2020 Job cuts, how, why, what next?
Today is Thursday 25 June 2020 and the news is finally hitting home to thousands of families that the Australian national Airline, Qantas, is going to be letting go of 20% of its staff. A further 50% will continue to be stood down for several months (https://www.abc.net.au/news/2020-06-25/your-qantas-job-cut-questions-answered/12392348). Qantas is certainly not the canary or koala in the coal mine, other airlines have also encountered the need to restructure (todays lexicon: right size), and with the second carrier already under administration, the press keeps sensationalising the realities of business reacting to the economic conditions (https://www.businessinsider.com.au/coronavirus-airlines-that-failed-bankrupt-covid19-pandemic-2020-3?r=US&IR=T). The levers are few and the impacts are on real people, but the complainants are many, from the press, trade unions and the affected employees too. Let’s look at these issues.
Stood down means that you are still officially employed by your employer, but are not receiving shifts, work and are thus not earning an income (https://www.seek.com.au/career-advice/article/what-does-it-mean-to-be-stood-down-during-covid-1)9. Organisations can only use this when there is an event totally out of the control of the employer, and because it wishes to keep employees that have been trained. It means the employees are not officially earning an income, but can accrue entitlements such as annual leave. In the case of Qantas, 50% of their workforce is under this arrangement, as Covid-19 and its impact on airline travel is severely affected and when it bounces back, their highly trained workforce will need to be brought back to work.
Redundancies: This option is where an employee is paid out their entitlements and given severance, and no longer an employee of the organisation (https://www.fairwork.gov.au/ending-employment/redundancy). These can be forced upon employees, such as the 6000 announced today or voluntary. This is used when an organisations labour force requires minimal training, or their skills are readily available, or the labour is being replaced, or because some employees impact the balance sheet because of their high salaries or sizeable entitlements. In this case, it could be assumed that Qantas does not expect 20% of their market to return in the near future.
Renegotiate contracts: The most common renegotiations that occur in companies when they are in financial troubles is that of wage costs, and in these Rona times we’ve seen companies implement 10% wage cuts to their lowest paid and some with 50% cuts to their highest paid (https://www.crn.com.au/news/hills-opts-for-company-wide-staff-pay-cuts-amid-covid-19-547328). Other contracts that renegotiations are attempted are with both customers and suppliers. It is easier to negotiate when you are an advantage, but even when at a disadvantage, being forthright about challenges and asking your valued partners to share the burden can be more beneficial than keeping them in the dark as they will prefer the certainty of a lesser return to an uncertain expected sum.
Trade unions & the media: The media seems to stir the mass of public opinion quite heavily, and has become more influential on society as it continues to read less. Unions have, as they always tend to react to job cuts, negatively (https://www.theadvocate.com.au/story/6806170/unions-condemn-premature-qantas-job-cuts/). Both could have reacted in a centralist way and been pleased at 80% of workers retaining a role and offered to negotiate for the 20% that lost their jobs instead of the chest thumping militant response that they gave, demanding commonwealth government funds (https://www.theguardian.com/business/2020/jun/25/qantas-to-cut-6000-jobs-and-keep-15000-stood-down-in-bid-to-survive-coronavirus-downturn). Unfortunately the media and unions tend to forget that all government policy isn’t paid by the politicians, but by us, the tax payer.
Chapter 11 (USA) vs Voluntary Administration (Australia): Both mechanisms aim to rehabilitate companies, provide protections and a pathway to improved outcomes (https://sklawyers.com.au/white-papers/voluntary-administration-sme-creditors). Opponents of the USA system claim that Chapter 11 allow poor management to remain and the entry conditions are too easy to implement (http://www.companydirectors.com.au/~/media/A55A70A0447C47AA9FDB86CDEB1F9531.ashx). Proponents for Chapter 11 essentially argue that because the entry condition allows a company that isn’t insolvent to enter those arrangements earlier and save the company (https://www.nortonrosefulbright.com/en/knowledge/publications/fbc86c08/you-cant-always-get-what-you-want). In Qantas’ case, had Chapter 11 been available, they would have entered it and applied the “right sizing” that they are currently applying, and in doing so, would have greater protections, apart from being viewed by the media and unions as prudent managers. Had Qantas entered a Voluntary Administration, they would be viewed as the kiss of death and route to liquidation (https://www.smartcompany.com.au/people-human-resources/managing/voluntary-administration-a-kiss-of-death/).
What else can be done? The media and unions need to be aware that companies have a board of directors whose duties in Australia revolve around them exercising their power with due care and diligence, in good faith and in the best interest of the company, and not improperly using position or information as set out in the Corporations Act Australia 2001 sections 180 to 184. In short, directors aim to improve the company position, the owners of the company are the shareholders, not necessarily the employees. In this case, Qantas is setting themselves up for the expected 2021 rebound, while trying to remain as commercially viable until that time as possible. The media and unions will have you believe that Government is the solution to all problems, but as Ronald Reagan said in his inaugural address “government is not the solution to our problem, government IS the problem”. A better approach is to allow companies themselves to solve their problems via a ‘solution economy” that promotes free enterprise to develop innovative ideas instead of old stale government policies (https://www.marketplace.org/2018/03/09/when-government-cant-solve-problems-more-companies-seek-step/). Governments could certainly pump money at companies, as they wrongly did for the GFC (https://www.forbes.com/sites/richardsalsman/2013/09/19/the-financial-crisis-was-a-failure-of-government-not-free-markets/#45036b2951c3), but it will not address the fundamental cause of companies impending failure, their fixed costs and an their inflexibility to react to changing market conditions that Chapter 11 or Administration would allow.
What now? It can be said that Qantas has reacted prudently for their owners, the shareholders, but their employees that were made redundant today could argue the opposite. It is most probable that Unions and Qantas will meet in the coming days to temper their rhetoric, understand and accept that a 20% cut is better than 30% or more. Economists predicted a 10% unemployment rate by the end of June 2020 (https://www.rba.gov.au/speeches/2020/sp-gov-2020-04-21.html), pre Rona we were at 5% and by the end of May 2020 we reached 7.1% (https://www.abs.gov.au/ausstats/abs@.nsf/mf/6202.0). We can blame this on the current coronavirus pandemic and its impact on global travel (https://www.sbs.com.au/news/qantas-to-cut-6-000-jobs-slash-costs-as-part-of-coronavirus-recovery-plan). How we recover, is for corporations to make whatever they need to remain financially solvent until the economy bounces back. Whether the recovery be V or U shaped, is irrelevant (https://www.pwc.com.au/important-problems/australia-rebooted-resetting-economy-after-covid-19/economic-recovery-scenarios-enterprise-australia-fortress-australia.html). All that matters, is that Covid 19 restrictions be released and then the economy can commence to return to pre Rona times (https://www.amp.com.au/insights/COVID-19/australian-economy-recover-after-covid-19). Let’s hope that journalists look beyond ideology and report thoroughly and in a balanced way.
