5 Things Employers Must Consider When Restructuring

Employers that restructure their business need to consider possible redundancies and the implications of any transfer instrument under the Fair Work Act. Restructuring a business often means restructuring the workforce. In some cases, restructuring may result in the termination of employees or the need to ensure enterprise agreements and other instruments transfer to the new employer.

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, Director at Prosper Law, explains five things employers must consider when restructuring a business.

A. What does it mean to restructure a business?

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. Effective communication is discussed in the last part of this article.

Let’s now discuss some of the advantages of restructuring a business.

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.

B. Restructuring and transferable instruments

• the employment of an employee (the “transferring employee”) of the old employer has been terminated
• within 3 months of the termination, the employee is hired by the new employer
• the work that the employee performs for the new employer (the “transferring work”) is the same or substantially the same as the work that the employee performed for the old employer
• at least one of the following links exists between the two employers:
  1. an agreement that the new employer owns or uses some or all of the assets of the old employer that relate to the transferred work;
  2. the work that the employee performs is outsourced by the old employer to the new employer;
  3. the previously outsourced work is purchased;
  4. they are related parties within the meaning of section 50AAA of the Corporations Act 2001.

However, a transfer of business within the meaning of the Fair Work Act 2009 only happens if at least one employee transfers to the new employer. The employee must also perform “transferring work” for the new employer.

Certain workplace instruments (called transferable instruments) that covered employees of the old employer continue to cover those employed by the new employer if a transfer of business has taken place. In other words, a transferable instrument is a commercial instrument that may transfer from an old employer to a new employer in a transfer of business.

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 (list available on the Fair Work Ombudsman website).
• a transitional instrument within the meaning of the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009 (Cth). Transitional instruments 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.

C. What must employers comply with the law when restructuring?

Consultation with employees

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.

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 This should allow employees to be represented during such consultation.

The following consolidated version of the clause was published in 4 yearly reviews of Modern Awards – plain language re-drafting – standard clauses:

“B. Consultation about major workplace change

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:

• all relevant information about the nature of the proposed changes
• the anticipated impact of the changes on the employees
• any other matters that may affect the employees.

The Fair Work Act 2009 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.

Communication, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v QR National Ltd

In Communication, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v QR National Ltd, the Federal Court (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:

• allow any employee who had submitted an expression of interest to withdraw it within five days of the resolution of the dispute;
• allow an employee who had not submitted an expression of interest an additional five days after the resolution of the disputes to do so; and not make a final decision regarding expressions of interest until all expressions of interest had been received.

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.

Takeaway for Employers

1. Employers must be aware of and comply with their consultation obligations under applicable awards/enterprise agreements when making significant workplace changes (including redundancies/restructuring).
2. Failure to comply with consultation obligations under such clauses is likely to result in a challenge by a trade union in a dispute before Fair Work Australia or the Court. A breach of the consultation requirement can result in a fine of up to $33,000 per breach.
3. In addition, under the Fair Work Act 2009, an employer cannot rely on the exemption from unfair dismissal for a ‘genuine redundancy’ unless it complies with the consultation requirements in a modern award or enterprise agreement.

Termination of employment

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:

1. redundancy entitlements
2. termination provisions
3. payments on termination (including significant tax issues)
4. entitlements of executive employees and restrictions on administrative termination payments under the Corporations Act 2001
5. Superannuation

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.

Entitlements

Under the Fair Work Act 2009, employers are not required to inform employees of a business transfer or which workplace instrument will apply. However, employers must give each new employee a copy of the Fair Work Information Statement before or as soon as possible after starting their new job. The Statement explains how a transfer of employment will affect the employee’s entitlements. Casual employees must also receive the Casual Employment Information Statement.

Generally, in a transfer of business, service with the old employer counts as service with the new employer. However, there are exceptions to this general principle. If the new employer is not an associated entity of the old employer, it may decide not to recognise the transferring employee’s accrued service time for annual leave or redundancy pay under the National Employment Standards (NES).

However, if the length of service is not recognised, the old employer may be obliged to pay the affected employees their accrued entitlements (e.g., annual leave or redundancy).

Centrelink

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 reasons for the dismissal;
• the number and categories of employees likely to be affected; and
• the date or period during which the dismissals are to be implemented.

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.

D. When is an employee entitled to redundancy in a restructuring scenario?

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.

The FWA 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.

FWA 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.

