Zombie Companies – need to “cut the fat not the muscle”

As we head towards the end of JobKeeper and the proverbial cliff for some companies – the term “Zombie Companies” spring to mind.  What are “Zombie Companies” – those who are heavily reliant on the JobKeeper payments to pay for operational costs of the business but once the subsidies run dry will have difficulty running the business.

Those companies who are largely utilising JobKeeper to pay for costs will struggle to continue once 28 March rolls around.

If you own a company, or you are a board member or director of a company in this situation it is time to take stock and take action now. Even if JobKeeper continues past 28 March 2021 and the indications from Government so far is that it will not – even if it does it will be greatly reduced.

It is time to Cut the Fat not the Muscle.

So here are the 6 main considerations for Employers – “Cut the Fat not the Muscle”

1. Assess your costs

Employers must take a hard look at their current costs.  Review the larger costs such as:

  • Wages
  • Lease/rent payments
  • Equipment costs
  • Subscriptions

Taking stock of your larger costs gives companies an opportunity to reduce the costs now.  There may well be contractual terms you need to consider and potentially processes that might need to be followed – even if it is too late at least you will have an understanding of the liability going forward.

2. Assess your workforce

For most companies the biggest cost is usually going to be wages.  

Workforce planning will be integral. 

Assess the workforce and in particular what are revenue raising positions and what are operational. 

Here are some key questions to ask:

  • Can some positions be combined are others utilised fully?
  • Will a restructure be required?
  • Will we need to make some positions redundant?
  • What steps do we need to take to comply with our employment law requirements?
  • What risks (if any) will there be in the restructure?
  • What is our liability – both financial and legal immediately and going forward?
  • Are there other avenues to consider such as:
    • Reduced hours
    • Conversion to casual or part time
    • Working from home
    • Contractors

3. Retain good staff if you can

If you can – retain your good staff – keep the muscle.

One way to retain staff but still reduce costs is reducing ordinary hours.  Employers can consult with their employees about reducing ordinary hours but keep as many employees onboard as possible.  This may lead to a redundancy event and advice should be sought before taking these steps.

Another way might be to start centralising certain tasks and duties which will usually lead to redundancy events.  This may lead to a genuine redundancy wherein the employer no longer requires any person to undertake the position and therefore the employee’s employment is no longer required.

4. Have the difficult conversations now

It is likely that any reduction in staff will likely lead to triggering redundancy events.  For most small businesses (those with less than 15 employees) they won’t be required to pay redundancy pay. 

For other companies – they will.  However there are also notice obligations as well as consultation obligations so you need as much time as possible for that to play out.

You will need to consider all obligations under industrial instruments such as modern awards and enterprise agreements.

There are also options to apply to the Fair Work Commission to reduce the redundancy payment – however this has been historically very difficult to achieve.

5. Consider your risk

There are a number of risks when you start looking at any restructure the main ones seem to be:

  • Unfair dismissal applications
  • Breach of contract
  • General Protections Applications
  • Complaints and grievances
  • Workers Compensation claims

For more information check out our articles on General Protections and Unfair dismissal.

Each application has its own nuance so getting advice early will ensure you mitigate your risk and liability.

6. Other issues

Some other issues you may want to consider:

This is the time for organisations who may be a potential zombie company to avoid being a statistic.  Get in touch with  NB Lawyers – Lawyers for Employers undertake and book an obligation free consultation.  Reach out via service@nb-lawyers.com.au or +61 (07) 3876 5111 to book a consultation.

If you got value out of this article email service@nb-lawyers.com.au or click on this link to subscribe to our value added newsletter. 

Written By 

Jonathan Mamaril 

Principal 

NB Lawyers – Lawyers for Employers 

jonathanm@nb-lawyers.com.au 

+61 (07) 3876 5111 

Jonathan Mamaril leads a team of handpicked experts in the areas of employment law and commercial law at NB Lawyers – Lawyers for Employers who focus on educating clients to avoid headaches, provide advice on issues before they fester and when action needs to be taken and there is a problem mitigate risk and liability. With a core value of helping first and providing practical advice, Jonathan is a sought after advisor to a number of Employers and as a speaker for forums and seminars where his expertise is invaluable as a leader in this area as a lawyer for employers. 

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