Restructuring in Tough Economic Times: What Employers Must Do Legally
Ron Mckenzie | April 21, 2025
When economic pressure rises, many businesses begin reviewing costs, staffing models, and operational efficiency. Rising fuel prices, inflation, supply chain disruption, and reduced consumer spending can all place pressure on employers to adapt quickly.
For many organisations, that may mean restructuring.
However, restructuring employees is not simply a commercial decision—it is also a legal one. If handled incorrectly, a restructure can expose employers to claims involving unfair dismissal, discrimination, breach of contract, unpaid entitlements, and reputational damage.
For employers and HR leaders, the challenge is clear: how do you protect the business while remaining legally compliant and fair to your workforce?
This guide explains what employers must do legally when restructuring in difficult economic times.
What Is a Workplace Restructure?
A workplace restructure occurs when a business changes how work is organised. This may include:
- Removing or combining roles
- Changing reporting lines
- Closing departments or locations
- Introducing automation or outsourcing
- Reducing headcount
- Reassigning duties
- Changing work hours or shifts
- Merging teams after financial review
A restructure should be driven by genuine business needs—not by a desire to remove a particular employee.
That distinction is critical.
Can Employers Legally Restructure Due to Economic Conditions?
Yes. In many jurisdictions, employers can lawfully restructure where there is a genuine operational reason, such as:
- Rising costs and inflation
- Declining revenue
- Reduced demand
- Loss of contracts or clients
- Technology changes
- Business sale or merger
- Need for efficiency improvements
However, legal permission to restructure does not mean employers can skip proper process.
Even genuine business reasons can lead to legal disputes if consultation, notice, selection, or termination steps are mishandled.
What Employers Must Do Legally During a Restructure
1. Have a Genuine Commercial Reason
Before making any staffing changes, document the real reasons for restructuring.
This may include:
- Financial reports
- Revenue decline trends
- Cost increases
- Workflow inefficiencies
- Operational duplication
- Strategic business plans
If challenged later, employers may need to prove the restructure was legitimate and not a pretext for removing an employee.
Best practice: Create a written business case before announcing changes.
2. Review Employment Contracts and Policies
Employment contracts, enterprise agreements, handbooks, and policies may contain obligations relating to:
- Consultation requirements
- Notice periods
- Redeployment rights
- Change management procedures
- Redundancy pay
- Flexible work rights
Ignoring internal obligations can create immediate legal risk.
Tip: Review every relevant document before implementing change.
3. Follow Consultation Obligations
In many regions, employers must consult affected employees before final decisions are made.
Consultation commonly includes:
- Explaining proposed changes
- Sharing reasons for restructure
- Discussing impact on employees
- Inviting feedback
- Considering alternatives
Consultation should be genuine—not a box-ticking exercise.
If decisions are already finalised before consultation begins, the process may be challenged.
4. Use Fair and Objective Selection Criteria
If some roles are reduced but not all, employers must apply objective criteria when selecting positions or employees affected.
Examples may include:
- Skills relevance
- Qualifications
- Performance history
- Business needs
- Experience across functions
Avoid subjective or biased decisions.
Selections linked to age, pregnancy, disability, parental leave, race, union activity, or whistleblowing can trigger serious claims.
5. Consider Redeployment Options
Before terminating employment, employers should consider whether suitable alternative roles exist elsewhere in the business.
Redeployment may include:
- Equivalent roles
- Lower-level roles (if accepted)
- Different locations
- Retraining opportunities
Failing to explore reasonable alternatives can weaken a redundancy defence.
6. Provide Correct Notice and Final Entitlements
Where employment ends, employers must ensure compliance with all notice and payment obligations, including:
- Notice periods
- Redundancy pay (where applicable)
- Accrued leave
- Outstanding wages
- Bonuses or commissions (if owed)
- Statutory benefits
Late or incorrect final pay often creates avoidable disputes.
7. Protect Against Discrimination and Retaliation Claims
Restructures often increase legal risk where affected employees recently:
- Requested flexible work
- Took parental leave
- Reported misconduct
- Raised safety concerns
- Made complaints
- Exercised workplace rights
Employers should be especially careful where timing could appear retaliatory.
Common Legal Mistakes Employers Make During Restructuring
Best Practice Checklist for Employers
Before restructuring, ask:
✔ Is there a genuine commercial reason?
✔ Is it documented?
✔ Have contracts and policies been reviewed?
✔ Have consultation duties been met?
✔ Are selection criteria fair?
✔ Have redeployment options been explored?
✔ Are final payments accurate?
✔ Could discrimination risks arise?
✔ Has legal advice been obtained?
Why Early Legal Advice Matters
Economic pressure often forces difficult decisions quickly. But speed should never replace compliance.
A well-managed restructure can preserve jobs where possible, protect morale, and reduce legal exposure. A poorly handled one can lead to costly claims, damaged culture, and reputational harm.
If your business is considering restructuring employees during challenging economic conditions, obtaining early legal advice can help ensure decisions are strategic, compliant, and defensible.
FAQs
Can an employer restructure just to save money?
Often yes, if there is a genuine business need. But legal process still matters. Employers must act fairly and comply with employment law obligations.
Can an employee challenge a restructure?
Yes. Employees may challenge restructures involving unfair dismissal, sham redundancy, discrimination, retaliation, or procedural unfairness.
Do employers have to consult staff first?
In many cases, yes. Obligations depend on contracts, awards, collective agreements, and local law.
Is redundancy the same as dismissal?
Not always. Genuine redundancy arises where a role is no longer required. If the role still exists or process was flawed, claims may arise.
Why Early Legal Advice Matters
At McKenzie Law, we advise employers on restructures, redundancies, workplace change, and employment risk management during uncertain economic periods.
If your business is planning organisational change, contact our team for clear, practical employment law guidance before decisions are implemented.