Key takeaways for Employers

1. Under the National Employment Standards, there is an exception to the obligation to pay redundancy pay in a transfer of employment if the employee rejects an offer of employment on substantially similar terms that are no less favourable overall, and the employee’s prior service is recognized as at least to calculate redundancy pay.
2. A similar exception may exist with redundancy pay under an enterprise agreement or modern award. However, such an exception may require recognition of service for all purposes, not just redundancy.
3. Unless the transfer is between associated entities, the law FW allows the new employer not to recognise prior service for certain purposes, including the waiting period for unfair dismissal (six months for an employer with 15 or more employees).
4. However, suppose that the new employer does not recognise service for unfair dismissal. In this case, the old employer will probably have to pay redundancy if the employee rejects an offer from the new employer, even if the other conditions are the same.

E. How to Communicate the Restructuring Process

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.

Allow time for employees to ask questions

Give your employees time to ask questions. As the company’s CEO, make sure you know how to respond to your employees’ questions. Any doubts employees have must be clarified on the spot. Be transparent. Building transparency and trust will allow you to keep your candidate funnel full and continue to grow.

Be honest

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.

Create collaborative networks and support systems

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.

Prepare to be proactive rather than reactive

Although business restructuring is potentially tumultuous, your actions beyond downsizing will determine how quickly your company can recover and move forward. Be aware of some of the – often inconspicuous – challenges. If all members of the leadership team are prepared for the process, transparent, and comfortable speaking about it. In this case, you will avoid some consequences of poor employee communication and maintain a positive employer brand.

Similarly, employers must also know what they should avoid during business restructuring communication.

Items to avoid in business restructuring communications to employees include:

• vague or wishy-washy language.
• language that suggests blame. Avoid implying that employees could have done something differently to prevent the outcome.
• language that disregards employees’ rights or attempts to discourage them from asserting their rights.

If the employer intends to terminate an employee after a consultation period, the employer should send a letter of reduction-in-force. The letter should do the following:

1. the reason for the RIF or layoff. Be as transparent as possible. Let the employee know what steps you took to prevent this outcome and that it is not their fault that their position is being eliminated.
2. How the employee will be affected. If this is a layoff, clearly state that the employee’s position will be permanently eliminated.
3. The employee’s last day. If possible, let him know the exact date. If there is the equipment he needs to return, tell him when and how he can do so.
4. When and how the employee’s last paycheck will be paid.
5. Relevant information about employee benefits, including severance pay, paid leave, or vacation payouts, how to submit reimbursement requests, and when medical benefits will end.
6. How employees can access outplacement services. Outplacement services are an excellent way to let affected employees know that you are helping them prepare for the next phase of their careers.
7. Employees’ rights include the right to appeal the company’s decision and seek legal counsel.
8. Positive recognition of their achievements. Say “thank you” and let them know you appreciate their time and commitment.

Breaking 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:

• Assemble a team – Form a team to plan for the event.
• Hold a planning meeting – Discuss legal, ethical and organizational issues with department heads and managers.
• Create a business case – Explain the purpose of the downsizing and use this information in your communications.
• Select an outplacement provider – Meet with your provider to allocate resources, coordinate activities and ensure your provider can deliver the desired results.
• Share contact information – Share the list of affected employees with your outplacement partner, along with details about their severance package. A final list should be provided at least one week prior to notification.
• Consolidate plan – Put together severance packages and finalise plans.
• Monitor social media – Track conversations about your company and workforce actions.
• Prepare security – Keep security on-site unobtrusive during notifications, but have them ready if an employee needs to be escorted out of the building.
• Notification Training – Help managers involved in the notification process learn or review the dos and don’ts when sending messages to employees.
• Consider timing – All notifications should be delivered within a short period. Virtual notifications require additional preparation.
• Offer moral support – Make sure your EAP provider is available on the day of the notification to help affected employees with emotional issues.
• Offer career transition assistance – Make sure your outplacement partner is available on the day of notification or very soon thereafter to interview employees and enroll them in outplacement services.
• Face-to-face meetings – Managers should meet individually with each affected employee whenever possible.
• Provide resilience training – Remaining employees will be impacted by the layoff. Resilience training is important to help them stay safe, focused and productive.

How can Prosper Law help?

Prosper Law is an employment law firm with experience in providing legal advice to employees and employers. We have extensive experience in dealing with employment matters.

If you are an employee who is affected by a business restructure or an employer who wants to restructure its business without breaking any law, contact our executive employment lawyer for help.

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