No deal: worker challenges dismissal after business sale falls through

The Employment Relations Authority (ERA) recently dealt with a case involving a worker who claimed she was unjustifiably dismissed during a business restructure.

The worker, who had been employed since 2014, challenged her dismissal following the collapse of a proposed sale of the business in September 2023.

The worker argued that her employer failed to follow proper consultation procedures during the redundancy process and did not provide adequate information to enable meaningful participation in discussions about her future employment.

The employer denied the claims and argued that the decision to dismiss was due to genuine redundancy and was both substantively and procedurally justified.

Business restructure follows failed sale

The employer was the sole owner of a café in Tauranga. She had decided to sell the café and retire in 2022 due to financial and stress considerations.

A sale and purchase agreement had been entered into, but the sale fell through at the last minute, meaning that settlement scheduled for July 2023 did not proceed. Following this failed sale, the owner decided to restructure aspects of the business.

The worker had started employment in 2014 and was employed as a barista according to an individual employment agreement dated 5 June 2022. The agreement recorded that her agreed hours of work were a minimum of 28 hours per week.

However, following an injury in 2020, she had changed to working 16 hours per week from approximately February 2023. Prior to her injury, she had been working an average of about 38 hours per week.

A letter dated 29 August 2023 from the owner notified employees of a possible restructuring, noting the failed sale and a 'downturn in business' and advising that she would "likely need to look at restructuring some roles".

On 4 October 2023, the worker was advised that she was being dismissed from her employment, her role having been disestablished as part of the restructuring process.

HR consultation conducted by 'family friend'

The restructuring process was conducted by a family friend of the owner who had some HR experience. The friend was the partner of the owner's father and had offered to help after the owner became stressed by the issues with the proposed sale.

The first meeting with the worker took place on 21 September 2023. Instead of meeting with the owner, the meeting was with the family friend.

The worker said the latter refused to disclose her last name or job title and that the meeting lasted approximately three minutes, involving the family friend wanting the worker to discuss ideas for 'a work proposal to cut costs'.

A second meeting took place on 26 September 2023. The worker said she had lots of ideas to cut costs and discussed those at the meeting. She said the family friend made notes but they were not discussed with her again.

A letter from the owner to the worker on 28 September 2023 stated that the "Café turnover / profitability has steadily reduced by 12% in the past 4 months and is no longer sustainable".

The letter recorded that a restructuring would likely be necessary and would likely lead to redundancies. A 'workplace change proposal' was attached, proposing staff changes including combining the barista and front of house roles and selection criteria favouring full-time over part-time staff.

ERA finds procedural failings in dismissal

The ERA found significant procedural failures in the dismissal process. Section 103A of the Employment Relations Act 2000 requires the ERA to consider on an objective basis whether the employer's actions were what a fair and reasonable employer could have done in all circumstances.

The ERA found that the information provided during consultation was clearly insufficient. The ERA stated:

"The information provided was in my view clearly insufficient to establish a justification of the action taken, and critically, was insufficient in terms of providing an opportunity to understand [the owner's] concerns and to enable meaningful proposals to be put forward that might have seen [the worker] remain employed."

A significant issue was the failure to properly consider the worker's employment status. The family friend gave evidence that she did not review the worker's individual employment agreement and proceeded on the basis she was part time.

The owner acknowledged that the worker was "technically a full-time employee at the time" but said she was only available to work 16 hours a week due to her injury and Accident Compensation Corporation situation.

The ERA noted: "I find that, while not necessarily deliberate, there was a considerable failure relevant to the consideration of [the worker's] employment agreement and hours of work."

The approach taken to selection was also problematic. In cross-examination, the owner acknowledged that another part-time employee was retained because they worked full days. The ERA found this was effectively another selection criterion that was not disclosed.

Substantive justification found lacking

The ERA also found that the dismissal was not substantively justified. The owner's evidence was that turnover had reduced 12 percent and that there were costs associated with the failed sale.

However, the ERA was not satisfied that the owner had provided sufficient information to support these claims.

The ERA stated: "I am not satisfied that [the owner] has provided sufficient information in support of those matters such as to establish a substantive justification for the restructuring and the termination of [the worker's] employment."

The ERA noted that little information was given other than the owner's direct evidence about turnover reduction, with an absence of financial statements, cost estimates, or other records.

There was conflicting evidence between the owner and The family friend about who and how many individuals were dismissed. The ERA noted that this conflict of evidence "clearly highlight[ed] that there was an absence of any clear commercial reasoning for the relevant changes".

The ERA concluded: "I am not satisfied that [the owner] has discharged the onus of establishing that the dismissal was substantively justified. [The worker] was unjustifiably dismissed from her employment."

Worker awarded compensation

The worker sought compensation for lost wages and for humiliation, loss of dignity and injury to feelings. She gave evidence that the dismissal had affected all areas of her life and that she was fearful of leaving her house because she might run into people she knew from the café.

She said she feels unfairly judged, is no longer outgoing and socially active, cannot sleep without medication, and has been attending counselling weekly since the dismissal.

The ERA found that the worker was entitled to compensation for lost wages based on 16 hours per week at $24.50 per hour for 13 weeks. The ERA ordered the owner to pay $5,096 as compensation for lost wages within 28 days.

For humiliation, loss of dignity and injury to feelings, the ERA stated: "I find that [the worker] was understandably impacted by the dismissal and that an award of compensation for humiliation, loss of dignity, and injury to feelings is appropriate."

The ERA ordered the owner to pay $15,000 within 28 days. The total compensation awarded was $20,096. The ERA concluded: "I am unable to find that there is a basis on which [the worker's] actions could be said to have contributed to the situation giving rise to her personal grievance."