Redundancy: Do the decent – and legal – thing

If downsizing becomes more common, redundancies are sure to follow. LEON GETTLER profiles how to conduct, and structure, the ideal redundancy.

By Leon Gettler

The rules of redundancy

If downsizing becomes more common, redundancies are sure to follow. We profile how to conduct, and structure, the ideal redundancy.

As the economic downturn bites, redundancies are becoming increasingly common. Starbucks, Don Smallgoods and Qantas are among the companies to cut staff numbers just in the last two months.

Outplacement specialists say they are extremely busy and are expecting more business to come in. With sectors of the economy, such as finance, property and retail sales, now vulnerable to interest-rate pressures and the global credit crunch, more jobs could be lost as companies batten down the hatches to ride out the storm.

But sacking is never easy – for the employee or the manager. While retrenchments are now a fact of life, they need to be handled with care; understanding the sensitivities, legalities and ethics of redundancies is not an easy task.

However, there are some basic rules that need to be followed.

To minimise fallout, the discussion with the employee needs to be handled on a business-like basis. No emotions, no recriminations and no references to performance issues in the past, if they are not relevant.

Departure dates need to be set and packages organised. There is no legal obligation to provide outplacement services or financial counselling, but doing so is regarded as good practice.

Remaining staff need to be informed of the developments. In a smaller company, this can be done by having a meeting, and in larger organisations by email.

The person leaving should be given the opportunity to have a farewell, particularly if they have spent years at the organisation. If nothing else, that provides closure.

Redundancies are either the result of performance issues, or an organisational restructuring. It is not uncommon for a new managing director to come in and for half the senior staff to suddenly learn that they have either been moved or made redundant.

Peter Cook, a director at boutique outplacement agency Macfarlan Lane says: “Senior people bring in people who are trusted. Quite often, there is nothing wrong, but now they are talking about taking the organisation in a different direction.”

So how much time does one allow the person to stay on once they have been made redundant?

It depends on the circumstances. Some companies require the employee to leave at the end of the week while others require the employee to work longer for handover purposes. Where there are security concerns, the employee might be required to leave straight away.

But Jannine Fraser, a director of career transition specialist Directioneeering, says requiring the employee to leave immediately sends out a punitive and unnecessary message.

“The number of people who do something inappropriate during the workout period is miniscule,” Fraser says. “But then, there can be too long a workout. If it’s three months, it can be too long and that can be demoralising. There has to be some middle ground.”

Managers must prepare properly

For managers, doing the deed properly requires work and training. “It’s important the message is clear and transparent right across the board,” Fraser says. “The organisation needs to be specific about the reasons for reducing staff numbers and that has to be prepared. You can’t elect to do it on a Wednesday and roll it out on a Friday.”

She says this meant it was more important to talk about restructuring, and not downsizing. “Restructuring is now a permanent fixture on the business landscape, for businesses to remain competitive in a global market. Cost cutting should be about rebuilding, refocusing and consolidation.”

There are good reasons for this. Talk of cost cutting is unlikely to impress customers who would be concerned about reduced services. It is also likely to alienate employees who would be concerned about increases in their already impossible workloads, not to mention fears about their own future. And shareholders would be miffed about something that seems to be done in isolation without any thought to strategy.

Making people redundant can also be hard for managers. But Fraser says it cannot, and should not, be avoided.

“We have plenary sessions for clients before, and preferably they are nervous when they have to do it. I always get worried when I hear someone say ‘I have done this thousands of times and this is just another one’.

“A degree of sleeplessness the night before is a recognition of the fact that this is an important thing to do. Not being slick is important.”

The risks of doing it badly are manifold. There is damage to the brand, particularly if many are being retrenched and details leak out to the market and media. There is also the impact on those who remain. Whenever there are mass retrenchments, the remaining employees will start looking at employment ads online or in newspapers.

Badly managed redundancies can end up leaving management unfocused and distracted. And it can be expensive.

“The bottom line is there is less chance of litigation by an employee – this is minimised if the person is allowed to leave with dignity,’’ Macfarlan Lane’s Cook says. “Whether it’s about performance or cost cutting, it’s a fairly serious conversation that needs to be placed on a commercial footing.”

He says management has to be in full agreement about how it is handled. “Being transparent is really important… the story needs to be consistent.”

What the law says

Gareth Jolly, a partner at Minter Ellison, says the legal obligations are clear. The main consideration is not unlawfully discriminating against a staff member by, for example, selecting an employee for redundancy because of race, sex, disability, age, and whether they are a member of a union or not.

That also means avoiding indirect discrimination. For example, a company might have started employing more women in recent years. But if it brings in a “last in, first off” policy, it could be deemed as indirect discrimination against women. Companies also need to comply with obligations under any industrial instrument, such as an enterprise agreement. This is particularly important if the agreement has provisions around redundancy such as calling for volunteers first.

Many employees, apart from casuals, will be entitled to a severance payment based on their years of employment. There are different scales under different state awards. Under the existing federal scale for severance pay, which is in most federal industrial awards, people who have worked for at least one year and less than two are entitled to leave with a package of four weeks pay. Those who have been with the organisation for 10 years and over are entitled to 12 weeks.

These rules, however, are subject to change, and in a few months time all workers might be entitled to a minimum payout by law.

“Severance pay is not a universal entitlement, at least at the moment,” Jolly says. “However, the ALP is proposing to introduce a more or less universal standard from 1 January 2010 based on the federal standard.”

A badly handled redundancy process runs the risk of court action.

“As a consequence of WorkChoices, it is more difficult, but not impossible, for an employee to challenge their redundancy on the basis that they have been unfairly selected,” Jolly says.

Protecting the company’s intellectual property, he says, might require the employee to leave immediately, and have their access to computer systems suspended. As a matter of course, the employee should return everything belonging to the company, including copies and sign an undertaking that they have done so.

“In some circumstances, you may wish to examine employees’ emails or computers to ensure nothing has been taken, but you should seek legal advice before doing this,” Jolly says. “You should also ensure the employee’s computer is not put back into circulation or wiped by your IT section, as this could destroy valuable evidence.

“The best IP protections are, however, set up well in advance with properly drafted contracts, including post employment restraints of trade, and policies including confidential information and information technology policies.”


Read more on redundancy



Notify of
Inline Feedbacks
View all comments
SmartCompany Plus

Sign in

To connect a sign in method the email must match the one on your SmartCompany Plus account.
Or use your email
Forgot your password?

Want some assistance?

Contact us on: or call the hotline: +61 (03) 8623 9900.