A “redundancy” is, broadly speaking, any situation in which an employer terminates an employee’s employment because their position has become surplus to business requirements.

It is important to understand what redundancy is not – it is not to address performance, medical, or conduct issues.

It is the employer that decides that a position is redundant. This means the employer bears the burden of justifying its action. They must show that the redundancy is genuine, as opposed to a means to dismiss an employee for misconduct or poor performance. Genuine reasons for redundancy commonly include:

  1. Financial reasons, such as where the employer’s business is suffering from an economic downturn. It is important to note that courts are reluctant to delve into the business reasons for an employer’s decision.
  2. Restructuring or reorganization, generally occurring where two or more employees are performing the same or similar roles, or where new technology automates an area of the business, causing genuine inefficiencies in the business structure.

This is not a strict list of reasons that will justify an employee being made redundant. The point is that there cannot be an ulterior reason for the redundancy, as that would constitute a sham redundancy.

Engagement and consultation with the employee is essential to the redundancy process. The employer must engage with the employee in good faith, providing all relevant information and seeking feedback on the redundancy proposal.

What constitutes “good faith” engagement is somewhat amorphous. The Employment Relations Act 2000 requires an employer proposing to make a decision that will, or is likely to, have an adverse effect on the continuation of employment for its employees, to provide the effected employees with:

  1. Access to information, relevant to the continuation of the employees’ employment, about the decision, and
  2. An opportunity to comment on the information to their employer before the decision is made.

The idea is that informed employee involvement will promote better decision making by employers and greater understanding by employees of the decisions finally made.[1]

The final concern is whether the employee’s feedback has genuinely been considered by the employer. Simply “going through the motions” of considering employee feedback will not be sufficient. The employer should show that feedback has been considered by speaking to that feedback and, ideally, providing a response to the employee.

Though employers are entitled to have a plan in mind, they must keep an open mind and be adaptive to employee feedback. Failing to do this can lead to allegations that the employer has pre-determined the outcome of the consultation process, which may be grounds for a personal grievance.

What does this mean for you?

If you are an employer thinking about a redundancy process, seek advice early. With legal support, the legal and financial risk of a challenge can be significantly mitigated.

If you are an employee who has been told they might be made redundant, or are going through a restructuring process, you can contact us for a free initial consultation.

 

*The information in this blog post is general in nature, is not legal advice, and should not be relied on without speaking to a lawyer about your specific situation. 

 

[1] Vice-Chancellor of Massey University v Wrigley [2011] NZEmpC 37, [2011] ERNZ 138.