07 July 2009 8:42am
Employers that retrench workers without ensuring their financial wellbeing run the risk of damaging their brands – and facing litigation, says ipac corporate consultant Nola Rihani.
While the majority of employers “have genuine aspirations of a duty of care” for employees they make redundant, Rihani says, many regard the financial issues faced by those departing the responsibility of either outplacement service providers or the workers themselves.
Consequently, retrenched employees are rarely made aware of the financial decisions – relating, for instance, to superannuation and life insurance – that they need to make prior to their departure, she says.
Employees are at risk of missing out on a host of entitlements, she says, and employers can, and have been, held to account for this loss.
In one case, Rihani says, an employer failed to inform a retrenched employee of the option to continue his life insurance policy before the option had lapsed.
The employee had health problems, and the insurance policy he had acquired through his employment was the only one he had been able to obtain.
The employer was found liable for the worker’s loss and ordered to pay more than $1 million in underwriting his insurance, she says.
Save money through redundancy alternatives
Rihani’s comments come after an ipac study – based on a survey of senior HR professionals and outplacement providers from Sydney and Melbourne – revealed that:
many HR professionals and managers are dealing with the redundancy process for the first time;
“ownership” of the process is unclear. With HR moving “towards a more advisory role in the transition process”, Rihani says, laying off workers is often left up to line managers. However, many line managers lack the necessary “tools”;
almost 50 per cent of restructures, which often include redundancies, under-deliver on projected savings;
employers are often torn between the duty of care for retrenched employees and the cost of outplacement and other transition programs; and
the cost of “separation” is getting higher.
Employers, therefore, should explore all alternatives to retrenchment, including redeployment, Rihani says.
(Indeed, as of last week they are legally obliged to do so. See related article.)
She says they could put in place “transition-to-retirement” strategies (in which mature-aged workers are offered “grandparental leave” or other flexible arrangements, but their knowledge is retained), reduce annual-leave balances or freeze salaries.
Other cost-cutting measures, Rihani says, include:
reducing corporate travel or opting for economy fares;
eliminating non-essential expenses, such as “internal entertainment”; and
cutting contractor numbers.
“Even basic things like cutting back on a newspaper subscription can save a job,” Rihani says.
Employees should also be tapped for cost-cutting initiatives and alternatives to retrenchments, she says, and be encouraged to develop and achieve those ideas within timelines. Employees, she says, often come up with proposals that “save the company more than required’.
Best practice process
When forced to lay-off staff, however, employers “can enhance their transition programs with better targeted and relevant financial advice provided prior to the employee’s departure”, Rihani says.
This will not only protect the employer’s reputation, and protect it from litigation, she says, but will give departing employees “peace of mind” and help them to “stretch their transition capital”.
A best practice process, Rihani says, involves addressing all of the departing employee’s financial concerns and ensuring that financial education is a measurable component of the outplacement contract.