How to Reduce the Cost of Redundancies during the COVID-19 Pandemic
It is no longer a shock to hear that the Australian economy is in recession or that unemployment is on the rise. Regardless of how much a business may have tried to ensure the employment status of their workforce, difficult decisions will likely need to be made in a variety of industries due to the downturn of business from the Covid-19 pandemic.
Termination of employment, workplace restructuring and redundancies will inevitably be on the rise across Australia as businesses struggle for ways to cut down on costs. If you have been thinking of making your employees redundant to save money, then you must execute due process to avoid further financial hardship. Now, more than ever, it is essential that all business cross their T’s and dot their I’s with regards to the proper process when making employees redundant.
Redundancy Management
There are many challenges posed by the pandemic and public and private sector alike are scrambling to make sense of the changing circumstances. Even if you are a small business, don’t think that you are automatically immune to the ramifications of workplace grievances. Assisting employees through the redundancy process, identifying new employment opportunities and progressing forward positively makes for sound financial and ethical advice.
For many businesses, the justification for redundancy is strong. A business might be in a perpetually extended state of hibernation, or looking towards a dismal cashflow, at least for the next two quarters of 2020. The rationalization for redundancy may be overtly obvious; however, the test for businesses is now on how to implement these employment changes. Furthermore, it is a requirement of the employers to ensure that an employee’s wages, and all other entitlements, are paid within seven days from the end date of their employment.
This situation is even more pressing as the impact of Covid-19 on the economy, and an increasingly bleak forecast of alternative employment, looms over those employees that are being made redundant. This is a position which has not been lost on current legislature; a fact that we will likely see more of in the coming months as new precedents are set with regards to redundancy payments.
Mitigating Redundancy Costs
An employee is almost always entitled to receive redundancy pay from their employer when made redundant as specified in the Fair Work Act 2009.
However, it is important to note that an employer can apply to the Commission to have the amount of redundancy required to be paid under the Act reduced if:
- • the employer finds acceptable, alternative employment for the employee; or
- • the employer can showcase that they are unable to afford the full redundancy payable.
The Commission has the final say in determining whether or not any of the redundancy pay will be reduced and this figure can get down to zero. In the case of Mason Architectural Joinery Pty Ltd [2020] FWC 1897 (Mason), the employer was not required to pay the entitled seven weeks of redundancy pay due to the current financial constraints on the company stemming from a loss of contracts during the Covid-19 pandemic. Furthermore, because the employees managed to find alternative, and higher paid, employment during their paid three weeks’ notice of termination, the previous employer was deemed not liable to pay for redundancy.
However, redundancy payments certainly do not always work out in favour of the employer and though the current Covid-19 pandemic is relatively new and current in our thoughts, legal precedents are being made all of the time. In the case of Tran v Macquarie University (no 2) [2019] FCCA 2049, it was mentioned, however briefly, that the current employment forecast shed little prospect of the employee finding equitable, alternative employment and was factored into the $270,000 awarded for future economic loss of the over $650,000 total award payment that was deemed fit.
Any employer that is looking to apply for a reduction in the financial obligations due to their employees will need to have crystal clear documentation about their poor financial situation, and that they have made every effort to find the employees alternative employment. Engaging in consultation with employees is an integral step and one which Human Resource Services can be of assistance.
Times are difficult for many people right now and spending any of a company’s limited pool of available funds on consultants may seem like a pipedream. However, as we have shown above, the ramifications of poor due process can lead to much larger financial hardships on a business.
Outplacement Services
Making employees redundant is never a welcomed task and can be stressful for all involved. This process can be even more emotionally taxing in a smaller business in which employees can often feel like family; however, the law will not take any slip in due process lightly. Conversely, investing in how your business manages redundancies, supporting workers during the redundancy process and managing the aftermath can have positive financial and motivational impacts while also minimising any unforeseen risks to your bank balance, your brand reputation and the morale of your employees.
If you need additional help or advice concerning redundancies, termination of employment, or outplacement services feel free to give Human Resource Services Pty Ltd a call on 07 5530 1571 for an initial free chat.
