Rising restructuring activity is catching businesses out – here's what HR leaders need to know
As redundancy activity surges across Australia, employment lawyers are warning that many businesses are still getting the legal process dangerously wrong – exposing themselves to unfair dismissal claims, civil penalties, and in serious cases, uncapped compensation under the Fair Work Act 2009.
LegalVision, a commercial law firm operating across Australia, has recorded a 20–30% increase in redundancy and restructuring enquiries over the past 12 months. Joel Hayden, employment practice group leader at LegalVision in Australia, says the rise is being driven by cost pressures in construction, retail, and technology – with AI beginning to feature in a growing minority of cases.
"Around one in five clients now raise automation or efficiency tools as part of broader restructuring decisions," Hayden said. "Whilst AI is coming up in a growing number of discussions, it still represents a minority of cases. Most restructures are still driven by cost and efficiency rather than full automation."
The most common mistakes
Despite the volume of restructuring activity, Hayden says the errors employers make are consistent and avoidable.
"The most common mistake is treating redundancy as a quick cost-cutting exercise rather than a structured legal process," he said. "We often see employers deciding on the individual first, then trying to justify the role as redundant afterwards, which exposes them to unfair dismissal claims."
Poor selection processes present another significant risk. Businesses that rely on informal or subjective criteria when choosing which roles to cut open themselves to discrimination claims. Failing to genuinely consult employees, particularly where an award or enterprise agreement applies, is also a persistent problem.
"In practice, disputes often arise not because a role was unnecessary, but because the process was rushed, inconsistent or poorly documented," Hayden said.
A widespread misconception compounds the issue. Many employers believe redundancy is simply a matter of paying someone out. Under the Fair Work Act, the legal focus is firmly on process: demonstrating a role is genuinely no longer required, meeting consultation and redeployment obligations, and maintaining clear records throughout.
What the law requires
To remain compliant, employers must ensure redundancies are based on genuine operational requirements – not individual performance. Affected employees must be consulted, given real opportunity to respond, and offered redeployment into suitable alternative roles within the business or associated entities where possible.
Notice periods and redundancy pay entitlements under the Fair Work Act must be met in full. In practice, Hayden emphasises that compliance comes down to documentation.
"Compliance comes down to documenting each step clearly and ensuring decisions are based on business needs, not individual performance or convenience," he said.
For HR leaders navigating workforce restructuring across Australian industries, understanding the full scope of these obligations is critical. HRD Australia has previously covered the legal risks facing HR teams during organisational change, as well as how leading organisations are managing workforce transformation strategies and responding to the impact of AI on headcount decisions.
The consequences of getting it wrong
The risks of a flawed process extend well beyond a single unfair dismissal claim. The Fair Work Commission can order reinstatement or award compensation – typically capped at six months' pay for unfair dismissal. But where consultation obligations are breached, civil penalties under the Fair Work Act also apply.
More seriously, adverse action or discrimination claims carry uncapped compensation and can result in substantial awards, prolonged litigation, and significant management time.
Hayden warns that what should be a straightforward restructure can quickly escalate.
"We have seen cases escalate from what should have been a straightforward restructure into complex litigation involving claims of discrimination or retaliation," he said.
"In some situations, businesses have also faced multiple claims from affected employees where the same flawed process was applied across a team. The underlying issue is usually the same: decisions made quickly, without a structured and defensible process."
With restructuring showing no signs of slowing, Hayden recommends HR leaders treat every redundancy process as a legal exercise from the outset. Key steps include:
- Basing redundancies on genuine operational requirements, not individual performance
- Following a clear and documented consultation process where required
- Actively considering redeployment before final decisions are made
- Using fair, objective, and consistent selection criteria
- Maintaining records that evidence each step of the decision-making process
The Fair Work Commission's guidance on genuine redundancy is available at fairwork.gov.au, alongside the Safe Work Australia framework for managing change in the workplace at safeworkaustralia.gov.au.
