Restructures and Redundancy – Tips and Traps

With an economic recession imminent, businesses are already starting to prepare for difficult financial times ahead. As part of this process, looking at cost cutting and gaining efficiencies by restructuring staff resources is something that will be considered by many employers. While never an easy process for either employer or employee, making sure legal obligations are met is paramount for ensuring employees are treated fairly, and to minimise the risk of a successful personal grievance. 

When making any decision that might result in the end of an employee’s employment there are two fundamental requirements that must be met – procedural fairness and substantive justification. Parties to an employment relationship also have a mutual duty to act in good faith, which involves being responsive and communicative with one another and not doing anything likely to mislead or deceive. In the context of a restructure, it requires employers to ensure the restructure is supported by genuine business reasons and that a fair consultation process is followed. When those requirements are not met is when businesses could face significant financial costs of either defending or resolving a personal grievance.

Some of the most common traps employers fall into when following a restructure process and tips for avoiding these are:

1.      Not complying with the employment agreement and policies

Employers are required to comply with their own polices and requirements set out in an employee’s employment agreement. Before commencing a restructure process it is imperative that the employment agreement and applicable policies are checked for an procedural requirements and that these are followed.

2.      Breaching good faith obligations

Employers have a legal duty to act fairly and reasonably. Any decision that could negatively impact an employee will be held up against the legal test of: what could a fair and reasonable employer do in all the circumstances?  Some examples of breaching good faith obligations include: rushing a consultation process and not providing sufficient time for an employee to consider a proposal and respond; not providing an employee the opportunity to have a support person present; not providing all relevant information; having ulterior motives for redundancies.

3.      A weak business rationale

The most common reasons for restructuring are: financial savings; a significant change or structural re-organisation to create efficiencies; or a transfer of a business. Disestablishing a position must be about the position itself, not the employee in that position. Employers carrying out a restructure and making an employee redundant for non-genuine business reasons, such as to address poor performance or because an employee is not the “right fit”, will be at risk of a successful personal grievance for unjustified dismissal.

4.      Predetermining the outcome

Employees must be consulted about any proposal to restructure that might have an impact on their role. It is very important that any consultation process is entered into with an open mind and without the outcome already being predetermined. Caution must be taken to ensure the language used in restructure proposal documentation and correspondence does not suggest a final decision has already been made by the employer.

5.      Not providing all relevant information

Another common trap is to not provide all the relevant information to support the restructure and enable the employee to respond to the proposal. Good faith obligations legally require employers to provide employees with all information that is relevant to any decision that could have an impact on an employee’s employment. The information should enable an employee to have a good understanding of what is being proposed and the reasons for this. 

6.      Flaws in the selection process with contestable roles

Care must be taken when following a restructure when there are contestable roles that must be filled. Contestable means that more than one employee affected by the restructure is qualified or suitable to perform the role. It is important that consultation extends to the selection process and employees are provided an opportunity to comment on both the selection criteria used and their individual scores. 

7.      Not considering redeployment options or alternatives to redundancy

Employers also have a duty to consider alternatives to redundancy and explore redeployment for employees who are facing redundancy. Employers should be able to demonstrate what other options have been considered and provide reasons why those options are not viable. Redeployment within the business should also be considered before providing an employee notice of redundancy. 

Employers considering a restructure that may result in redundancies are encouraged to contact our specialist employment team to discuss how best to manage this process to avoid/minimise legal risk. Likewise, employees advised by their employer of a restructure are encouraged to seek early advice about how to best maintain their employment relationship, or to exit the organisation in a way that best protects their interests. 

For any further information please contact DTI Director, Jaime Lomas – jaime@dtilawyers.co.nz