Navigating Redundancy

What is Redundancy? 

Employment New Zealand defines redundancy as when an employer reduces their workforce because a position or positions are no longer needed. It’s important to note that redundancy should not be seen as a quick way to reduce your workforce. It requires a legitimate business reason, and as an employer, you must be ready and able to prove that the person’s position is genuinely no longer required. 

Redundancies can be either voluntary or compulsory, but the process must always follow proper legal guidelines. All redeployment options should be exhausted before moving towards redundancy, and the reasons for it must be clear and genuine. Redundancy should never be used as a convenient way to dismiss an employee when performance or conduct issues are the root problem. In those cases, a disciplinary process should be followed instead.

Types of Redundancies 

The two main types of redundancy are voluntary redundancy and compulsory redundancy. 

 Voluntary Redundancy:  

This occurs when employers ask their team if anyone would like to take redundancy. It can be mutually beneficial, particularly for employees who may be considering leaving anyway, especially if there is a financial package involved. However, it's important not to pressure anyone into this option. Ensure no one feels singled out, and make sure the process is transparent. 

Compulsory Redundancy:  

This is where the employer makes the decision to make a role redundant, and the employee does not have a choice. But, of course, it’s not as simple as giving notice. The process must follow New Zealand's workplace change process, and any mistakes here can result in claims for unjustified dismissal, potentially leading to action through the Employment Relations Authority. 

The Workplace Change Process 

To avoid the risk of unjustified dismissal claims, the workplace change process must be handled correctly. Here’s a simplified version of the process: 

1. Document Your Business Case: Start with a written business case explaining the objectives of the change, how it addresses the identified gaps, and why structural change is the only solution.
2. Create a Workplace Change Proposal: Expand on the business case and outline how the changes will work. You should address jobs, not individuals, and present the proposed structure clearly.
3. Present the Proposal to Employees: Employees, including those on leave, must be invited to a meeting where the proposal is explained in full. This should include a consultation process, and employees must be allowed to provide feedback.
4. Gather Feedback: Give your employees adequate time to reflect on the proposal and provide written or verbal feedback. This is a crucial part of the process.
5. Consider the Feedback: Take the feedback seriously. If it results in changes to the proposal, this should be communicated transparently.
6. Confirm the New Structure: After considering feedback, confirm the final structure, ensuring that affected individuals are met with privately to explain their situation.
7. Implement the Change: Finally, implement the change, maintaining clear communication with your team throughout. 

Case Studies 

Let’s look at some recent case studies: 

TVNZ v E Tū Inc [2024] NZEmpC 93 

This case highlights the importance of adhering to additional contractual obligations during restructuring processes. While good faith obligations, including the requirement to consult, are well-established in New Zealand employment law, this decision underscores that some employment agreements may impose even more specific obligations, as seen in the TVNZ case. 

TVNZ faced declining revenue due to a shift toward online digital services and, in March 2024, announced a proposal to cancel several shows and make positions redundant. E Tū, representing affected staff, challenged TVNZ’s compliance with the collective agreement, arguing that the company had failed to meet its obligations. 

The Employment Relations Authority initially sided with E Tū, and when the issue remained unresolved, TVNZ took the case to the Employment Court. The key issue was the interpretation of a clause in the collective agreement requiring workforce participation in the company's business planning. The Court found that this clause imposed more extensive obligations on TVNZ than statutory or common law requirements, obligating the company to involve staff in problem-solving at an early stage and prior to presenting any proposals for consultation. 

The Court ruled that TVNZ had breached this clause by presenting a "well-advanced" proposal to staff without giving them the opportunity to contribute to the formulation of solutions, thus bypassing the required participatory process. TVNZ’s failure to follow the agreed-upon steps led the Court to rule against the company. 

Learnings for Employers: This case serves as a reminder that employers should carefully review their employment agreements before initiating any restructuring processes. Employers may be subject to obligations beyond the general legal requirements, such as involving staff in early-stage planning. Failing to meet these obligations can result in legal challenges and delays. 

Public Service Association – Te Pūkenga Here Tikanga Mahi Incorporated v Secretary for Education [2024] NZERA 432 

This case, similar to TVNZ v E Tū Inc, highlights the need for employers to carefully adhere to contractual obligations during restructuring, particularly those that go beyond statutory requirements. In this instance, the Ministry of Education faced challenges due to its collective agreement with the Public Service Association (PSA), which contained specific change management provisions. 

Following a government directive to reduce its budget by 7.5%, the Ministry proposed significant structural changes in March 2024. The PSA claimed that the Ministry had not fulfilled its obligations under the collective agreement. The Employment Relations Authority found that the agreement required the Ministry and PSA to engage collaboratively, with the aim of reaching agreement and making joint recommendations to management, even though the recommendations might not always align. 

The Authority concluded that the Ministry had not sufficiently collaborated with the PSA during the consultation process, despite a high volume of engagement. The PSA’s role had largely been limited to receiving and disseminating information, rather than actively participating in problem-solving. The Authority held that the Ministry’s extensive consultation efforts still fell short of its contractual obligations to collaborate with the PSA. 

Notably, the decision emphasised that the Ministry’s failure to meet the required level of engagement was "finely balanced." Had the specific obligation for collaborative engagement not been in the agreement, the Ministry's process might have been acceptable. However, since the Ministry had committed to working with the PSA to reach agreement, it was held accountable for failing to meet that standard. 

 Learnings for Employers: This case illustrates the importance of paying close attention to change management provisions in collective agreements. Employers must ensure that they engage proactively and collaboratively with unions or employee representatives, as required by their agreements, to avoid legal challenges. Additionally, the case shows how the wording in employment agreements can have significant implications for managerial prerogatives, especially in redundancy and restructuring situations. 

