How To Restructure To Legally Terminate An Employee In Australia

Restructuring is part of running a business. Markets change, budgets tighten and technology evolves - sometimes you genuinely no longer need certain roles.

But there’s a right and wrong way to manage a restructure to “get rid of” an employee. Done incorrectly, it can lead to unfair dismissal or general protections claims, reputational damage and unexpected costs.

This guide walks you through how to plan and execute a lawful business restructure in Australia, the difference between genuine redundancy and performance issues, and the key steps to reduce legal risk while treating people fairly.

What Does A Legitimate Business Restructure Look Like?

A lawful restructure starts with a genuine business reason, not a person-focused reason. Think about the role, not the individual. Typical legitimate drivers include:

• Financial sustainability (e.g. cost savings, downsizing certain teams)
• Operational efficiency (e.g. removing duplicated roles after a merger)
• Strategic changes (e.g. exiting a product line, automating functions)
• Organisational redesign (e.g. centralising functions or new reporting lines)

The key is that the job an employee was doing is no longer required to be done by anyone, or will be substantially altered so the existing role genuinely disappears.

Document your commercial reasons, the proposed new structure and the roles affected. This paper trail will be critical if your process is later reviewed.

When Is It A Genuine Redundancy (And When Is It Not)?

Under the Fair Work Act, a dismissal is a “genuine redundancy” only if specific requirements are met. A genuine redundancy must include that:

• The employer no longer requires the person’s job to be performed by anyone
• The employer complied with any consultation obligations in a modern award or enterprise agreement
• It was not reasonable to redeploy the employee within the business or an associated entity

You can read more about these elements under the legal definition of genuine redundancy.

It’s not a genuine redundancy if you’re using “restructure” as a pretext for performance issues or to remove a particular person. For example, if you abolish a role and then hire a new person with a different title to do substantially the same work, you’re at serious risk of an unfair dismissal finding.

Small businesses (fewer than 15 employees) are still required to meet the genuine redundancy test. They may be exempt from redundancy pay under the National Employment Standards (NES), but they must still consult (if an award applies), consider redeployment and provide notice (or pay in lieu).

Step-By-Step: Running A Lawful Restructure Process

Below is a practical framework you can adapt to your business. The exact steps and timelines may vary depending on the size of your team, applicable awards or enterprise agreements and the scale of your changes.

1) Clarify The Commercial Rationale And The New Structure

Set out clear business reasons for change and map the proposed organisation chart. Identify roles (not people) that are affected, and whether work will be discontinued, combined or automated.

2) Check Consultation Obligations (Awards/Agreements)

Many employees are covered by modern awards or enterprise agreements that impose consultation duties before you make a definite decision. Typically, you must:

• Provide relevant information about the proposed changes
• Invite employees to provide feedback
• Genuinely consider options to mitigate adverse effects (e.g. redeployment)

Build these steps and reasonable consultation timeframes into your plan.

3) Develop Objective Selection Criteria (If Reducing Headcount)

If several people hold similar roles and you need fewer positions, set objective, evidence-based criteria (e.g. skills, qualifications, location, documented performance against role requirements). Avoid criteria that could be discriminatory (such as age, pregnancy, disability, union membership, or exercising workplace rights).

4) Consult With Affected Employees

Meet with impacted team members to explain the proposal, the business reasons, timelines and potential impacts. Provide an opportunity to ask questions, offer alternatives and propose redeployment options. Keep notes of meetings and consider allowing a support person to attend.

5) Explore Reasonable Redeployment

You must consider whether there are suitable roles within your business or associated entities that the employee could reasonably perform (with reasonable training, if appropriate). Document the roles considered, why they are or aren’t suitable and any offers made.

6) Confirm Outcomes In Writing

After consultation, if the restructure proceeds and a role is genuinely redundant, provide written redundancy or termination letters setting out the reason (redundancy), notice period, and entitlements. If you are not requiring the employee to work out their notice, you can consider payment in lieu of notice.

Having clear, legally sound templates helps maintain consistency and reduce risk. Many employers use an Employee Termination Documents Suite for letters, checklists and scripts.

7) Pay All Final Entitlements On Time

Calculate and pay what’s owed, including notice (or pay in lieu), redundancy pay (if applicable), accrued annual leave and any long service leave that’s due. You must also provide payslips and a separation certificate if requested. We cover redundancy pay rules and how to work them out in our guide to calculating redundancy pay.

8) Manage Exit Logistics And Risk

Arrange return of property, revoke systems access, update confidentiality reminders and conduct a respectful exit meeting. If appropriate, consider offering an ex gratia payment in exchange for signing a deed of release drafted to protect your business.

