The words “restructure” and “redundancy” have featured regularly in media reports over the past two years in New Zealand. Many businesses and employees have gone through restructures and redundancies. The ongoing challenges of an economic downturn and uncertainty means that restructures and redundancies will continue to be considered by businesses as a way of managing costs, resources and efficiencies.

New Zealand’s employment legislation places strict duties on employers embarking on a restructure and redundancy process to ensure that a decision to disestablish a role/roles is lawful. The two main factors considered when assessing whether a redundancy is genuine are, substantive justification and procedural fairness.

We set out below a brief overview of the factors to consider when restructuring an organisation and making changes as a result.

Employee Rights

The starting point is that under New Zealand law, employees have significant rights designed to ensure they are treated fairly and reasonably, and that the power imbalance between employer and employee is not abused. Any action an employer intends to take that has the potential to affect an employee’s terms of employment and/or continuation of employment must be justifiable. This means that the employer must be able to demonstrate that it followed a fair process in arriving at its decision, and there is substantive justification for the decision.

Role rather than Person

In the context of restructures and redundancies, the starting point is that the focus must be on a role/roles rather than the employee. This is because the reason for a redundancy is that the employee’s role becomes surplus to the needs of the business due to the restructure. If there are other reasons driving the employer to use a restructure process to terminate an employee’s employment, such as poor performance, or behaviour-based concerns, the employer should use the relevant process to address such concerns.

Getting this wrong has the potential for a personal grievance claim on the basis of an unjustified dismissal.

Genuine Business Case & Rationale for Proposed Changes

The employer must have a genuine business reason for proposing change, and this must be clearly set out in writing in a Proposal document. The employer should be able to demonstrate the business case/reasons that led it to consider making changes, and the changes proposed. A Proposal document should be well drafted to ensure the employer discharges its duty of being able to show a genuine business case and the rationale for the proposed changes. It is best to do this with assistance from legal advisers.

Procedural Fairness

Apart from having a genuine business reason for the restructure and redundancy, an employer must also follow a fair process in arriving at its decision to disestablish a role. A fair process typically involves:

• Refraining from pre-determining the outcome and engaging in consultation in good faith;
• As part of the consultation process, providing potentially affected employees with the Proposal document and all relevant information, including their rights;
• Inviting feedback from employees and considering this in good faith; and
• Providing responses to the feedback, changing the proposal if necessary and obtaining further feedback; and
• Making a decision following the above.

Redeployment

Often the decision to disestablish a role may not necessarily mean termination of employment. An employer should consider redeployment opportunities. This part of the process can be tricky, depending on the circumstances. This is because there may be situations where an employee will have to be offered a role, and others where an employee may be invited to apply for the role. Termination of employment may be the eventual outcome if there are no redeployment opportunities, the employee declines the offer of redeployment or is unsuccessful in their application for a role.

Risk Management

Restructures and redundancies are ridden with risks, often resulting in disputes. It is best for employers to manage these risks by taking advice from the outset and obtaining assistance with drafting relevant documents throughout the process. The overview above is generic. In practice, the manner in which restructures and redundancies are managed and carried out will vary from organisation to organisation, depending on their unique facts and circumstances.

Feel free to contact our team of experts if you are considering a restructure and redundancies, or if you are an employee involved in a restructure process and in need of advice and assistance.

The contents of this article is not legal advice. It is a summary overview only.  For comprehensive legal advice, or to discuss this article, please contact our team at Smith and Partners Lawyers by completing the form below.