When it comes to undertaking a restructure at your business, there is a best-practice process you should follow. While the process hasn’t been defined to the letter in employment legislation, it has been established by case law and employers should make every effort to follow it.
Having some flexibility is a good thing because all businesses vary and every restructure is a little different. But it does mean that without a clearly-prescribed process, employers can, and frequently do, make mistakes.
At MyHR, we’ve helped hundreds of businesses with restructures and we know that preparation and having a clear understanding of the process is key. We’ve also seen our fair share of procedural missteps, so to help you understand how to get a restructure right, we thought we’d share some of the most common errors we see.
Keep in mind that messing up a restructure is a surefire way to open yourself up to disputes or personal grievance claims from disgruntled employees, and it could cost you dearly.
With all of that said, here are the top 10 restructure mistakes we see New Zealand employers make.
1. Not having a genuine commercial reason to support the restructure
If you are proposing to restructure all or part of the business and the changes could affect people’s jobs, make sure you have a genuine, justifiable commercial reason for your proposal.
We’ve seen plenty of employers get into hot water because they either base the restructure on personal or non-commercial reasons (more on this shortly) or they cannot justify the financial imperative for change or its identified benefits.
It could be that the business is losing money and you need to cut costs to keep the ship afloat, or you want to refocus your efforts on a higher potential market, product, or activity. Or you could have made a strategic decision to refocus the business and need to make changes in line with the new strategy.
If you are challenged, the Employment Relations Authority (ERA) and the Employment Court will look very closely at the commercial justification for the restructure and they penalise employers if their figures are incorrect or they don’t have insufficient evidence to back their arguments.
Complete due diligence before you undertake a restructure and make sure you have watertight rationale and evidence to support your proposal.
2. Basing a restructure on an individual or performance issues
Don’t initiate a restructure because you have a team member who isn’t performing or is a bad fit for the business and you want to dismiss them. You need to manage poor performance or behaviour using the appropriate processes.
Even if the reason to restructure is genuine, if there is a hint of potentially managing someone out because they’re bad at their job or clash personally, it can derail the process and expose the business to risk.
We had a client start a legitimate restructure of their finance department. One of the affected employees had recently clashed with a manager and raised a personal grievance, arguing that the restructure had been launched as a pretext to get them out of the business.
We were able to help the company successfully defend its position, because we had done a lot of work to demonstrate the genuine basis of the restructure and redundancy. If we hadn’t, the employer may have had to settle and pay the employee out.
Our in-depth blog post explains the risks of using a restructure to get rid of an employee.
3. Not providing all relevant information
The crux of the restructure process is consulting with all affected employees on the proposed changes, asking for their feedback and factoring that feedback into your final decision.
Employees can’t give meaningful feedback if they don’t have access to the same information the company has used to inform and shape its proposal.
We’ve seen businesses only provide affected employees with a vague justification for a downsizing because they are sensitive about sharing their financial data. This leads to employees asking (rightly) for more information so they can put together a fair response, and turns a reasonably straightforward restructure into a laboured, 4- to 5-week process.
While you can withhold some private or sensitive information, e.g. the salaries of other employees, if it is relevant to the decision-making process, by law, you are required to share it. You must also include any criteria or tools you will use to assess team members for new positions or redundancies, and give people a chance to comment.
Being transparent is crucial in these situations.
4. Predetermining the outcome
Some organisations mistakenly believe it’s okay to gather their staff in a group meeting to announce they are rolling out a new team or business structure, and inform some people they will be surplus to requirements in a few weeks.
In New Zealand, a restructure is only a proposal until employees have had a chance to give feedback and the business has genuinely considered those responses.
This process differs from some other countries, like Australia and Canada, and can trip up companies who fail to fairly consult employees.
We’ve seen numerous clients start looking for new people for roles that would only exist if the proposed restructure goes ahead. Others have had employees find out the restructure outcome, either by accident or poor management, before it had been officially announced.
It can be tempting to try and shortcut the consultation process, especially if the outcome seems logical and legitimate, but it’s not worth the risk.
