Redundancy

With the drop in the milk payout it may be tempting to cut costs by reducing staff numbers.  However, as always with employment, making staff redundant is not as straightforward as it seems.  To avoid an employee taking a personal grievance, employers need to be careful to ensure that they have a genuine commercial reason for making an employee redundant and follow proper process.

There must be a proper commercial reason for the business restructure or downsizing.  The Employment Relations Authority and the Employment Court will determine whether the decision to make a person redundant, and the process taken to reach that decision, was what a fair and reasonable employer would have done in all the circumstances.  The employer must do their homework properly as the Authority and Courts will audit any calculations of cost savings claimed by the employer.

What is redundancy?

Redundancy is where an employer terminates an employee’s employment because the position is no longer required.

When can a person be made redundant?

Two circumstances need to be present in order for a redundancy to occur:

1.     The position must be superfluous to the employer’s needs.

For example, where a larger number of employees are employed than necessary to operate the business efficiently, certain positions may be disestablished.

The position must actually disappear. The employer cannot claim redundancy by changing a job description slightly or employing new employees to undertake the same or a similar position.

2.    The employee must not be at fault

The decision must be about the position and must not be about an individual employee personally.  The employer cannot use redundancy as a means of getting rid of under-performing employees or disciplining employees for misconduct.

What is the process for making a person redundant?

As with terminating an employee’s employment for misconduct, the employer must follow proper process when considering whether to make an employee redundant.  This will usually include the following steps:

(a)   Read the employment agreement

You should always make sure you are familiar with the terms of the employment agreement. This will usually have specific provisions dealing with redundancy process and any entitlements.

(b)  Have a written record of your proposed restructure

To avoid a claim for unjustified dismissal, it is crucial that you have a written record of your proposed restructure, the reasons for the restructure, and the impact on your business and employees. You can use this document as the basis for consultation with your employees.

(c)   Consulting with employees

The duty of good faith requires employers who are proposing to make a decision that is likely to have an adverse effect on the continued employment of an employee to provide the potentially affected employee with:

(i)   Access to information about the decision; and
(ii)  An opportunity to comment before the decision is made.

Consultation is not just notifying employees of a decision. Employers must give employees reasonable notice of the consultation meeting and give employees a reasonable opportunity to state their views.

The decision should not be made at the consultation meeting.  The employer should give employees time to consider and respond to the proposals. Employers must have an open mind and must genuinely try to accommodate their employees’ views before making a decision.

Employers should keep a written record of the decision-making process, including consideration of employees’ feedback.  Once a decision is made to disestablish a position, the employer must give written notice to potentially affected employees.  The employer should also offer to meet with the employees to discuss the potential outcomes, such as redundancy.

(d)   Selection for redundancy

Where employers need to select between more than one employee, employers must have clear criteria for selecting who is to be made redundant and must consult with potentially affected employees on the selection process. When deciding which employee to make redundant, the employer may only consider the criteria and cannot take other factors into consideration.

(e)   Alternative positions

Before making an employee redundant, if there is another position available, the employer must consider offering the employee that alternative position, even if the position requires a lower skill set and is lower paid.

(f)   Notifying the employee

Once the employer has made a decision, the employer must give the affected employee written notice along with notice of any contractual entitlements such as compensation.  Again, you should check the terms of the employment agreement to determine how much notice is required and any other requirements.

This is general information only and is not tailored legal advice.  If you are considering a business restructure, please contact BlackmanSpargo for specific advice.

For more information and a step-by-step guide to redundancy see: http://www.business.govt.nz/staff-and-hr/ending-employment/employee-redundancy

For more information on redundancy see: https://www.employment.govt.nz/ending-employment/redundancy/