The job market is rapidly changing and if you need to know which way it’s heading, you need to look at redundancies and retrenchments. Retrenchments suggest the job market could be softening in some industries. But what exactly are retrenchments? How do they impact your business and industry?
In this guide for employers, we outline retrenchments, causes of retrenchments, strategies for business owners, and key factors to remember.
Retrenchment
Retrenchment describes a situation whereby a role within a business previously filled by an employee ceases to exist. Once the role is redundant, the employer can either redeploy the employee into another role or terminate their employment.
When an employee is terminated due to their role becoming redundant, this is also called retrenchment. Often, when a retrenched employee loses their job, it is through no fault of their own.
These are some common examples of employee retrenchment:
A business notices that managing and analysing its data is costly. After exploring alternative solutions, the company realises it is cheaper to outsource its data needs to an external company. Consequently, several data analysts are retrenched and lose their jobs.
A marketing agency is struggling to make a profit. If changes are not made, the company may face liquidation. The agency recently branched out into PR but is struggling to get a foothold in the industry. Management decides to downsize and revert to their earlier business model, retrenching two PR specialists.
Causes of retrenchments
The two most common causes of retrenchment are downsizing and operational changes. If a business is underperforming financially, it may need to scale back its operations and reduce overheads by retrenching some staff.
In some cases, a business may not downsize but will still restructure its workforce to make operational changes. For instance, if one of its services is in low demand, a business may make a strategic decision to discontinue that service and replace it with another. In this situation, it is common for roles involved in delivering that service to become retrenched.
Retrenchment strategies for business owners
A retrenchment strategy is the process of aggressively cutting business costs to quickly generate an increase in profitability. Retrenchment strategies are normally in the context of a failing business when management and business owners take drastic steps to save a company.
A retrenchment strategy might involve:
- Selling assets – A business that urgently needs to generate cash flow might sell assets, including equipment or company buildings.
- Abandoning markets – If a national or regional market is less profitable than others, a company may choose to stop operating in it
- Discontinuing products and services – If a particular product or service is underperforming, a business may discontinue it.
- Outsourcing – Sometimes it is more financially sustainable to outsource certain business functions, rather than perform them internally.
- Workforce restructuring – Businesses often decide which roles they can operate without and retrench any unneeded workers.
Ethical retrenchment
Sometimes in struggling businesses retrenchment is unavoidable. However, if your business is forced to retrench employees, make sure you do it ethically.
Employers who engage in socially responsible restructuring or retrenchment report increased productivity and improved trust.
A socially responsible retrenchment process will follow these simple steps:
Step 1: Use fair selection criteria to decide which positions are to be retrenched. Be sure to communicate any criteria to all staff for transparency.
Step 2: Calculate how many members of staff will be retrenched.
Step 3: If the number of retrenched workers is over 15, the Fair Work Act 2009 demands that you give formal notification to Services Australia. Services Australia will contact the Department of Education, Skills, and Employment to make them aware of the retrenchments. If the number of retrenched workers is less than 15, it is still advisable to contact Services Australia.
Step 4: The Department of Education, Skills and Employment has a transition support network that will provide employment assistance and financial advice to your retrenched workers. In some cases, Employment Services will organise a support services session to answer questions and give advice directly.
Redundancy pay
When an entrenched employee’s job is made redundant, the employer may need to meet redundancy pay entitlements (also known as severance pay).
Retrenchment minimum notice period
You must notify the retrenched employee in writing and give them the correct notice period (or payment in lieu of notice).
Employers who fail to give adequate notice might be in breach of:
- A modern award.
- An employment agreement.
- The National Employment Standards (NES).
- A common law employment contract.
Retrenchment vs genuine redundancy
Terminating an employee because of retrenchment does not automatically make it a genuine redundancy. In most cases, the employer will need to have an accepted reason.
If a retrenchment is proven to not be a genuine redundancy, the employee might be able to make a claim for unfair dismissal.
To prove that a retrenchment is a genuine redundancy, an employer might have to provide evidence such as:
- Restructuring plans.
- A new organisational chart.
- Financial records showing a business’s losses.
Create fair workplaces with Peninsula
Being a business owner and employer means dealing with tough aspects of employee management like retrenchments or redundancies. While you must do what needs to be done for your business, it's also important to follow ethical and fair procedures. Your duty is to ensure your business survives and your employee feels heard and acknowledged. Following a fair procedure will also protect your business from any potential unfair dismissal claims or penalties.
Peninsula has worked with thousands of business owners in Australia and supported them in crucial matters of employment relations and health and safety. We can provide end-to-end solutions that empower business owners and employers to grow their business. Call our expert team for free initial advice.
This article is for general information purposes only and does not constitute as business or legal advice and should not be relied upon as such. It does not take into consideration your specific business, industry or circumstances. You should seek legal or other professional advice regarding matters as they relate to you or your business. To the maximum extent permitted by law, Peninsula Group disclaim all liability for any errors or omissions contained in this information or any failure to update or correct this information. It is your responsibility to assess and verify the accuracy, completeness, and reliability of the information in this article.