What's the difference between redundancy and retrenchment? Here are the facts, costs, benefits and alternatives.

Redundancy or retrenchment?

Redundancy and retrenchment are different terms that are sometimes confused.

A redundancy occurs when a specific position within a business is no longer required. In this situation, an employee may be redeployed to another position where suitable. If they cannot be redeployed, they may be retrenched.

A retrenchment occurs when an employee loses their position and cannot be redeployed because no other suitable positions exist.

Alternatives to retrenchment

To avoid retrenching skilled employees, who may need to be re-employed once the market has recovered, a business should consider alternative cost-cutting and business development activities.

There are many support services in Victoria, both government and non-government, that provide advice and direction about the various options available to help businesses survive challenging times.

Employers need to consider the cost of the retrenchment of workers as part of the retrenchment process.

The International Labour Office (ILO) has identified the following costs of retrenchment for an employer, which can be both financial and non-financial:

  • Direct costs – The direct and indirect costs associated with layoffs might reduce future gains.
  • Layoffs have serious operational disadvantages – Layoffs can cause a number of serious problems. Employee morale is lowered by the fear of losing their jobs. The business might be affected by realigning its employees and restarting their operations after the retrenchment process.

Employers often believe a number of myths about the advantages of downsizing for business success and the lack of adverse impacts on employees.

Here are some myths and facts about retrenchment:

Retrenchment boosts profits. Profitability does not necessarily follow retrenchment.
Retrenchment increases productivity Productivity results after retrenchment are mixed.
Retrenchment has no adverse effects on work load, morale or commitment to a company. In most companies, the retrenchment process has adverse effects on work load, morale and commitment.
Retrenched workers suffer no long-term income losses as a result of structural shifts in the economy. Downward mobility is the rule rather than the exception.

Less costly alternatives to retrenchment include:

  • Retraining
  • Reducing overtime
  • Encouraging people to take built-up leave
  • Changing full-time positions to part-time or casual work
  • Rewriting job descriptions
  • Job redesign
  • Temporary shutdowns and cutting costs in other areas
  • Transfers.

Source: International Labour Office: A guide to worker displacement (2009)