How to make sure outsourcing doesn’t become an expensive mistake

Employers have the right to structure their business in the way that best meets their commercial objectives.

Sometimes, unfortunately, this means having to let staff go.

Take outsourcing. When times are tough, it can make business sense to outsource, but this will mean some of your loyal employees will have to move on.

The savings to your bottom line from an outsourcing might just save your business.

But there is a trap for the unwary.  Outsourcing may trigger a redundancy and you may end up in Court fighting a claim by your former employees for redundancy pay –  even if they gain employment with your outsourcing partner!

This may make your outsourcing decision an expensive mistake.

How so?  Under the Fair Work Act all employees have a right to receive redundancy pay according to their years of service.

There is a redundancy unless:

  • the affected employees transfer to your outsourcing partner, or another employer who you have arranged;
  • with full recognition of service; and
  • on terms and conditions that are substantially similar and no less favourable overall.

So, even if all your employees transfer to your outsourcing partner, if the above conditions are not met, you will have to pay redundancy, and can be sued for it if you don’t.

The lesson is simple.  Only outsource to a company that will accept all of your employees, with full recognition of service and essentially on the same terms and conditions of employment.

If you cannot find an outsourcing company that can offer that, you will need to factor into your business case the redundancy pay, which can be significant.

The numbers simply may not stack up.  If this is the case, then an alternative to outsourcing is to reduce the pay of your staff to save their jobs.

This can be done legally – but that is for another post!

Contact me today for legal strategies to help keep you out of Court, and to employ with confidence.

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