Startup Lawyer Insights: Managing Redundancies

In the business and technology world, takeovers, mergers and insolvencies are all too common. As a result, entrepreneurs and business owners may be faced with managing staff redundancies. These processes are never fun for anyone, and always come at a human cost.  

For these reasons, it is vital that tech companies plan and implement any redundancy program carefully – both to support staff who are losing their jobs, but also to avoid risk of unfair dismissal claims and risk to your organisation’s brand and reputation.

The following is a “user’s guide” to managing redundancies in the workplace and sets out a number of tips and things to remember.

1. Make sure redundancies are genuine

A classic trap for employers is to forget that it is positions that become redundant, not people. A redundancy occurs when an employer no longer desires to have a particular job performed by anyone.

Reasons for redundancy may include:

•   downturn in business;

•   restructure of company;

•   closure of a production line, site or business;

•   completion of a project;

•   outsourcing of work; or

•   the automation of processes.

2. Redundancy should not be conflated with performance management

A redundancy should not be conflated with dismissal on the grounds of misconduct or a failure to meet satisfactory performance expectations on the part of an employee.  Business operators often run into trouble if they attempt to make a person ‘redundant’, when the underlying reason for the termination is poor performance or misconduct.

If an employee is underperforming or has engaged in misconduct they need to be addressed as such.   The Fair Work Commission will entertain unfair dismissal claims notwithstanding allegations of misconduct or unsatisfactory performance in circumstances where it finds the so called ‘redundancy’ is not genuine.   For these reasons it is important to get it right.

3. Understanding your obligations under the Fair Work Act.

Prior to embarking on any change management process involving redundancies, it is imperative that business managers and employers understand their obligations.

The Fair Work Act 2009 (Cth) (“the Act”) is a major source of obligations and entitlements during the redundancy process.

Section 389 of Act provides that a person’s dismissal will be considered to be a ‘genuine’ redundancy if the employer has made a decision that it no longer requires the person’s job to be performed by anyone, due to changes in the operational requirements of the employer’s enterprise.

To be a ‘genuine’ redundancy under section 389, the employer must also comply with applicable consultation obligations which are included in a modern award or enterprise agreement governing the employment relationship.  Further, a person’s dismissal will not be considered ‘genuine’ under section 389 of the Act if it would have been reasonable in all the circumstances for the person to be redeployed within another part of the employer’s enterprise, or that of an associated entity.

The Act also makes provisions for –

• statutory redundancy pay entitlements found in the National Employment Standards (“the NES”);
• requirements that the redundancy be genuine, and that processes for redundancy and retrenchment were fair;
• requirements for mandatory consultation with employees where 15 or more employees are to be made redundant;
• general protections provisions ensuring any termination of employment is not due unlawful reasons; and
• protections for pregnant employees and those on parental leave.

The minimum amount of redundancy pay is set out in section 119(2) of the FW Act. Employees are entitled to a minimum notice period, as outlined in the table below. Note, employees over 45 who have completed at least two years of continuous service with the employer must be given an extra one week of notice.

Period of employmentNotice requirement1 year or less1 week1-3 years2 weeks3-5 years3 weeksOver 5 years4 weeks

4. Managing the redundancy process

In order to manage the process as well as possible, strong communication is key.

Managers in the tech sector – as with any other – should carefully plan and implement a communication strategy around any planned redundancy measures to ensure clear and effective communication with its employees. They need to avoid issuing mixed messages to staff, and avoid inaccurate information circulating, as this can be highly damaging and derail the redundancy process.

Responsible employers should ensure there are adequate support mechanisms available to assist during the redundancy process, which is a time when employees are likely to feel vulnerable and uncertain about their future. External providers may need to be engaged to facilitate this process.

5. Supporting the individual

If someone’s role is made redundant, best practice is for an employer to consult with affected employees before the redundancy takes effect, to explore available measures to mitigate the effect.  This may include giving consideration to retraining employees or deploying them in other roles within the business.

Where it is determined that termination of employment is unavoidable, then employers should look at steps to assist their employees transition out of the business.  This is likely to include a reference and may include referring staff to outplacement services. Importantly, employers should also consider providing staff with access to counselling and health support services to help manage this transition and resultant life change.

Final note – Get your messaging right

It is the managers and leaders on the ground who will have the most contact with impacted employees during periods of organisational restructure or change. 

Accordingly, to ensure information is delivered consistently, it is vital that line managers be kept informed as to what is happening within the business so that information flow is aligned across the organisation.

As change management processes are often outside the normal experience and expertise of tech managers, it is recommended that organisations engage expert practitioners with specialist knowledge and experience in this field to assist in implementing change and ensure the process is implemented smoothly, and with as little disruption to business activity and key areas of focus.

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