Practical Tips

• Keep your process human. Even when the business case is strong, how you communicate matters.
• Be consistent. Apply your selection criteria and process uniformly to avoid bias.
• Plan timelines. Allow enough time for consultation, redeployment consideration and orderly handovers.
• Record everything. Good documentation is your best protection if the process is challenged.

Calculating Notice, Redundancy Pay And Final Pay

There are several moving parts to a compliant final pay. Each must be worked out correctly under the Fair Work Act, the NES, any applicable award or enterprise agreement and the employment contract.

Notice Of Termination

Employees are entitled to notice based on their length of service (unless serious misconduct). You can ask them to work through their notice period, or provide payment in lieu of notice and end employment immediately. If you have a senior employee or sensitive information, garden leave may also be appropriate if permitted by the contract.

Redundancy Pay

Redundancy pay usually applies unless your business is a small business employer (fewer than 15 employees) or another NES exception applies. The amount increases with service length. Use your award/EA and contract to confirm entitlements, then work through the figures - our guide to redundancy pay steps through common scenarios.

Accrued Entitlements

You must also pay out accrued but unused annual leave and, depending on the state and service length, long service leave. Check the contract for any additional benefits owed (e.g. commissions already earned, or agreed bonuses) and superannuation obligations on certain termination payments.

Timing And Payroll

Final pay must be made within the timeframe required by any applicable award/EA or, if none, within a reasonable time after termination. Make sure your payroll system is ready to calculate tax correctly and issue the appropriate documentation.

Safer Alternatives If The Problem Is Performance Or Conduct

If the issue is really about performance, behaviour or cultural fit, restructuring out a person is unlikely to be safe. In those cases, use the correct process for the real problem:

• Performance management: Set clear expectations, provide support and time to improve and keep records. Many employers follow a structured performance management process and use show cause letters when needed.
• Varying roles by agreement: If the role needs to change, consult and seek agreement to vary contracts - not all changes require a redundancy.
• Reducing hours: In downturns, some businesses negotiate to reduce hours temporarily, often coupled with other cost-saving measures.
• Probation or fixed-term endings: If someone is within probation or a fixed-term is ending, follow the proper process. There are still rules to follow - see termination during probation and award/EA requirements.

If you’re unsure which pathway suits your situation, tailored redundancy advice from an employment lawyer can help you choose the lowest-risk approach.

Common Risks And How To Mitigate Them

Restructures often fail on process rather than purpose. Here are the hotspots we see - and how to reduce your risk.

1) Skipping Consultation

Most awards require consultation before a final decision. If you move too quickly, you risk an unfair dismissal claim even if your business case is strong. Set a realistic consultation period and genuinely consider feedback.

2) Poor Redeployment Consideration

Courts look closely at whether redeployment was reasonably available. Circulate vacancies, talk through options and record why roles were or weren’t suitable.

3) Targeting A Person, Not A Role

If the real reason is performance, use the right process. Trying to use redundancy as a workaround is risky. Where performance is the issue, follow a documented performance management pathway and retain strong records.

4) Discrimination Or Adverse Action

It’s unlawful to take action because someone has a protected attribute (e.g. pregnancy, disability, age) or because they exercised a workplace right (e.g. took sick leave). Ensure your selection criteria are job-related, objective and documented.

5) Inconsistent Messaging

Don’t advertise the same role after a redundancy, and ensure internal comms, external ads and exit letters all align with the business case you’ve set out.

6) Incorrect Final Pay

Miscalculations are common. Double-check award/EA terms, service length and the correct notice and redundancy pay bands. If you’re paying out notice, use the right approach to payment in lieu.

7) Outdated Contracts And Policies

Clear contracts and policies help. Ensure you have up-to-date documents such as an Employment Contract for each staff member and a practical Workplace Policy framework to support consistent decisions.

8) Documentation Gaps

If challenged, your files will be crucial. Keep a clean record of business rationale, org charts, consultation notes, selection criteria, redeployment steps and final letters. Using a structured termination documents suite can help standardise this.

Key Takeaways

• A restructure can lawfully remove roles - not people - when there’s a clear business case and a fair, documented process.
• To be a genuine redundancy, you must consult (if an award/EA applies) and consider reasonable redeployment across your business or associated entities.
• If the issue is performance or conduct, use the correct pathways (e.g. performance management) rather than disguising it as a redundancy.
• Get the numbers right: notice (or payment in lieu), redundancy pay where applicable and all accrued entitlements must be paid accurately and on time.
• Reduce risk with objective selection criteria, consistent communications and thorough documentation from planning through to exit.
• When in doubt, seek tailored redundancy advice so your process is compliant and suited to your business.

If you would like a consultation on planning a business restructure or managing genuine redundancies, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.