Join our

mailing list.

Keep up to date with our latest insights.

  • This field is for validation purposes and should be left unchanged.
Friday Workplace Briefing

People and Preparing for Recession: How to prepare your business for the looming recession – must do’s and must not’s

In this week’s Friday Workplace Briefing, we discuss the unique opportunity that recessions offer to look deep inside a business to review people, future trends, capability and current operations – all to be prepared for what the future brings.

Mathew Reiman and Nina Hoang take us through the safeguards and steps that businesses can take in the event of a recession.

To view the full episode and catch up with the week’s latest news and developments please visit this link.

Stay updated with our Friday Workplace Briefing

Subscribe to receive the latest Friday Workplace Briefing in your inbox every Friday, where you can hear the critical news and developments that affect your workplace.

Listen to podcast

About the Hosts

Senior Associate - Workplace Relations

Episode Transcript

Nina Hoang: All right onto the main topic.

Mathew Reiman: Yes.

Nina Hoang: We’re running behind time.

Mathew Reiman: Yeah, we’re are. well look, today we’re talking about recessions and we’re talking about what your business can do, and look, always good to start with the definition of a recession. So it is the two consecutive quarter periods of negative economic growth, and a general downturn in the economy. And you might say, “Well, gee, Matt and Nina, it does feel like we’re in that at the moment.” Now, technically Australia’s not.

Nina Hoang: Yeah, and we want to make that very clear despite what the media says-

Mathew Reiman: That’s right.

Nina Hoang: We are not currently in a recession.

Mathew Reiman: Exactly, and look, all the other things that we do know and are all feeling, the cost of living impacts, increasing interest rates, all of those things are still valid and true. They aren’t technically elements or aspects of a recession.

But what this period provides, I think, is a really interesting point as employers and as businesses, is there is a great opportunity here for a little bit of introspection about the way your business is progressing and the way it’s proceeding in these circumstances, where uncertainty is likely on the horizon. So we’re not sitting here making any predictions about where, whether a recession might arise or otherwise, but the reality is, is that everyone can see that there are some economic shocks coming that might result in a recession happening.

Nina Hoang: And you have the beauty of time, knowing that it’s likely going to happen, you’ve got the time now, instead of, like, when it was the GFC and no one knew it was going to happen, you were sprung into it. You have the beauty of time now to reflect and organise for what’s going to happen in the future.

Mathew Reiman: Yeah, we are preaching proactivity today. So, you know, obviously the pandemic, the recession that happened there, you had to be very reactive. The Global Financial Crisis had to be very reactive. Paul Keating’s recession we had to have, had to be very reactive. We, you know, Millennials, we’ve lived through three, maybe four soon, So we’ve really well versed in these, as comparison to previous generations. But it is a really great opportunity to sit back.

And there’s, there’s a couple of things that we did want to cover up, and we’ll probably cover up quite quickly. But one is looking at, yeah, what is, sort of, your business capability? You know, now that you know that there is some uncertainty coming, and coming forth, what information do you have now to look at what are the capabilities in terms of your business? What can it do? What would be impacted if things were to change? And what are the people aspects as well.

Nina Hoang: Like, yeah, and like what areas are doing well and are likely to continue doing well. So it might not be doing well now. Like in terms of up. Like, we used the pandemic for example. We know that tourism and numbers were down, there was less labour. So some of our clients really struggled with supply issues and building products and manufacturing things. But knowing that more people were going to come through, that’s just gone through the roof now.

So it’s about looking to the future and seeing what is your organisation going to look like then, and how do we adapt that and make sure that, you know, we’re restructuring and organising everything to account for those future goals.

Mathew Reiman: Yeah, exactly, and look, it uniquely positions businesses because there is some change management protocols that you can put in place now that are going to avoid a lot more hurt and pain across both your employee base and your business. So we’re talking about, yeah, we’re looking at what parts of our business can perform well and might perform well under pressure, what ones aren’t performing well now that might be able to be restructured and adapted. But also we know that these big periods of uncertainty have a really significant impact on employees.

Nina Hoang: Oh yeah.

Mathew Reiman: And that has flow through effects to productivity, health and safety, and things like that as well. So what is the capability of your business around that change management now? What are you looking at? What processes have you got in place so that people will feel supported? People will feel that they’ve got resources in place so that when these more negative impacts do manifest, they’re prepared, at least in some way, with the support of the business to address those issues.

Nina Hoang: Yeah, and it all comes down to leadership, because in periods of uncertainty, people will look to their leaders, and if it feels like you’ve got a plan, you know what’s going to come on, and you know how to steer the ship, they will follow you and, well, listen to whatever you have to say. But if you are not prepared, and you’re kind of at that stage on, I don’t actually know what’s going on, they will feel that and it’s going to make everything much worse. Doesn’t matter what kind of discussion you have.