Employees may propose a different viable solution or point out oversights or errors in your plans. Not only are you duty-bound to take their feedback into account, it may help your business avoid the restructure entirely.
5. Not giving employees enough time to respond
Another common mistake when the company just wants to get on with things is failing to give employees sufficient time to prepare their responses.
Part of acting in good faith and following fair, transparent process is allowing your employees time to consider things. Restructures are hard on people, so your team members will need time to adjust and get support (and in some cases, legal advice), as well as prepare their feedback.
We recommend starting with a period of two days between announcing the restructure proposal and getting their responses, but anything up to two weeks is considered reasonable. If employees ask for more time, it’s wise to give it to them.
Our best advice: make haste slowly.
6. Not taking everyone affected through the process
By law, you need to consult with everyone whose job could be affected by the proposed restructuring.
Even if you think you know which members of the team you’re likely to keep or make redundant, you still have to consult with all the people whose roles are being affected and then make a fair and reasonable decision.
Leaving anyone out could provide them with grounds for a personal grievance.
7. Not referring to the employment agreement
We’ve seen plenty of restructure processes come unstuck because what the employer thought was in individual employment agreements wasn’t what they actually contained.
In one case, the employer proposed making a specialist role redundant on the basis there was no longer enough work. However, the employee proved the job description in their employment agreement was broader than the employer thought and they had to settle the personal grievance claim to move the restructure along.
So before you consider proposing any structural changes, take a close look at your employees’ agreements, the job description, and any other agreed-to provisions in the case of redundancy (notice period, compensation etc.).
Keep all job descriptions up-to-date so they reflect the reality of the role. This is not only important if you are proposing to disestablish roles but also if you propose adjusting their duties.
8. Not understanding the obligation to redeploy employees
There have been plenty of cases in the ERA and the Employment Court where employers have been ruled to not have properly considered options for redeploying existing employees into new roles.
Quite often businesses will invite employees losing their position to apply for new roles alongside external candidates, but if the new role is “substantially similar” (i.e. 80% or more the same) or otherwise within the employee’s capability, you run the risk of a personal grievance claim if you don’t offer them the role directly.
That includes helping the person retrain or up-skill so they can perform the job.
Our advice is if there is an option to keep people in the business, even if it requires a bit of training and upskilling, you should almost always offer them that role.
If you are proposing to make anyone redundant, do your homework and get good advice before you make a final decision. MyHR's team knows hiring and restructuring and can ensure you get the best outcomes for the business and your people.
9. Selection process not fair or transparent
Earlier, we mentioned sharing the tools the company will use to select team members for new positions or redundancies. 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.
In restructures, it’s not uncommon for people to talk about ‘last in, first out’ - as in, the most recently hired person is the first to go - but that method of assessment is hardly the fairest way to select the best candidates.
It’s far better to use a selection matrix, where you map out what the key skills, competencies, or experience are for the role, assess everyone against your criteria, then select the highest-scoring person (or people).
Make sure that during the consultation process you give the affected employees a copy of the method and criteria you plan to use, offer them an opportunity to comment, and then consider their comments before you use it.
10. Not following employment law relating to vulnerable workers
Under the Employment Relations Act, certain employees – such as cleaners, orderlies, caretakers, caterers – have stronger employment protection than others.
They are often referred to as ‘vulnerable workers’ and in the event their work will be taken over by a different employer, these employees have the right to transfer over to the new employer on their existing terms and conditions of employment.
Employers may be unaware of these protections for their workers, whether their workers are protected, or the various types of restructuring situations that are covered, but ignorance is no defence.
Employees outside the specified industries still have some degree of protection and every employment agreement must contain an ‘employee protection provision’ clause that specifies the issues that employers must negotiate with the new employer and the process that negotiations will follow.
Make sure you understand the rules and follow them in the event of a restructuring.
How MyHR can help you restructure
Restructures can be challenging and can involve a lot of groundwork and attention to detail. You also need to stay open to employee ideas and input. Initiating a restructure for the wrong reasons, with insufficient supporting evidence or rushing to decisions can place you at risk.
MyHR is here to support you in preparing documentation, developing meeting scripts, and ensuring you meet all your obligations in getting the best results.
