Restructures and redundancy – getting it right
COVID-19 has placed unprecedented stress upon businesses and employers across New Zealand. While some are struggling to fill roles, others are discovering that they need to restructure to reduce costs, or operate more efficiently.
Businesses are able to change their structuring as is commercially necessary. In doing so they need to ensure that their restructure process and the outcome for employees, is carried out and justified in accordance with New Zealand employment law.
What is restructuring?
A restructure occurs when changes are made to a business structure, generally to make it run more efficiently, optimise performance, change focus, or cut costs.
Restructuring might involve:
- creating new roles;
- merging existing roles;
- disestablishing roles that are surplus to requirements; or
- a combination of the above.
If employees are impacted, employers need a genuine business reason for the change, for example, financial reasons, downturns in work, changes in products, changes in consumer behaviour, or merging with another business.
What is redundancy?
If a role is disestablished and the employee affected is not redeployed to another role, their employment will be terminated for redundancy.
Redundancy should be the last option. Before doing so, employers are required to consider potential redeployment options within the business for the impacted employee.
When certain of the same roles are to be disestablished, an employer must select the employees for redundancy using a fair selection process. There must be a clear criteria for selecting the employees to be made redundant (and alternatives considered). Alternatives need to be explored first.
It is unlawful to make an employee redundant and then replace them, or make an employee redundant due to poor performance or other issues not related to the restructure.
These matters can be complex where a restructure is driven by unsuitability or performance issues as well as business requirements, or if the employer has already got a performance or disciplinary process underway when a restructure is implemented. We can assist to navigate the complexity.
We recommend that employers obtain legal advice before they proceed with a restructure process affecting employees.
Employers must act in accordance with the principle of good faith under the Employment Relations Act 2000 throughout the restructure process, meaning that employers must be communicative, act fairly, and be active and constructive in maintaining a productive employment relationship.
In terms of the restructure process, as a guideline, we set out below the necessary steps:
- Step 1. Document the Proposal: the ‘what is proposed’ and ‘why’;
- Step 2. Consultation Meeting: the ‘what does it mean for you’ and ‘what do you say in response’;
- Step 3. Consideration of Feedback: employer reflection, ‘what does the feedback mean for the proposal?’ and ‘are further changes required/further consultation necessary?’;
- Step 4: Communication of Outcome: with reflection on feedback;
- Step 5: Meeting to Discuss Outcome: ‘what does this mean for you’ and if the role is disestablished, ‘what alternatives are available?’ (if alternative roles are available, these should be considered).
Redeployment and Retraining
Employers must consider redeploying employees as an alternative to redundancy, as failure to do so could result in claims of unjustified dismissal.
An employer is not obliged to offer an employee redeployment to a position requiring a significant amount of retraining or skills and experience the employees does not have. However, if there is an alternative suitable role that the employee has the skills and experience to perform or could perform after some retraining, the employer must offer it to the employee. It is not enough for the employer to simply offer the employee the opportunity to apply for a suitable alternative role.
An employee is not obliged to accept an offer of redeployment to an alternative role. If an employee turns down an offer of redeployment, the employee will be redundant.
Mistakes to Avoid
To reduce the risk of a personal grievance claim, employers should not:
- make a predetermined decision as to the outcome of the proposed restructure process (and express an opinion on the outcome in writing! – even private emails may be discoverable);
- be unclear about the proposal or the possible consequences if implemented;
- use redundancy as a mechanism to remove staff for other reasons eg. due to poor performance;
- refuse to give relevant information in support of the rationale for the proposed restructure; and
- fail to consider redeployment as an alternative to redundancy.
If you have any questions regarding this guidance on restructuring and redundancy, our Employment team can assist.