Legal considerations for mass layoffs

Redundancy 'should be about the role, not the employee'

Legal considerations for mass layoffs

Amazon, Google and Microsoft have started the trend of mass layoffs, which is expected to continue amongst employers in 2023, as the world suffers from a shrinking global economy and rising inflation.

Australia is not immune to mass redundancies, with many companies reliant on international business and a continually growing economic market to survive.

But most companies are legally obliged to undertake consultations with employees before the decision is implemented — not just show them the door with no warning.

In January, Twitter shuttered its local office in Australia, as it sacks the remaining staff members as part of CEO Elon Musk's widespread layoffs.

Legal considerations

“Announcing redundancies suggests that the decision to proceed has already been taken, whereas in many instances, an employer is legally obliged to undertake consultation with the workforce or affected employees,” Robin Young, partner – workplace relations – Holman Webb Lawyers, said. “No announcement should ever be made without first undertaking appropriate or necessary consultation.”

When a decision has been made to make a change to the workforce, it is crucial to understand the legal obligations surrounding the implementation of that change, he said.

“Those obligations may exist in modern awards, enterprise agreements, employment contracts or organisational policies and procedures.”

Employers should carefully consider the implications of such a change, including timeframes, Young said. 

“This may also include factors such as the reasons for the change [and the] existence of alternatives to change/redundancy such as re-training or redeployment,” he said.

“Employers should also factor in the nature and variety of the roles which are affected, how many employees may be affected, and the possibility of voluntary redundancies.”

Similarly, employers should consider the potential cost of redundancy, said Young, such as the remuneration levels and length of service of those likely to be impacted, “and all contractual and statutory entitlements such as notice, leave payable upon termination, and statutory redundancy pay.”

Recently, the issue of dismissal was resolved when an Australian employer claimed redundancy as a defence.

Care in communication is also advised.

“Employers should be wary of the potential for workforce disharmony and disputes, as well as the need to carefully consider the language and means of communication used,” said Young, with some favouring a townhall-style meeting, while others prefer individual, face-to-face meetings or remote ones.

“Communications in writing should be made using carefully worded, compliant and sensitive correspondence, having regard to the potential for loss of staff livelihood,” he said.

Employee rights

Most employees in Australia are covered by the Fair Work Act 2009 which includes the National Employment Standard (NES). 

The NES includes the entitlement to redundancy pay as well as other legal obligations concerning genuine redundancy, which is relevant to whether a redundancy may be relied upon as a defence to an unfair dismissal claim. 

“Additionally, depending upon the industry in which the employer operates, and the roles performed, some — or all — staff may be covered by an industrial instrument such as a modern award or an EA.  In most cases, these will impose consultation obligations,” said Young.

“In addition, award and non-award staff may be subject to organisational policies which could impose rules concerning redundancy and consultation.  These may be contractually enforceable by the employee.”

Can an employer re-advertise a job?

Employers need to be very careful with regards to making a role redundant to get rid of a troublesome employee. This could result in an investigation by a government body or even court action by the employee.

“Redundancy means that an employer has made a definite decision that it no longer requires a role to be performed by anyone,” Young said.  “Therefore, the redundancy is about the role, not the employee. It may also be that the duties, as distinct from the role, are still required to be performed in some other way, such as by restructuring other existing roles.”

A role may not be required, but the duties that made up that role could be reallocated or outsourced, he said.

“Accordingly, readvertising the role would be contrary to such a decision and this may attract the attention of an aggrieved employee, the Fair Work Ombudsman or the ATO [Australian Tax Office], as redundancy may have tax advantages leading to the possibility of redundancy being improperly used as a means of avoiding tax.”

Circumstances often change after a redundancy, said Young — such as an ineffective role restructure, a resignation, or the needs of the business change — so it may be reasonable to reassess (within a reasonable period) the requirements of the business. 

“If that is the case, and the role is genuinely required to be performed again, it is possible that an employer’s decision may be scrutinised by a court or regulator, leading to unfavourable investigations, findings and even legal action (as well as the imposition of penalties),” he said.

“An employer should always ensure that it is able to justify such a decision on reasonable business grounds, as a finding of sham arrangements will be damaging to a business in many ways.”

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