Redundancy justification

Jason Ennor, Co-founder and CEO at MyHR
By Jason Ennor, Co-founder and CEO at MyHR

A redundancy is a dismissal, so all New Zealand employers need to be prepared for scrutiny of any decision they make to restructure their business and make people redundant.

In a recent Employment Court case, farm worker Hamish Davidson was awarded nearly $10,000 compensation, plus his legal expenses, when his employer Totara Hills Farm was found to have unjustifiably dismissed him due to a flawed redundancy process.

The thing to note about this case is that the judge looked in detail at the reasons behind the employer’s decision to make Mr Davidson redundant.

In the past (provided employers stated redundancy was for genuine business reasons), the Employment Court didn’t really consider the reasons behind a redundancy decision. This allowed NZ employers a degree of freedom and commercial confidentiality in a redundancy process.

This judgement has changed things significantly and increases the likelihood redundancy decisions will be challenged.

In this case, the judge ran his calculator over the company’s figures and compared his numbers to theirs, looking in detail at the reasons given for making Mr Davidson redundant. He found holes in the employer’s rationale and they were penalised as a result.

All employers need to be very mindful of this.

Follow the correct restructuring process

Take time to consider your rationale before consultation. Is there a genuine business reason to restructure? Can you demonstrate a commercial imperative? Would you be prepared to open your books to prove this?

Don’t try to short-cut a performance management process by constructing a redundancy situation. This will not only land you in hot water, it also leaves a bad taste with the remaining people in your business as trust is eroded.

Once you have determined that the reasons for restructuring are genuine, the next step is to seek the input of the affected employees, firstly about the restructure itself, then about any potential redundancy.

These employees have a right to scrutinise your proposal, provide feedback, and have their responses considered.

People are naturally anxious in these situations. They want to know as soon as possible if they have a job and, if not, when it will end. They have bills to pay after all.

Be mindful of this and show some compassion, don’t forget to be human. A bit of care goes a long way. People generally understand a true commercial reason for redundancy, even if they don’t like it, but everybody resents being misled or treated badly.

Follow the steps, be transparent, take notes as you go, then carefully consider all input and make an informed decision. Throughout the process show some genuine care for the affected people.

Speaking from experience, following these steps will help you arrive at the right outcome, without commercial or cultural risk to your business.

Learn more about redundancies and restructuring