ terms and conditions are involved. Failure to comply with these obligations can expose a business to significant legal risks, including claims for unfair dismissal, breach of contract, or failure to comply with modern awards or enterprise agreements.
Consultation Requirements Under the Fair Work Act
The Fair Work Act 2009 stipulates that employers must consult with employees and their representatives if any proposed changes are likely to affect their employment. This includes, but is not limited to, redundancies, changes to work hours, or job reassignments. Here’s what consultation should involve:
- Adequate notice of proposed changes: Employees must be informed of the proposed changes in sufficient time to allow meaningful consultation.
- Genuine consideration of feedback: Employers must actively listen to any concerns or suggestions employees raise and make reasonable attempts to address them.
- Documenting the consultation process: It’s important to maintain records of the consultation, demonstrating that the process has been followed in good faith.
Failure to consult in accordance with the Fair Work Act can lead to unfair dismissal claims if the changes result in redundancies or significant adverse impacts on employees. For businesses with an existing enterprise bargaining agreement (EBA) or modern award, consultation requirements may be more stringent.
Consequences of Failing to Consult
The consequences of failing to consult properly during restructuring can be severe:
- Unfair dismissal claims: Employees who feel they were not properly consulted may file claims with the Fair Work Commission (FWC).
- Legal liabilities: Employers could be found in breach of their obligations under the Fair Work Act, resulting in compensation payouts or reinstatement orders.
- Negative reputational impact: Failure to consult can damage a company’s reputation, making it harder to attract and retain talent in the future.
For these reasons, it’s critical for businesses to not only comply with consultation requirements but to do so transparently and in good faith.
The Risk of Using Restructuring to Remove Problematic Employees
One of the most significant risks associated with restructuring is the temptation to use it as a means to remove problematic employees. While this may seem like an easy solution, businesses must be aware of the potential legal and operational risks involved.
Legally Questionable Dismissals
In some cases, businesses may attempt to restructure in a way that targets specific employees who are underperforming or have raised issues such as grievances or complaints. This can lead to claims of unfair dismissal, particularly if the employee’s removal appears to be a pretext for addressing personal or performance-related issues.
If an employee can demonstrate that their dismissal was not a genuine redundancy or was part of a restructuring that disproportionately targeted them, they may have grounds to file a claim with the Fair Work Commission.
The Risk of Constructive Dismissal Claims
Using restructuring to sidestep performance management procedures is risky. Australian employment law requires employers to follow a fair and consistent process for performance management, which includes:
- Documenting performance issues and providing feedback
- Offering opportunities for improvement, such as training or additional support
- Giving the employee a chance to respond before any drastic action is taken
By bypassing these steps and attempting to remove an employee under the guise of a restructure, a business risks making a performance-based dismissal claim that could be deemed unfair. If the employee’s performance issues weren’t properly documented or if they weren’t given a fair opportunity to improve, the dismissal may be ruled invalid.
Failure to Address Performance Issues Properly
Using restructuring to sidestep performance management procedures is risky. Australian employment law requires employers to follow a fair and consistent process for performance management, which includes:
- Documenting performance issues and providing feedback
- Offering opportunities for improvement, such as training or additional support
- Giving the employee a chance to respond before any drastic action is taken
By bypassing these steps and attempting to remove an employee under the guise of a restructure, a business risks making a performance-based dismissal claim that could be deemed unfair. If the employee’s performance issues weren’t properly documented or if they weren’t given a fair opportunity to improve, the dismissal may be ruled invalid.
Case Study: The Costly Mistake of Restructuring to Remove a Problematic Employee (Fictional Example)
Please note: The following case study is purely fictional and is used for illustrative purposes only. Any resemblance to real companies or individuals is purely coincidental.
Case Study: XYZ Manufacturing
In one example, XYZ Manufacturing, a mid-sized manufacturing company in Australia, decided to restructure its operations due to declining sales. The restructure involved merging several departments and eliminating some roles deemed “redundant.” However, a key element of the restructure was the elimination of a senior manager, Greg, who had been underperforming for months. While Greg’s role was formally labelled as redundant, many employees saw the move as a way to remove Greg for performance reasons, rather than a genuine restructure.
Despite the company’s efforts to frame the redundancy as part of the restructuring, Greg filed an unfair dismissal claim, arguing that his dismissal was not genuine but rather a pretext to remove him due to performance issues. The Fair Work Commission found in Greg’s favour, noting that the company had not followed proper performance management procedures and had not given him an opportunity to improve. XYZ Manufacturing was ordered to pay Greg substantial compensation, and the company’s reputation took a significant hit.
This case serves as a reminder that using restructuring to sidestep proper performance management processes can backfire, resulting in costly legal battles and reputational damage.
Managing the Risks of Restructuring
Given the significant risks involved in restructuring, it’s essential that businesses manage the process strategically. Here are a few key steps to mitigate risks:
- Consultation is Non-Negotiable: Ensure that you follow the consultation process as required by the Fair Work Act and any applicable EBA or modern awards. This means providing employees with adequate notice, genuinely considering their feedback, and documenting the entire process.
- Avoid Using Restructuring to Target Individuals: If you’re considering restructuring, ensure that it is done for legitimate business reasons and not as a tool for targeting problematic employees. Proper performance management processes should be used for addressing individual performance issues.
- Ensure Redundancies Are Genuine: If the restructure involves redundancies, ensure that the role is genuinely redundant. This means that there is no longer a need for the role within the company, and the dismissal is not related to personal performance or other non-business reasons.
- Seek Legal Advice: Before proceeding with any restructure, it’s highly advisable to consult with an employment lawyer or ER specialist. They can help ensure that your actions are legally sound and can provide guidance on how to manage the process efficiently.
Final Thoughts
Workplace restructuring can be an effective strategy for improving business performance, but it carries significant risks, particularly when it comes to legal compliance and employee relations. For businesses in Australia, understanding the strict consultation requirements and ensuring that the restructure is done for legitimate business reasons is crucial. Avoid using restructuring as a way to sidestep performance management issues, as this can lead to legal claims and damage to the company’s reputation.
By following the correct procedures, consulting with employees, and seeking expert advice, business owners, managers, and HR professionals can mitigate the risks of restructuring and ensure a smoother transition for both the company and its employees.
If you need further advice, please contact David Haydon mob 0409400118 or email dhaydon@erfocus.com.au
Disclaimer
This blog is for informational purposes only and does not constitute legal advice. If you are considering restructuring your business, it is recommended that you consult with an experienced HR professional or employment lawyer to ensure compliance with relevant laws and mitigate the associated risks.