Non Compete Clause
What is a Non Compete Clause?
A non compete clause is a clause in a contract. These clauses aim to prevent a person from carrying out competing activities against another business. A contract may refer to
Employers that restructure their business need to consider possible redundancies and the implications of any transfer instrument under the Fair Work Act.
Restructuring a workforce or terminating employees raises various issues in dealing with employees. These issues include contractual obligations, legal liabilities, and the minefield of implications resulting from policies and procedures (or lack thereof) put in place by many businesses.
In this article, Farrah Motley, an experienced employment lawyer and the Director at Prosper Law, explains five things employers must consider when restructuring a business.
First, it’s important to understand what restructuring a business actually is.
Business restructuring is a strategy by which management changes the direction of its business to remain competitive. In many cases, restructuring involves staff reductions.
The business may dismiss employees, eliminate departments, or close some of its offices or retail locations. It may also involve a business changing ABN or selling the business.
Some businesses also try to outsource certain activities to save money. In other cases, restructuring may involve reassignment or changing tasks within the company to improve performance or the introduction of new technology.
Like anything, business restructuring has its advantages and disadvantages. However, the impact of the disadvantages can be minimised by effective communication.
The transfer of business provisions under the Fair Work Act 2009 deal with situations where an employee is transferred from one employer to another.
This may result in the transfer of an award, agreement, or another type of “transferable instrument”. If so, the transferable instrument may become binding on the new employer.
When an employer buys or sells a business, the sale may affect the employment and entitlements of employees already working for the business.
A transfer of business within the meaning of the Fair Work Act 2009 takes place if the following conditions are met:
The first employment issue that may arise in business restructuring is whether the company is required to consult with its employees about the proposed changes. Subject to any award-specific issues, Modern Awards contain a standard consultation clause.
This clause requires the employer to consult with employees and their representatives when the employer intends to make a major change in the workplace.
Failure to comply with a clause in a Modern Award violates a civil provision of the Fair Work Act, which may result in fines.
In cases where Modern Awards do not apply, the industrial instruments may include consultation and information requirements.
Enterprise agreements must consist of a “consultation term”. This requires the employer to consult with employees in the event of major changes in the workplace. This is particularly important if the changes may have “significant effects” on employees and allows employees to be represented during such consultation.
As such, any form of proposed restructuring would trigger the consultation requirement. This includes the sale of a business unit or the outsourcing of a function. This is because it is likely to result in changes to the composition, operation, or size of the employer’s workforce. In addition, any reduction in the workforce is also expected to fall under these provisions, as it will inevitably result in the termination of the employees’ employment.
The requirement to consult should not just be seen as a step in the process. Instead, consultation should occur throughout the process and not a “tick-box” to implement the restructuring. Employers must consult with employees early in the decision-making process and after a decision to restructure has been made. In fact, consultation should occur before specific employees are selected for redundancy.
Under the standard award and model consultation clauses in the labour-management agreement, the employer must provide the affected employees and their representatives with certain information. This includes the following in writing:
The Fair Work Act 2009 also contains provisions requiring an employer to notify and consult with the relevant workers’ association if the employer proposes to terminate the employment of more than 15 workers for economic, technological, structural or similar reasons (or for reasons that include them).
The Fair Work Commission may issue an order if the employer fails to comply with this notice and consultation requirement and if the employer reasonably should have known at the time of the decision that one or more of the employees are members of a registered labour organisation.
In this case, the Federal Court ordered QR National to comply with its obligations to consult under an enterprise agreement before responding to its employees’ expressions of interest for voluntary redundancy.
In June 2012, QR National announced its plan to cut more than 500 jobs as part of its restructuring. The ASX announcement said QR National would launch a consultation with employees and unions and call for expressions of interest in voluntarily leaving the company. The AMWU and ETU initiated disputes over QR National’s consultation obligations under six enterprise agreements. They asked the FWA to ensure that QR National complied with those obligations before making decisions on the expressions of interest.
In addition to ordering QR National to comply with its consultation obligations, the court ordered QR National to:
QR National was fined $249,600 in 2010 for failing to conduct consultations in accordance with its enterprise agreements as part of the privatisation of some of its operations.
In most cases, the employer will have to terminate its employees, including those retained by the new employer, based on the terms of the sale, applicable legislation, and industrial instruments. The termination of employment potentially raises several important issues, including:
Note that some of these issues do not apply if the new employer agrees or is obligated to recognise the continued employment of the transferring employees.
An employer who decides to lay off 15 or more employees for economic, technological, structural, or similar reasons, must give written notice to the CEO of the Commonwealth Services Delivery Agency (Centrelink) in writing of the proposed layoffs.
The notice must be in the form described in Sch 3.4 of the Fair Work Regulations 2009 (Cth) and must include the following information:
The notice must be given as soon as possible after the decision is made but before the employees are dismissed. The dismissal of an employee in breach of this provision is subject to civil remedy.
