Redundancy is a situation where an employer terminates an employee due to the fact that the position filled by that employee is no longer required to the needs of the employer. It is the position itself that is redundant and the decision to make a position redundant should have nothing to do with the particular employee or the employee’s performance.
A redundancy can occur for financial reasons, where the employer is having financial difficulty and it is necessary to keep their costs down, or the employer may need to make changes to make the business more effective.
These changes will need to be because of genuine changes to the company’s operations. When an employee’s job is terminated by way of redundancy it should not be a reflection on that person’s ability to do the job or for other personal reasons.
Employers and employees must act in good faith towards each other in all situations, including redundancy situations.
To ensure that redundancy is genuine and fair, there are two issues to look at:
- The reasons for the redundancy (substantive justification)
- The procedure used to carry out the redundancy (procedural fairness)
The Employment Relations Act 2000 requires employers who are proposing redundancies to consult with their employees concerned. The employer must give the employees access to relevant information and an opportunity to comment on that information before the final decision on the redundancy proposal is made.
If the employment agreement contains a process to be followed in redundancy situations, then the employer must follow this process. In most cases here is a step by step guide, in all cases, specialist advice should be sought before enacting.
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The employer must be able to clearly identify the rationale behind the restructuring. This must be a genuine business reason and nothing to do with the employee (s) or their performance. If more than one employee is competing for the same role, then it may be necessary to involve a number of employees in the restructuring process. Specialist advice should be sought in relation to this otherwise any dismissal may be seen as an unjustified redundancy.
Arrange a meeting with the employee. The employer should draft a letter to the employee setting a time and place to meet. The employee should be advised that the purpose of the meeting is to allow them to seek clarification and provide their feedback in relation to the proposed restructuring. The letter should outline in detail, the reasoning behind the proposed restructuring, and give full details of the proposed restructuring that is to occur.
The letter must make it clear that no decision has been made, but that the employer is proposing changes that will affect the employee’s employment, and that the employee is entitled to have a representative or support person present at the meeting.
The employee should be given at least 48 hours notice of the meeting and advised that they require further information, however, all relevant information should be provided to the employee in the first instance. The failure to provide information could be viewed as unfair and allow the employee to raise a personal grievance.
At the meeting, the employer should ensure the employee fully understands the proposed restructuring and the possible effect it would have on the employee’s employment. The employer should not make any comment which indicates a decision has been made regarding any new structure or any changes to the employee’s position. The employee should then be given an opportunity to provide their feedback in relation to the proposal.
If more than one employee is involved in the process, there should also be some discussion regarding fair selection criteria to determine which employees are made redundant; again seek specialist advice in such circumstances should be sought to avoid an unfair redundancy claim.
Once the employees have provided their feedback, the meeting should be adjourned for the employer to consider the feedback provided (if any).
Once the consultation process has been completed, the employer is in a position to make and communicate a decision in relation to the proposed restructuring. This should be confirmed in writing.
If more than one employee is involved in the process, an additional step would need to be made at this point in applying the selection criteria; again call us.
The Courts have also held that an employer is entitled to make decisions to reorganize their operations where employees are made redundant. However, employers must meet the requirements of procedural fairness. A reasonable employer cannot be expected to surrender the right to organize his or her own business, so an employer can make changes to their business but must follow a fair and reasonable process.
A fair process could also include aspects such as:
- Plenty of notice about any redundancy proposal
- An open-minded approach to alternatives to redundancy, such as redeployment
- Counseling and career advice
Compensation for being made redundant is generally not a legal requirement, but it can be negotiated between the two parties. Some employees (who do certain catering, cleaning, caretaking, laundry or orderly work) can ask the Employment Relations Authority to decide what redundancy entitlements they should receive when their employment agreements do not cover redundancy entitlements in restructuring situations.
If an employee believes that they were made redundant for reasons that were not genuine or that the redundancy process was unfair, they can challenge it by raising a personal grievance for an unfair dismissal claiming that the redundancy was unjustified.
As an employer why should I use IRT for this process?
The answer is simple, this is what we do, we live and breathe employment law. We represent employers all over New Zealand and we can handle everything from writing the letters to running the meetings. We can work within your budget to give you the best service for the right results.
Remember you need to have confidence and trust in your employment lawyer or employment advocate, so ask for testimonials or cases that they have won. Call us today and we will provide you with the answers that you need. Phone calls are recorded for accuracy.
This information is not a substitute for legal advice and we recommend that you visit or call before acting on the material you have read. We can help you with your unfair dismissal or unlawful action.