Employment Redundancies: A Growing Legal Risk for Employers

Many Australian businesses continue to face difficult trading conditions. Rising operating costs, wage pressure, higher interest rates and softer consumer demand have led some employers to consider restructures, workforce reductions or redundancies as a way of reducing costs.

However, employers should be aware that dismissing an employee for redundancy is no longer simply an employment issue. Increasingly, former employees are lodging General Protections applications with the Fair Work Commission, alleging that the real reason for their dismissal was linked to a protected workplace right, illness, discrimination, a complaint they made at work, or another prohibited reason. Recent data indicates these claims have increased significantly and are placing considerable pressure on the Fair Work Commission.  

Unlike an unfair dismissal claim, General Protections claims can be brought by employees regardless of their income level and often regardless of how long they have been employed. More importantly, the legal burden can shift to the employer to demonstrate that the dismissal was not motivated by a prohibited reason. As a result, even what appears to be a genuine redundancy can become an expensive and time-consuming dispute if the process has not been properly managed. 

For this reason, we strongly recommend that any business considering redundancies, restructures or employee terminations obtain specialist employment law advice before taking action. Seeking advice early can help ensure the process is properly documented, consultation obligations are met, and the business is better protected if its decisions are challenged later.

Businesses should also review their insurance arrangements before commencing any redundancy program. Management Liability Insurance can provide invaluable protection for employment practices claims and may assist with legal defence costs and other covered exposures arising from employment-related disputes. Every policy is different and cover should be carefully reviewed, but having appropriate protection in place before issues arise can make a significant difference to the financial impact on the business.

If your organisation is considering workforce changes, or if you would like a review of your Management Liability Insurance arrangements, please contact Action Insurance Brokers. We can work with your legal advisers and assist in arranging appropriate protection to help safeguard the business and its directors during what can be a challenging process.

The cost of obtaining advice and reviewing your insurance cover before making employment decisions is often far less than the cost of defending a claim afterwards.