​​Executive Redundancy and Recourse

Andreyev Lawyers Executive Redundancy

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The irony of being a Restructuring and Turnaround Executive for a business is that once you have stabilised the business, stemmed the bleeding and discovered the root cause – you fix that problems and have salvaged the business for the business owners.

Have you just worked yourself out of a job? A victim to your own leadership skills, efficiency and ability to hit your objectives? Are you now dispensible having dealt with all the complex tasks and work?

When you consider that the majority of Restructuring and Turnaround interventions require an objective review of the efficiency of the organisation’s leadership team, board or CEO, then it is logical that there may be some lingering distrust as to the ongoing involvement of a Restructuring & Turnaround Executive (page 9, Schoenberg, R.Collier, N. and Bowman, C. (2013), “Strategies for business turnaround and recovery: a review and synthesis”, European Business Review, Vol. 25 No. 3, pp. 243-262.)

The paradox faced by Restructuring and Turnaround Executives is that their use diminishes as they fulfil their role. Once milestones have been reached, the organisation has been positively impacted and a trajectory set for sustainable recovery, the organisation might deem it worthwhile to prematurely terminate the contract (their skillset no longer being required or there’s an opinion that stigma attaches to their ongoing involvement with the organisation).

Eddie Griffith | ABRT Chairman

Executive Redundancy – Understand your Rights 

If you are a senior employee who has been made redundant make sure you understand your rights and maximise your redundancy payout.

Usually, executive redundancy occurs because a business has restructured or become insolvent as a result of changes in the economy, market, or technology.  If redundancy is the reason for the termination of your employment, the ending of the employment relationship has nothing to do with poor performance or misconduct, rather the employer no longer wishes the duties you have been performing to be undertaken by anyone else.  In such instances, your main interest will be to maximise your severance payout.  There are several sources of regulation that govern how the redundancy payments of executives in the private sector will be determined, including the employment contract, modern awards and the Fair Work Act 2009 (Cth) (FWA). 

Are you an executive?

Senior or executive employees have different rights to other employees when it comes to redundancy, namely a greater right to negotiate the redundancy package.  An ‘executive’ employee is an individual who usually performs managerial functions, ranging from junior managers with minor managerial duties to chief executive officers of major listed private companies.  They are people whose knowledge and skills make them highly valuable to their employer.  In turn, to perform their roles, executives are generally entrusted with commercially sensitive and confidential information and receive generous remuneration packages, usually over the high-income threshold set out in the FWA ($168,000 as at time of writing). 

What are your entitlements?

As a minimum, if you are a senior or executive employed in a business with more than 15 employees, you will be entitled to redundancy payments under the National Employment Standards (NES) of the FWA.  This applies to all employees (other than casuals) covered by the national workplace system.  

If your employer has an employment contract with you or a workplace policy which includes redundancy provisions which exceed the NES minimums, you will be entitled to the payments as detailed in those sources.  However, you may also be able to negotiate a better deal for yourself.  For the avoidance of doubt, the employment contract or workplace policy redundancy severance payments must not be less than the minimum requirements under the FWA.  

For senior or executive employees, it will often be the terms and condition of the contract of employment that are most relevant in pressing for redundancy pay in excess of the NES minimum entitlements and beyond a payment in lieu of notice.  However, documents that may have been incorporated into the contact, such as policy and procedure documents, should not be overlooked. 

Are executive employees on fixed term contracts entitled to redundancy pay under the NES?

Executive employees may be employed under a contract which has a maximum term but may otherwise be terminated unconditionally before the expiry of the term (Maximum Term Contract) or one which expires on a particular date with no right to terminate unconditionally before that date (Fixed Term Contract).  If, such a contract is not renewed at the end of its term because the position is redundant, generally, the employee will not be found to have been dismissed and is therefore not entitled under NES to redundancy payments.  However, there may be circumstances where: 

  • The document with a maximum or fixed term is a sham and does not reflect the reality of the relationship; and 
  • There was a collateral oral agreement that the contract would be renewed. 

In such cases, the employee may be entitled to redundancy under NES. 

Modern Awards

Some senior or executive employees may be covered by a modern award in which case an employer is likely to have other obligations in relation to redundancy, particularly an obligation to consult.  A failure to consult exposes an employer to orders by the Court, including penalties, injunctions, compensation, and reinstatement. 

Executive Redundancy – What can you do?

We strongly recommend that at the outset of potential redundancy you seek our advice.  We can assist you to determine what your rights are, and how best to uphold them.  We note that most redundancy payments are governed by a Deed of Release, which essentially states that in return for the redundancy payment, you will make no further claims against your employer in relation to the termination of your employment.  As such, it is crucial that you seek legal advice on your position before you sign any release.  Often, there will be some wriggle room in the redundancy payments, and if any of the following apply, it may increase your bargaining power.

Unfair Dismissal claims 

Senior or executive employees who are dismissed by reason of redundancy may be able to bring an unfair dismissal claim in the Fair Work Commission if the redundancy is not ‘genuine.  This right is limited to those employees who are protected from unfair dismissal under section 382 of the FWA

A redundancy is not ‘genuine’ if your employer offers your role to someone else and/or fails to meet their obligations to consult or redeploy you in accordance with their obligations under a modern award or enterprise agreement.  However, as an executive employee, if you earn more than the high-income threshold you may be unable to bring an unfair dismissal claim, unless you are covered under a modern award and have not been provided with a ‘guarantee of annual earnings’. 

It should be noted that the cap on unfair dismissal claims is the lower of 6 months salary or $81,000 (half the high-income threshold). 

There are strict rules around what constitutes a ‘genuine redundancy’ and if you are in any doubt about whether the termination of your employment was for reasons other than because your role is no longer required, please call us on 1300 654 590 or email us for a no obligation chat.

General Protections claims 

In circumstances where your employer takes adverse action against you (i.e. making your role redundant) because you have relied upon a workplace right (common examples include taking of leave and making a complaint regarding the workplace) or for discriminatory reasons, you may be eligible to make a general protections claim.  

Pre-employment promises 

Under the Australian Consumer Law, employers are prevented from making misleading and deceptive representations to prospective employees to procure their employment.1  If you have been induced to take up employment with a company on the understanding that they are financially stable and that no restructures are necessary, and later you are made redundant as a result of a restructure or insolvency, you may be able to bring a claim in the Federal Court.

How we can help 

While it is possible that none of these options are available to you, it is always worth seeking advice from a qualified professional to consider how you can ensure that you receive the entitlements that you are owed.  Further, if you are negotiating your next executive employment contract you should consider whether the redundancy terms are appropriate. 

To get a clear understanding of your personal exposure, or to better structure your affairs, call or email Drew Craven on 1300 654 590 or at drew@abrt.org.au.

Drew Craven RTP® | Andreyev Lawyers

Drew Craven | Andreyev Lawyers

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