Common mistakes when restructuring

Nick Stanley
By Nick Stanley

When it comes to doing 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 (rulings made by judges).

This is a good thing because 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’re often called in to tidy up procedural missteps. So to help you understand how to get restructuring right, we thought it 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.

Not having a genuine commercial reason

Numero uno, if you are proposing to restructure all or part of the business and the changes could affect jobs, make sure you have a genuine, justifiable commercial reason for your proposal.

We’ve seen plenty of employers get into trouble 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 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.

Whatever the commercial justification is, if it's challenged the Employment Relations Authority (ERA) and the Employment Court will look very closely at it and they will penalise you if it's not legitimate or you don't have sufficient evidence to back your arguments.

Complete due diligence before you undertake a restructure and make sure you have watertight evidence to support your proposal.

Basing a restructure on performance issues

Don’t start a restructure because you have a team member who isn’t performing or is a bad fit for the business and you want them out. You need to manage poor performance or behaviour using the appropriate processes.

Even if the reason to restructure is genuine, if there is a whiff of potentially managing someone out because they’re bad at their job or clash personally, it can derail the process.

We had a client start a legitimate restructure of their finance department. One of the affected employees had recently had some run-ins with a manager and raised a personal grievance, arguing that the restructure was only a pretext to get them out of the business.

Thankfully, the company was able to successfully defend its position because it had done a lot of work to demonstrate the genuine basis of the redundancy. If they hadn’t, they may have had to settle and pay the employee out.

Find out more about using a restructure to get rid of an employee

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 it in to the 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 long and laboured 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.

Already decided on an outcome

Some organisations mistakenly believe it’s okay to get staff together 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, most notably Australia, 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.

Free how-to guide: how to restructure your business

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.

Unless the changes are a result of an emergency or massive change to the business, we recommend starting with a period of two days between announcing the restructure proposal and getting responses.

If employees ask for more time, it’s wise to give it to them (anything up to two weeks is considered reasonable).

Our best advice: make haste slowly.

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.

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.

Before you consider proposing any structural changes, look at people’s employment 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.

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 development and training, 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.

Selection process not fair or transparent

Earlier, I 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's hardly the fairest way to select your best candidates.

It’s far better to use a selection matrix, where you map out the key skills, competencies, and experience for the role, assess everyone against the 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 considered their comments before you use it.

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.

Frequently asked questions

Can I restructure one position at a time?

Yes. There is no legal maximum or minimum number of positions you must restructure at once (unless you have multiple positions of a single type in your business, e.g five baristas at a cafe - see above).

However, anyone who has ever been through the restructuring process knows that it can be stressful and draining!

Where possible, for the good of your company’s culture and morale, we recommend running as few restructures as possible, so that you can go through the change process quickly with everyone, make the hard decisions, and then move forward to rebuild and refocus.

When can a disestablished position be filled?

If your circumstances have changed, and you now need a position that you had previously disestablished, we recommend waiting a minimum of 3 months before recruiting or hiring for that position.

There’s no legal timeframe, but the longer the better, to show that your business is now in a different position or facing different challenges.

If you have created a new position as part of a restructure, then you can't hire for that position until you have completed the restructure process and confirmed the outcome.

What if I want to change my proposal halfway through the process?

If you make changes (other than minor ones) to the restructure proposal, including changes to the consultation or selection processes, then you should present these changes to all employees affected by them and give some additional time for feedback.

If the changes are significant, it may be best to start the change process again, starting with a new proposal.

This is particularly important if your new proposed structure affects roles different to the ones initially identified for change.

Get more answers to common questions about restructures and redundancies.