In Short
- Redundancy occurs when a role is no longer needed, not because of an employee’s performance.
- Always explore redeployment options and follow a fair, documented process to avoid claims of unjustified dismissal.
- Genuine business reasons include restructuring, downsizing, selling, or merging your business.
Tips for Businesses
Ensure any redundancy is clearly based on business needs, not personal issues. Communicate openly with staff, document decisions, and consider redeployment opportunities. Supporting employees and following a fair process reduces the risk of legal claims and maintains good faith during difficult organisational changes.
Running a business will inevitably involve periods of high growth and times of financial hardship. In those slow patches, you might be forced to make tough decisions about how you run and structure your business and the kinds of workers you can afford to keep. As such, you might consider making a certain role redundant which brings potential risks for an employer. Failure to conduct the redundancy process properly can result in a potential claim of unjustified dismissal against you as an employer. This article will explore the risks of redundancy in New Zealand.
What is Redundancy?
Redundancy is a process of terminating employment where the position of the worker is no longer needed by a business. Often, this occurs when the type of work or quantity of workers is no longer necessary, particularly during periods of change in a business.
This may occur due to reasons like:
- a company restructure;
- where a job has been replaced by machines;
- where a role is being outsourced; or
- where the company is financially unable to continue to employ people in a certain position.
A properly carried out restructuring process ending in redundancy should limit the number of unjustified dismissal claims that can potentially arise. Importantly, when deciding on making a role redundant, the quality of the work performed by the particular employee is irrelevant. Indeed, the key is whether the role they perform is still available (or not).
Prior to Redundancy
As an employer, it is critical to first consider whether another position is available within the company that an affected employee can carry out. Indeed, always contemplate redeployment options before redundancy. A failure to consider any potential redeployment opportunities can raise doubts as to whether the redundancy was, in fact, genuine.
Continue reading this article below the formProtection Against an Unjustified Dismissal
Organisational change and restructuring of the workplace can be stressful for employers and employees. To avoid legal claims, your business must take certain steps before redundancy.
Note the following two key considerations:
- there is a genuine business reason to make a role redundant; and
- your business follows a fair process.
What is a Genuine Business Reason?
There must be a genuine business reason to implement a restructuring of the workplace. Some examples of genuine business reasons include:
- closing or selling your business;
- restructuring your business;
- creating financial sustainability resulting in a downsizing; or
- merging of businesses.
If the issue is actually a person’s underperformance at work, it will be more suitable to conduct ongoing performance improvement meetings. Likewise, allow the employee a chance to improve their performance. Otherwise, any individual targeting of an employee and decision to make them redundant can result in a personal grievance claim.
When your employee does not perform at the expected level, a performance improvement plan (PIP) may be required to get them back on track. Our free PIP template will assist.
Additionally, if you believe an employee is not suitable for the role or that they do not get along with other employees, that is not a genuine business reason to make them redundant.
What is a Fair Process?
If you decide to conduct a redundancy process, ensure that you document what changes you need to make and why they are necessary.
Likewise, meeting with all staff members to explain the company changes and requesting their feedback is a way to demonstrate your commitment to a fair process. Genuinely considering your employees’ feedback and making changes accordingly is also vital. Once you have decided on a final structure and the changes your business will make, meet with the affected employees to discuss this outcome.
In discussing redundancy with employees, there is still an obligation of good faith between the parties. Having a fair process means you should also ensure that you tell your employees what criteria they are being evaluated against and have an opportunity to comment on it.
Finally, you must support your employees as much as reasonably possible. Redundancy can be a stressful process. However, providing ongoing support and meaningfully engaging with affected employees can demonstrate that there are no ulterior motives behind the redundancy and that you are acting in good faith.
Risk of Personal Grievance
In the case of Totara Hills Farm v Davidson, the Court found that merely stating that the employee was made redundant for a genuine business decision is not enough.
In reality, the Employment Relations Authority or Employment Court will inquire into:
- the decision-making process of the employer;
- how the decision was reached; and
- what a fair and reasonable employer would and could have done in the specific circumstances.
As such, it is insufficient to make empty claims that a redundancy process is genuine. You need to be able to explain why. Likewise, always follow a fair and reasonable process.
Redundancy Pay and Compensation
There may be a clause in the employment agreement regarding how much redundancy pay an employee is eligible for if they are made redundant. In many cases, there is no provision for a redundancy payment. If that is the case, your employee is not legally entitled to redundancy pay, though you must pay them for their notice period as stated in their agreement.
Key Takeaways
It is important to ensure that you deal with all employees in good faith, especially in times of redundancy. It is a difficult time for both parties, but ensure that you provide them with the support needed and follow the proper procedure for redundancy.
For assistance and advice with redundancy, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0800 005 570 or visit our membership page.
Frequently Asked Questions
Redundancy is a process of terminating employment where the position of the worker is no longer needed by a business.
Some examples of genuine business reasons include closing, selling or restructuring your business. You might also be downsizing or merging your business with another.
We appreciate your feedback – your submission has been successfully received.
