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You will likely be aware from recent events that 2024 has been a big year so far for restructures. As employers, it is important to ensure that you comply with your legal obligations and follow a fair process to ensure your business does not get entangled in costly and time-consuming personal grievance claims.
An employer must have a genuine business reason to initiate a restructure. Valid business reasons could include achieving cost savings, enhancing efficiency or business performance, securing a strategic advantage in the market, or pursuing other commercial objectives. You should only make an employee's position redundant if their position is superfluous to the needs of the business and there are no other reasonable alternatives but to make the employee redundant.
One of the fundamental principles of New Zealand employment law is the duty of good faith. This means that employers are expected to act honestly, fairly and reasonably towards their employees, especially during times of restructuring. Some of the key considerations are:
Employers must engage in honest, open and meaningful consultation with affected employees before making any decisions regarding the restructure. This involves providing relevant information, considering employee feedback and suggestions, and exploring alternatives to redundancies wherever possible.
If an employee's position is at risk of being made redundant, the employer has a duty to consider redeployment. In Haddad v New Zealand Steel Ltd, the Employment Court emphasised the need to act in good faith when considering redeployment. The Court held:
The proper approach for employers when considering redeployment is that, when considering whether to dismiss an employee after their position has been made redundant, an employer must consider whether to redeploy the employee. When considering redeployment, the employer must comply with the good faith obligations in s 4 and, in particular, must consult with the employee in accordance with s 4(1A)(c). Finally, when deciding whether to redeploy the employee, the employer must be active and constructive in maintaining the employment relationship in accordance with s 4(1A)(b) including being responsive and communicative.
In another case (Wang v Hamilton Multicultural Services Trust [2009] ERNZ 322.), the Court held that an employer has an obligation to offer an alternative position to an employee (if one is available within the business) if the employee is capable of performing that role. This is the case even if the employee may require reasonable training to perform the role and if it is a lower-paying role.
The duty to redeploy is a proactive duty, and could sometimes mean that an employee whose role is being made redundant is offered a role, rather than being required to apply for one.
There is no statutory entitlement for redundancy compensation, although it is provided by some employers. However, employees are entitled to certain rights under New Zealand law, such as their notice period and any outstanding holiday pay. Employers must make sure these entitlements are paid correctly.
If an employee is made redundant without a legitimate justification and a fair procedure, which includes complying with the legal obligations described above, the employee could raise a personal grievance for unjustified dismissal amongst other claims.
If the employee is successful in establishing their claim(s) at the Authority, the Authority will now likely apply increased bands for compensation, which are: band 1 ($0 - $12,000) for low level loss or damages; band 2 ($12,000 - $50,000) for mid-range loss or damages; and band 3 ($50,000 plus) for high level loss or damages. Additionally, the employee can be awarded lost wages and costs.
The above is a general overview of some of the key considerations an employer should make before undertaking a restructure. However, there can be more. Given the potential complexities and risks associated with workplace restructures, employers are advised to seek professional legal advice early in the process. We can provide invaluable guidance and support, helping to ensure that the restructure is conducted in compliance with all legal obligations and that the rights and interests of all parties are protected.
Please contact us if you would like to discuss other matters related to this article:
Email: mjohnston@mcveaghfleming.co.nz
DDI: 09 306 6729
© McVeagh Fleming 2024
This article is published for general information purposes only. Legal content in this article is necessarily of a general nature and should not be relied upon as legal advice. If you require specific legal advice in respect of any legal issue, you should always engage a lawyer to provide that advice.
