The right way to handle redundancy

Activity is increasing, he said, in sectors facing margin pressure, rapid change, rising costs and softer demand, such as construction, retail and technology.

However, while administrative and junior roles are certainly being impacted by AI, most restructures “are being driven by cost and efficiency rather than full automation”, he said.

Unfortunately, this has fuelled a growing trend of “employers deciding on the individual first, then trying to justify the role as redundant afterwards”.

The core legal risk, Hayden explained, lies in perception and characterisation.

As redundancy is treated as a cost-cutting exercise over the structured legal process that it is, not only can businesses “realise critical work still needs doing and rehire into similar roles months later” – a phenomenon seen in several major companies – but businesses can be exposed to all kinds of legal and industrial challenges.

Hayden said: “A common misconception is that redundancy simply means paying someone out. In reality, the legal focus is on process. Employers must show that the role is genuinely no longer required and that they have complied with consultation and redeployment obligations.”

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Similar issues he identified were assuming redundancy can be used to address performance issues, failing to properly inform or consult with employees, “particularly where an award or enterprise agreement applies”, or failing to provide time for employees to respond.

“Selection process is also a problem. Businesses may use informal or subjective criteria, which can increase the risk of discrimination. In practice, disputes often arise not because a role was unnecessary, but because the process was rushed, inconsistent or poorly documented,” he said.

Businesses that operate in this way, Hayden explained, risk unfair dismissal claims where redundancies are not deemed genuine, discrimination claims – which carry uncapped compensation – civil penalties for breaching the Fair Work Act, reinstatement or compensation orders from the Fair Work Commission, and operational disruption and reputational damage.

The solution, however, is fairly simple. Following a clearly documented process, ensuring decisions are based on business needs, maintaining records, and using fair and consistent selection criteria will limit the exposure to industrial or legal action.

Additionally, “redeployment is another key obligation, meaning employers must actively consider whether there is a suitable alternative role within the business or associated entities”.

Notice and redundancy pay, he added, must comply with the Fair Work Act.

Looking to the future, Hayden noted, “SMEs need better workforce planning before announcing redundancies”.

“Many businesses are reviewing headcount more frequently as part of ongoing cost management. The key trend is that businesses are restructuring earlier, rather than waiting until financial pressure becomes critical. The overall trend is more proactive workforce planning, rather than active downsizing,” he said.