Employers must recognise that even longstanding provisions in agreements can be interpreted in ways that may restrict their ability to make unilateral decisions, particularly when it comes to matters like severance, redeployment, and redundancy. 

Stellar Elements New Zealand Ltd v Amesbury [2024] NZEmpC 136 

This case demonstrates the significance of an employer’s duty to provide full information, consider redeployment options, and act in good faith during redundancy processes. It also highlights the role of interim reinstatement in unjustified dismissal claims. 

The employee, a Principal Consultant at an international company, claimed unjustified dismissal after his role was disestablished on the grounds that he was not doing billable client work. At the time, he was seconded to a non-billable role and had withdrawn his application for permanent appointment to the role, believing another candidate was preferred. When the preferred candidate did not accept the position, the employer failed to inform the employee, nor did it explore other redeployment opportunities. 

The employee alleged his dismissal was motivated by an ongoing dispute with his employer over a contractual bonus related to billable work. He sought interim reinstatement while the Employment Relations Authority (ERA) investigated his unjustified dismissal claim. The ERA granted interim reinstatement, and the employer challenged this decision in the Employment Court. 

The Court upheld the interim reinstatement, finding that the employee had a strong case that his dismissal was both procedurally and substantively unjustified. The key factors the Court considered included: 

1. Insufficient Consultation: The employer failed to provide adequate information for consultation, breaching good faith obligations under the Employment Relations Act 2000.
2. Failure to Inform and Consider Redeployment: The employer did not inform the employee that the preferred candidate had declined the seconded role and failed to consider other redeployment opportunities, despite being a large international company with multiple possibilities for redeployment.
3. Predetermined Dismissal: There was evidence suggesting the dismissal decision was made before proper consultation, indicating a lack of genuine consideration for the employee’s future within the company.
4. Ulterior Motive: The Court found it arguable that the employer had an ulterior motive for dismissing the employee, related to their dispute over the employee's entitlement to a contractual bonus. 

The Court also found that permanent reinstatement was potentially practicable and reasonable, as redeployment within the region could be managed and was a viable option. Additionally, the balance of convenience favoured the employee, as it was unclear whether it was reasonable for him to seek alternative employment while his dismissal claim was still under investigation. 

The Court concluded that interim reinstatement was appropriate, as damages would not be a fair substitute, and the overall justice of the situation favoured the employee. The employer had not provided full information during the restructure, further justifying the decision. 

Learnings for Employers: This case serves as a reminder that employers must engage in thorough, good faith consultation processes, provide full information to affected employees, and actively consider redeployment options, particularly in large organisations. Failure to follow these steps can lead to claims of unjustified dismissal and potential reinstatement, even before a full investigation is completed. Moreover, the case underscores the importance of not allowing ulterior motives to influence redundancy decisions, as this can significantly undermine the employer's legal standing. 

Bowen v Bank of New Zealand [2024] NZERA 361 

This case highlights the risks of employer retaliation in response to employee complaints and underscores the importance of a transparent and genuine redundancy process. The Employment Relations Authority (ERA) found that the employee, a manager at a bank, was unjustifiably dismissed by redundancy and disadvantaged due to her employer’s retaliatory actions following her complaints of bullying and unethical business conduct. 

The employee had raised concerns about her senior manager and a team member, who were in a personal relationship, alleging bullying and unethical behaviour. In response, the employer proposed a restructure that would disestablish her team. The employee claimed this restructure was retaliatory and raised a personal grievance. She also made a protected disclosure under the Protected Disclosures Act 2000. The employer placed her on paid special leave for over a year while investigating her complaints, which ultimately concluded there was no bullying or unethical conduct. Following the investigation, the employer made her role redundant. 

The ERA determined that the redundancy was unjustified and motivated by retaliation, as evidenced by several factors: 

1. Inconsistency with Business Needs: Shortly before the redundancy proposal, the employer had extensively revised the job descriptions of the employee's team, making it illogical to disestablish those roles just five months later. This called into question the business rationale behind the restructuring.
2. Involvement of Senior Manager: The original intention was to move the employee’s team to another area of the bank. However, after the senior manager the employee had complained about became involved, the proposal shifted to disestablishing the team altogether.
3. Role Replacement: The bank still required the work performed by the employee, and a new, similar role was created. However, the employee was not given the opportunity to apply for this new role, further suggesting a retaliatory motive.
4. Flawed Consultation Process: The consultation process regarding the restructure was deemed inadequate. After a long hiatus, the employer did not provide updated information to the employee. Despite the employee raising valid concerns, the employer confirmed the disestablishment of her role just 45 minutes later, suggesting a lack of genuine consultation. 

The employee's additional claims for disadvantage were dismissed, including two that were raised outside the 90-day time limit under section 114 of the Employment Relations Act. Claims for penalties due to breaches of good faith and the employment agreement were also unsuccessful. 

Learnings for Employers: This case reinforces the importance of conducting redundancy processes with clear business rationale and ensuring that any decisions are not influenced by employee complaints. Employers must avoid any perception of retaliation when restructuring roles, particularly if the employee has made protected disclosures or raised grievances. Additionally, consultation processes must be thorough and transparent, allowing employees the opportunity to engage meaningfully. Flaws in these processes, coupled with retaliatory actions, can lead to findings of unjustified dismissal, as occurred in this case.

Redundancy is never an easy process, but when done correctly, it can be a smooth transition for both the business and employees. It’s crucial to approach the process with empathy and thorough understanding of the legal requirements. Always seek legal advice when unsure, and don’t rush the process—taking time to do it right will save you significant stress in the long run.  

This article is not legal advice. No element of this article should be taken as such.