Mathew Reiman: Yeah, that’s right. I mean it’s, it again, it comes back to the point that you are trying to nip that uncertainty in the bud before it becomes an issue. The proactivity versus the reactivity. And you know, it can often feel difficult when we are on the precipice of such a period to feel that that time and effort required to prepare some people for something that we are uncertain about, that might even happen at all. But what we are really saying is that businesses that we can see that do make the time and investment in people in that change management now, before things change, are really going to be better off for once those things turn, and all of a sudden the control is out of your own hands.

Nina Hoang: Yeah, and it also it just means if you are planning now, and say down the track, you do need to do redundancies, you will have all of this evidence that it’s been a long time coming that you really thought about it. So it is a genuine redundancy for when you get down that path and someone says, “No, you’ve targeted me. You’re choosing something.” Well here’s like, you know, a couple of months worth of reports and discussions that we’ve had, ’cause we’ve seriously considered how to get the business to the point that we need to make it financially viable for the future.

Mathew Reiman: Yeah, yeah, exactly. So preparation is key. We don’t want to panic everyone, absolutely not, but-

Nina Hoang: It’s the opposite actually.

Mathew Reiman: Actually, yeah, exactly right, exactly. We’re trying to preach, don’t panic right here. And just there, have a think, sit back, take the time, invest the resources to assess your capabilities across all aspects of your business. Future proof it for those circumstances where a potential recession is on the horizon, yeah.

Nina Hoang: And make sure, just last thing, make sure you comply with all, you know, consultation obligations under safety and employment. Because yeah, like Matt said, change management is a big thing, and it’s a huge psychological hazard, and you don’t want any workers’ compensation claims arising out of that just because you could have done it in a more fair and reasonable process. All right-

Mathew Reiman: Excellent-

Nina Hoang: On to the case study.

Mathew Reiman: Our case study. We’re all ready to do that. Think, we didn’t talk about this before, there you go, alright.

Angel Electrics manufacturers circuit boards for the home and commercial construction automation market. It has earned $100 million in revenue. AE is an Australian success story that emerged during COVID, reaping the benefits of international competitors supply chain issues.

The slowing in the domestic and commercial construction industry, looming recession, and return to the market of cheap competitors, lower risk as the exchange rate makes Australian production cheaper than Chinese and Vietnamese businesses, but recessions usually make the AUD stronger, so will be a bigger issue soon, means AE now needs to look at cost saving. One of the ways of saving money is to automate production further, meaning a probable drop in headcount by 75 within six months, as the lines commission and come online.

The decommission comes into effect.

They will have to close the Coburg plant that does work exclusively for the Department of Defence who will not renew the contract from 1 July 23, and the plant is otherwise too antiquated to upgrade for the other work it does, affecting a further 45 staff. AE hires a consultant to look at people reorganisation. The consultant recommends the retrenchment of 110 staff immediately, cut deep, excuse me, not death by a thousand cuts.

The evidence does not support more than the Coburg closure on 1 July 23 and the loss of 45 heads as automation kicks in around September, and the remainder upon decommissioning on 30 December 2023. The board adopts the consultant’s plan and instructs the executive to execute the plan.

The consultant specifically suggests the union delegates in the Preston factory, all who have workers’ comp claims in the past, be part of phase one of redundancies. His reasoning is that they would go in phase two, but why take a risk? AE commences its communications around the potential for future change. The Union allege a final decision has been made, and commences proceedings in the federal court.

All right, so is the process a breach of Safety law, and if so, how? If so, could WorkSafe get the report and board resolution and executive emails and work done towards restructuring? And what would it have to do with it? Prosecute? What is the likely result, Nina?

Nina Hoang: That was such a long question.

Mathew Reiman: That was more than one question.

Nina Hoang: Yeah, so it definitely is a breach of safety law. So consultation obligations, you have to consult if there’s any, going to be any change that affects the health and safety of someone. And this change management is a psychological hazard. The fact that they’ve already pre-made the decision and it’s really not, there’s no reasonable basis for picking the union delegate. That in itself is also discrimination under safety legislation as well. So definitely several breaches. They could get all of that information, if it’s not protected under legal professional privilege, through just, like, the section 100 reportMathew Reiman: requests, sorry, and based on that, it would basically write the prosecution for them, and they would most definitely succeed against AE, yeah.

Mathew Reiman: Yeah, it’s a crazy level of paper trail that they’ve created for the various purposes, isn’t it? Especially where there’s that evidence that’s alluded to that actually shows that commercial reasoning supports a smaller redundancy.

