Employers must follow a fair process when restructuring leads to redundancies
With the continued financial downturn this year, companies may be looking to make changes to their business to ensure financial viability. Businesses are entitled to make changes to staffing structures to ensure they are more efficient and profitable. However, there is often a human cost. When an employer makes changes to their business, particularly where redundancies are involved, it is important to get the process right from the outset.
To avoid a claim of unjustified dismissal and/or breach of good faith, businesses should carefully design and implement a fair redundancy process, under which they must:
- Make the position redundant for genuine reasons; that is, redundancy is not used as an excuse for dismissing an employee for performance or misconduct reasons.
- Have good commercial reason as to why the position (not the person) is no longer required. Clear evidence for the restructure should always be presented to the employee during the consultation process (this may, for example, include financial statements showing profit and loss, if financial concerns are the reason for the restructure).
- Fully consult with the affected employee about the restructure.
- Consider any possible redeployment for the affected employee.
A publisher was ordered to pay a former employee $23,000 after she was let go during a restructuring during the pandemic.
A fair process
While following a fair process is essential for all employment processes, this is particularly so when an employee is not at fault. A key element of a fair process during a restructure is consultation with employees. In Simpsons Farms v. Aberhart (2006) 4 NZELR 170, the Employment Court provided some helpful guidance on the requirements of consultation:
- Consultation must precede change. A proposal must not be acted on until after the consultation process is complete.
- Employees must know what is included in the proposal before they can be expected to give their view. They should be given sufficient, relevant and precise information which allows them to form and articulate an opinion.
- Employees must be given a reasonable opportunity to offer these opinions which may be shared orally or in writing.
- The employer, while entitled to have a working plan already in mind, must have an open mind and be ready to change the proposal based on the feedback received and even start anew.
A worker who was fired after his job was restructured into a different role was unfairly dismissed, the Employment Relations Authority ruled.
Potential issues
Some of the biggest issues we come across when advising employers in relation to restructures are:
- When a new role(s) is created and whether there should be a selection process and/or automatic redeployment should apply
- Whether an employee is entitled to their redundancy compensation based on whether a new role offered is substantially similar (based on the wording of their employment agreement)
- Managing a delay in the process where an employee kicks up a fuss and/or engages a legal representative at the feedback stage.
Overall, designing and running restructuring processes are inherently fact specific. They can be stressful not only for employees, but employers too. To ensure the process runs smoothly, we would highly recommend seeking legal advice early.
Holly Struckman is an associate in the employment team at Lane Neave in Auckland. Tamsin Woolf is a solicitor in the employment team at Lane Neave in Wellington. This article first appeared on Lane Neave’s website on 9 March 2023.
