Redundancy and reductions in force - A key employment law challenge in Australia and Asia

The recent tough economic climate has seen a number of high-profile companies forced to take action to remain competitive.
Australia Employment and HR
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Introduction to "Reductions in force - A key employment law challenge"

The recent tough economic climate has seen a number of high-profile companies forced to take action to remain competitive. These challenges are being navigated globally and many organisations have been facing the challenges of implementing reductions in their workforces. In some cases, continued operation was no longer viable, and the company was placed into administration. Whatever the reason, the outcome is usually the same: people's jobs are affected, and employers are compelled to make the often difficult decision to make positions redundant.

Organisations in the Asia Pacific region have not been immune to the current market conditions, with a number of high-profile organisations decreasing their headcount over the last 12 months.

Getting a downsizing programme wrong not only exposes the organisation to legal risk, but it can also materially impact on the organisation's reputation, both internally and externally. Keeping current staff committed and loyal and being able to continue to hire top talent when needed in the future are key considerations in any redundancy decision.

A snap shot of the current legal position of several countries within the Asia Pacific region is set out below.

Australia

In Australia, there must be a 'genuine' reason for redundancy in order for employers to successfully defend a claim of unfair dismissal. In legal terms, a redundancy is a dismissal which is 'not on account of any personal act or default of the employee', and a redundancy which is based on factors such as these may be found to be unfair. The uncertain economic climate has resulted in a flow-on effect to the jobs market, coinciding with a sharp increase in the number of unfair dismissal applications made to the Fair Work Commission as former employees argue their job loss was not a genuine redundancy.

Hong Kong

In Hong Kong, there is currently no 'unfair dismissal' regime so the termination of an employment contract, including by reason of redundancy, is generally considered to be fairly straightforward. The relevant legislation is the Employment Ordinance, which sets out a statutory regime governing an employer's obligations in situations of lay-off and redundancy. The Employment Ordinance prescribes minimum statutory provisions and a statutory entitlement to a severance payment upon redundancy.

Japan

It is more challenging to dismiss an employee in Japan, even in a redundancy situation. Dismissal due to economic conditions is not prohibited in Japan, but the right to do so is severely limited by the Labour Standards Act , the Labour Contract Act and court precedent. Japanese law provides that if a termination lacks 'objectively reasonable grounds' and is not considered appropriate under 'standard social norms', it shall be deemed an abuse of an employer's right to terminate the employee. Any termination, if challenged, will be examined by the Japanese courts in light of the whole context leading to the decision.

People's Republic of China

It is often very difficult for an employer to establish sufficient grounds for redundancy in the People's Republic of China (PRC), so when an employee is made redundant in the PRC it is extremely important that provisions of the Employment Contract Law are complied with.

Concluding thoughts

The difficult decision to reduce staff numbers can be further complicated for multinational employers when implementing the changes across several countries as there is no 'one-size-fits-all' approach to handling reductions in force in the Asia Pacific region. However, mitigating legal risk and claims is only one part of any redundancy or restructuring program.

Where business change is necessary, it is important to remember that for any organisation its people are critical to its success: thought needs to be given to communicating these changes both internally and externally. It is also critical to think about how you are going to manage and motivate current staff.

Similarly, balancing business risk and the need to treat staff fairly and compassionately is often the biggest challenge. The simple issue of removing email access and ensuring company property, contacts and confidential information are fully protected can be also challenging.

DLA Piper has extensive experience advising on national and international restructuring and reorganisation projects across all industry sectors and for companies of varying sizes and has used this experience to develop a Guide to Redundancies and Reductions-in-Force in Asia Pacific (Guide).

This Guide acts as a handy aid for employers, offering some insight into when a redundancy situation can be said to have arisen and provides high-level, practical guidance on how to handle the sensitive and often complex procedures under different legal systems, including Australia, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan and Thailand.

© DLA Piper

This publication is intended as a general overview and discussion of the subjects dealt with. It is not intended to be, and should not used as, a substitute for taking legal advice in any specific situation. DLA Piper Australia will accept no responsibility for any actions taken or not taken on the basis of this publication.


DLA Piper Australia is part of DLA Piper, a global law firm, operating through various separate and distinct legal entities. For further information, please refer to www.dlapiper.com

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