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 restructure and 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.

Frequently asked questions

What’s the difference between redundancy and disestablishment?

Redundancy happens to a person in a role, while disestablishment happens only to the role.

If someone’s job is disestablished, and they successfully apply for another role in the business, then they aren’t made redundant.

However, if their job is disestablished, and there are no other options for them in the business, the outcome will be redundancy.

How much time should I give my employees to seek advice and provide feedback?

We recommend giving affected employees a minimum of 2 days to consider a restructure proposal and to prepare their responses. If they request more time, it’s good practice to give it to them (up to 2 weeks is considered reasonable).

I don't see the point of a skills matrix, I know my staff and know who I want to keep. Why do I need this?

Some employers have landed in hot water because they aren’t fully transparent with affected employees about their assessment methods or they choose to make people redundant based on an arbitrary or biased selection process.

There are many ways to go about selecting which employees you will appoint to new or remaining roles, but whichever method you use, it should pass the test of what a ‘fair and reasonable’ employer would do.

Using a skills matrix provides a fair way to select your best candidate(s), and it also gives you written evidence of your selection process if the decision is ever queried.

Make sure that during the consultation process you give the affected employees a copy of the selection method and criteria you propose using, you offer them an opportunity to comment, and then consider their comments before you use it.

Get more answers to common questions about restructures and redundancies.