A genuine redundancy means the dismissal of an employee by the employer because he no longer needs the position in question. An employee’s job must become redundant due to a change in the employer’s operational needs otherwise, it would not be a genuine redundancy.
If an employee’s job has actually been lost due to redundancy, the employee is entitled to redundancy severance pay (also called genuine redundancy payment). Redundancy entitlements (including redundancy pay or consultation) arise from applicable legislation, modern award, enterprise agreement or the employment contract (including any contractually binding policies).
In situations where the employee is entitled to severance pay (or a redundancy entitlement), the employer should generally pay it to him or her at the end of work or on the next regular payday. This depends on the pay cycle of the business.
In this 2012 Fair Work (FW) decision, an employee who rejected an offer of employment as part of a transfer of business was entitled to redundancy pay from the old employer. This was because the offer did not recognise the employee’s length of service for the qualifying period for an unfair dismissal claim.
The FW found that job security was a fundamental term of the employment relationship that made the offer less favourable overall.
The case involved a proposed business transfer from Calvert Manor Pty Ltd (Calvert Manor) to Lasting Changes Pty Ltd (Lasting Changes).
Calvert Manor’s enterprise agreement (Agreement) provided that no severance pay was owed to an employee who rejected an offer of employment with a new employer whose “terms and conditions were substantially similar to and no less favourable” than the terms and conditions of their prior employment with Calvert Manor.
Ms Sodoma, a part-time personal care attendant, was offered employment with Lasting Changes on the “terms and conditions outlined in the agreement.” However, Lasting Changes’ terms and conditions of employment also stated that Ms Sodoma’s prior employment with Calvert Manor would not be recognised in the event of unfair dismissal and that a new six-month notice period would apply.
Ms Sodoma rejected the offer of employment, arguing that the inclusion of the new minimum notice period in Lasting Changes’ offer of employment entitled her to redundancy pay because the offer was not “substantially similar and no less favourable” than her prior employment.
FW held that although the new job at Lasting Changes was substantially similar in classification and pay to her job at Calvert Manor, the loss of job security made the job “substantially different” and she was entitled to redundancy pay.
Employees are the heart of any business, and keeping secrets leads to rumours that can cause employees to leave the company. That’s why communication is essential, and employers must ensure to effectively communicate with their employees during the restructuring process.
Let’s now discuss several things the employers must while communicating the restructuring process:
Leaders are often involved in creating and building new organisational strategies and already have had time to adjust to the new change. Still, employees often have not been given the time to consider, learn about and adapt to those changes. Therefore, you must give time to employees to consider, learn about and adapt to the changes.
If an employee asks, “Are we going to restructure or lay off staff?”, be honest. This is particularly so if you know you may have to in the future. You may be surprised how many people appreciate honesty and how quickly it can get the rumour mill boiling.
Identify three categories of people who can participate in the workplace change journey, depending on the change processes and where they work: Expedition Designers, Guides (often managers), and Travelers. Make sure your HR leadership team includes a mix of all.
The HR leaders should focus on helping employees understand what is behind the company’s business decisions, explaining that the decisions are not personal, and communicating that the company recognises and values the emotional impact of these individuals.
If the employer intends to terminate an employee after a consultation period, the employer should send a letter of reduction-in-force (RIF). The letter should do the following:
Breaking the news of a business restructuring is one of the most difficult tasks employers face. With proper planning and preparation, employers can handle this process calmly and gracefully.
Follow these steps to effectively manage the business restructuring process:
Reduction of operating costs
When a company is downsized during restructuring, its operational costs can decrease. For example, labour costs will be lower if the company lays off some of its employees. Similarly, outsourced operations are usually less expensive than in-house labour.
Better communication and decision-making
When a company removes several layers of management as part of its restructuring, communication and decision-making often improve.
Increases operational efficiency
Restructuring a business can be an opportunity to introduce new technologies so that the company can increase its operational efficiency.
It may be better to focus on the financial health of the company rather than outsourcing when implementing a communication plan for restructuring the business. Transparency is important. But focus on what is driving the restructure rather than celebrating the benefits of doing so.
Employers must also know what they should avoid during business restructuring communication.
Items to avoid in business restructuring communications to employees include:
Under the Fair Work Act 2009, a transferable instrument includes an enterprise agreement, a workplace determination that is made under Part 2-5 of the Fair Work Act, a named employer award or a transitional instrument within the meaning of the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009 (Cth).
Transitional instruments can also include collective agreements, preserved individual or collective state agreements, Australian Workplace Agreements, individual transitional employment agreements, certified agreements made before 27 March 2006, and old industrial relations agreements.
Modern Awards that are not named employer awards are not transferable instruments. Moreover, a transferable instrument includes any individual flexibility agreement that operates as a term of a transferable instrument.
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