Nina Hoang: But just to pick the union delegates for the-

Mathew Reiman: That’s right, that’s right. Which, look, it flows in well as the answer to question two, is the process a breach of industrial law, and if so, how? And what could happen?” I mean, what we know from this is that the consultants effectively discriminated against those union delegates. So that’s discrimination both at the state level under the Equal Opportunity Act, it’s discrimination in terms of Section 3 part 1 of the Fair Work Act.

But importantly, as well, it’s actually effectively adverse action on the basis of industrial activities as well. ‘Cause they’re organisers, they’re organising union activity in the business, and they’ve been targeted for that specifically. So we’ve got those aspects for those union delegates. But then we also have breach of the award consultation provisions as well here. So, yes, there’s been made a definite decision as to restructure the business, but it’s then taken at that next step further. They’ve already taken that conclusion about what the consequences of that would be without consulting the employees about those significant effects. Yeah.

Mathew Reiman: So yeah, sorry, you were going to…

Nina Hoang: Oh, I was just going to say, yeah, any, although it says that they’ve started the communications, it’s clear that that’s perfunctory at best. They’ve pre-made the decision, so whatever they say, it’s not going to make a difference. And that will be shown once they get all the documents.

Mathew Reiman: Exactly. Exactly. So a really big issue there. All right, question 3, the union gets discovery and finds the adoption of the consultant report and obtains the report, can the discovery be used by the individual union officials to commence proceedings? Or is it limited to the union?

Nina Hoang: Yeah, so this is to do with this thing called the Harman undertaking, which is this principle that says when you are getting any kind of documents in proceeding, it has to be used for the purpose for which you are seeking the documentation. And it can’t be used for ulterior motives.

Mathew Reiman: That’s right, yeah.

Nina Hoang: So the union could definitely seek and get all these documents through discovery, but the individual union, I don’t think they were delegates, I think, oh, they were. They weren’t officials.

Mathew Reiman: Yeah, the union brought the proceeding, the individuals were the delegates.

Nina Hoang: Yeah, so the delegates couldn’t use that material to bring their own claims, but that’s not to stop the union from bringing it on behalf of…

Mathew Reiman: That’s right, that’s right. Or using the information that they know the report exists to bring their own proceedings to then seek it in their own proceedings through discovery. So, yeah.

Nina Hoang: So, it’s basically the AE is screwed.

Mathew Reiman: Yeah, absolutely, absolutely.

Nina Hoang: All right, so, union officials at Preston lodge workers’ compensation claims, saying psychological hazards of dealing with dishonest employer, uncertainty around restructure, and doctors say have adjustment disorders. Will their claims be successful? What does that mean about their obligation period and making them redundant? What would be the premium impact?

So definitely going to succeed on workers’ compensation. So many psychological hazards. It hasn’t been a fair and reasonable process. So no defence under reasonable management action. I think there is a limit to when you can terminate them as well, because they will have filed a –

Mathew Reiman: Yeah, if they filed the claim, it’s 52 weeks-

Nina Hoang: Claims, yes.

Mathew Reiman: From the time their claims, yeah.

Nina Hoang: That means that they’ll be on the books, and that means a likely premium impact of a million dollars.

Mathew Reiman: Yeah, well that’s pretty significant, isn’t it?

Nina Hoang: Yeah, so…

Mathew Reiman: So you really…

Nina Hoang: Just follow the process.

Mathew Reiman: That’s right, yeah.

Nina Hoang: I think that should be the key message from today.

Mathew Reiman: Follow the process is the key message of today, isn’t it? Okay, then, will AE have to pay severance payments at Coburg that was closed, because the contract was not reviewed, renewed?

Well, look, this goes to the customary and ordinary turnover of labour. What we know is is that the factory does other work. So it doesn’t just exclusively do the work of the defence contract. And we also have no information in all about what was the arrangements for these particular employees. Were they aware that their employment was tied to this contract, et cetera. So we can assume that the exception wouldn’t apply and the redundancy pay would be payable. So we’re looking at a really significant and hefty redundancy bill.

Nina Hoang: All right.

Mathew Reiman: Excellent.

Nina Hoang: So thank you for joining us.

Mathew Reiman: Yeah, thanks for tuning in.

Nina Hoang: And-

Mathew Reiman: It’ll be the dream team for the next three weeks if you can believe that. There you go. Sorry Andrew.

Nina Hoang: Bye everyone.

Mathew Reiman: Bye everyone.

Check this next

Restraints in employment contracts are more common after COVID – but do they work and how will courts respond in the future? In this week’s Friday Workplace Briefing, Mathew Reiman and Nina Hoang discuss the concerns raised by the ACCC regarding non-compete clauses. To view the full episode and catch up with the week’s latest…