Running a business has never been an easy task, and for business owners in Australia, the current economic climate has added a new level of difficulty. From the ongoing impact of the COVID-19 pandemic to rising inflation and labor shortages, many Australian business owners are facing unprecedented challenges that require careful planning and strategic thinking.
Business owners may be worried about rising inflation and increased cost pressures, as these factors can lead to higher production and supply costs while customer spending power declines. This situation can result in reduced sales and profits and potentially force the business owner to downsize, which unfortunately involves terminating employees.
Although it’s never easy to let go of valued staff members, it may be necessary for the financial wellbeing of the business. However, it’s crucial for business owners to understand their obligations. And by doing so, they can take appropriate measures to downsize the business, if needed, while minimising the negative impact on employees.
What to consider when terminating staff?
If you need to scale down your business, it’s important to consider each employee’s circumstances and whether there are any alternative options before reaching the point of redundancy. With this in mind, here are some important points on what you need to know and consider when terminating employment during a business downsize or restructure.
Review the employment agreements/awards
When considering terminating a staff member, it is crucial to review the agreements or awards that govern their employment. These refer to the minimum terms of employment within a specific industry or occupation, like wages, penalty rates and leave entitlements.
Also, during a downsize, awards provide consultation obligations with which you must comply when considering organisational changes that may impact employees. In some cases you will be required to notify the applicable union. Reviewing this ensures the employer understands what their obligations are during any operational change, including obligations to consult.
Alongside this, ensure that all communications are sent in writing. Consultation meetings (which should occur regardless of whether there is an applicable award) to take the employee(s) feedback about the changes and any redeployment opportunities, should be followed with an email to the employee confirming the matters discussed in the meeting.
Consider alternative positions before termination
Before deciding to terminate an employee, you must consider if there are any alternative positions into which the employee could be redeployed to avoid having to terminate their employment. When considering alternative positions, ensure you consult with the employee to see if they have alternatives in mind that they would like to consider or discuss.
Understand employee’s entitlements
When terminating employees, legal issues may arise surrounding their entitlements. Thus, before making the decision, ensure that it is a genuine redundancy according to the law.
A redundancy occurs where the role being performed by the employee is no longer required by the employer to be performed by anyone. This can include where the responsibilities that comprise the position are broken up and redistributed to other employees within the firm. It is vital that you understand the employee’s entitlements when terminating for redundancy.
For businesses that employ fewer than 15 employees, the small business exception may apply to remove the obligation to make a redundancy payment. If an exception to the obligation to pay a redundancy payment applies, it is crucial to ensure that during the consultation process you explain this to the employee to manage their expectations.
In addition, this also applies to other exceptions within the business, such as where an employee has less than 12 months service with the employer, where the employee refuses redeployment and where the employer applies to the Fair Work Commission to waive the obligation to make redundancy payments because of the financial position of the employer.
Provide awareness of support services
Any organisational change that impacts, or could impact an employee’s employment is inherently stressful. For this reason, in order to protect your employees’ mental health and safety it is useful to be able to refer employees to an employee assistance program (EAP) provider. The EAP offers confidential counselling services at no cost to the employee. In summary, if you are considering organisational change, it is important that you must:
Notify impacted employees (and unions where required) of the process being undertaken, and consult with employees regarding the proposed changes and the impact that the changes may have on their employment
Remember to notify employees that they are entitled to have a support person present at consultation meetings
Consider the employee’s responses in the consultation process when reaching a final decision and do not make a final decision before you have received the employee’s responses
Notify the employee of their entitlements on redundancy, ensure that you provide a proper position description for any proposed redeployment roles, and refer employees to an EAP service for confidential counselling, and
Provide support to help manage the stress associated with the process.
Catherine Stephens is the Associate Director of Employment Law at BlueRock. BlueRock is a multidisciplinary entrepreneurial advisory firm of expert advisors that work together to support clients in operating and growing successful businesses and achieving their personal goals.