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Restructuring, also known as a ‘workplace change’ in New Zealand, is a common and often necessary step when businesses are growing or looking to change part of their operation. Sometimes, these restructures may make jobs or roles redundant or change those roles in some way. In New Zealand, there are specific rules and principles to be aware of when looking to commence a business restructure. This article will set out some of the most important ideas, such as: 

  • the need for a genuine business reason; and 
  • consultation requirements.

However, to get specific advice, you should talk to an employment lawyer when you are seriously considering a business restructure.

The Need For A Genuine Business Reason

New Zealand employment law is founded on the principle of mutual good faith between employers and employees. This broad duty of good faith has some specific consequences for businesses considering workplace changes like restructures, that may result in the loss of jobs or work. Of course, employers have a right to make changes to their business. However, there is a process to follow to protect any employees’ interests that might be affected.

The first step in this process is to ensure that there is a genuine business reason for the restructure and that you communicate this reason to staff. Restructures are not a way to avoid managing individual employee performance issues. 

For example, it is against the law and your duty of good faith to restructure to ‘get rid of’ a difficult employee.

As a consequence, you must be able to show that any proposals that could affect jobs at your business must have genuine business reasons. Employers should be able to produce evidence of the need for change, or the benefits to the business.

Examples of genuine business reasons include:

  • more productive business processes;
  • product changes;
  • improved technological capacity;
  • loss of suppliers or markets;
  • shifts in customer or market requirements; or
  • financial reasons.

Consultation Requirements

A further key requirement to bear in mind is the need for a fair and reasonable consultation process where employee’s jobs may be on the line. This process must comply with the minimum standards of good faith. This includes giving affected employees the information about the suggested changes or restructure and an opportunity to comment on it.

A fair and reasonable consultation process needs to include the following minimum steps:

  • before any final decisions are made, you should circulate the business proposal for a change to all employees likely to be affected; 
  • make sure to give employees reasonable time to respond, comment and suggest other options other than those set out in the proposal; and
  • take time to consider the responses before making any final decisions about the business.

Restructuring When Your Business Is Being Sold or Transferred

There are some additional implications to consider when your business is being sold or transferred. These implications are partly set out in the ’employee protection provision’ clause that is mandatory to include in your business’ employment agreements. This clause helps protect the employment of affected employees in the event of a restructuring through being sold or transferred. These provisions are intended to support a fair process for those affected workers.

Note that the effect of these clauses does not apply to all restructuring scenarios. It is limited to the specific restructuring situation where an employer: 

  • sells;
  • transfers; or 
  • contracts out part or all of its business.

The clause will set out an employer’s process in these situations. If it is your business in question, you must comply with the process set out in the employment agreement. It is important to follow this process and understand if your employees have special protections. Specific groups of employees with particular roles have additional protections, such as employees who focus on:

  • cleaning services; or
  • food catering.

Key Takeaways

While restructuring a business can be stressful for workers and management alike, sometimes it is required for a business to grow or adapt to market conditions. There are some obligations for you as an employer when commencing a restructure that may change people’s jobs. For instance, you must have a genuine business reason, communicate this reason to affected employees, and follow a fair and reasonable consultation process where you genuinely consider the staff’s feedback. These are all functions of your overall good faith duty to employees. If you want to know more about running a legal restructure, contact LegalVision’s New Zealand employment lawyers on 0800 005 570 or complete the form on this page.

Frequently Asked Questions

What is a genuine business reason for a restructure?

There are a range of genuine business reasons for a restructure. These will differ depending on the circumstances of your business and industry. Common business reasons include product changes or the loss of a key market. 

What is an employee protection provision? 

An employee protection provision is a mandatory clause in employment agreements. It sets out what happens to the employee if the business is sold or transferred to another business, resulting in their employer’s restructuring.

Can I make a job redundant without consultation?

No, you cannot make a job redundant without consultation under New Zealand employment law.

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