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The terms restructuring and redundancy are often used to refer to the same thing, but there is a difference.
Restructuring
Restructuring means changing the operational set-up (structure) to improve the way the business runs, delivers products or services etc.
It’s a process.
It aims to get the right roles configured the right way and can involve adding new roles, merging two or more existing roles, disestablishing roles that are surplus to requirements, or a combination of these things.
You need a genuine business reason to restructure, e.g. a change in market demands, financial constraints, realigning your brand, wanting to outsource certain business functions, merging with another company. The reason must be clearly stated during the restructuring process.
Restructure process isn’t prescribed in legislation, but case law has helped establish best practice.
Some groups of employees – e.g. cleaning, catering, and laundry staff – are protected by employment laws in certain restructuring situations.
Redundancy
Strictly speaking, redundancy is when a role or position - rather than a person - is surplus to the business’ commercial needs.
It’s an outcome, usually of a restructuring process.
People often talk about being 'made redundant', but a person is only made redundant when their role is no longer needed and is disestablished.
Employers can’t make an employee redundant and then replace them with someone else in a substantially similar position with a different job title.
Each situation depends on its facts, but case law rule-of-thumb is that if a role is 80% or more similar, then it’s not a substantial change.
Redundancy should be treated as a last option, after you’ve explored all reasonable alternatives - such as redeployment - with your employees.
The notice period must be at least the length stated in the employment agreement or company policies. If there is no specific clause giving a period of notice in a redundancy situation, you must give ‘reasonable notice’.
The employee is due salary, unused annual leave, and any other entitlements up to the last day of employment. You can offer the employee a payout for their notice period or have them work it.
You must pay the employee any redundancy compensation detailed in the terms of their employment agreement and/or negotiations between parties.
Technical redundancy
Technical redundancy occurs when a business is sold and the employees are offered employment by the new owner on substantially the same terms and conditions.
The employees are “technically redundant” because the former owner no longer needs them to do the work (and their employment agreements with the old employer finish at the time of sale), but the new owner does.
Employees need to accept the new offer of employment.
Employers still need to meet their obligations to follow fair and reasonable process, as they would in other redundancy situations.
Any compensation will depend on the terms in the employment agreement. It’s common to include a clause to say that the employee won't be entitled to compensation if they choose not to transfer their employment in a technical redundancy situation (as the employee hasn’t had anything bad happen to be compensated for).
In all cases!
Restructures and redundancies are underpinned by the principle of good faith detailed in Section 4 of the Employment Relations Act 2000.
In both situations, you should follow the process of giving employees a detailed proposal, reasonable time to consider it, and the opportunity to comment on it before you make any decisions. All team members who will be, or are likely to be, affected should be involved.
Take people’s feedback into consideration (don’t treat the proposal as a done deal before you’ve asked for and considered feedback).
Say you have your eye on some new software that you know will mean you can reduce your staff numbers; you can’t sign up for the product before you consult the team about it.
Never use a restructure or redundancy to manage performance or behavioural issues or to get rid of a problem employee. There are proper, effective ways to manage performance and disciplinary issues.
If the restructure or redundancy was not for genuine reasons and/or you didn’t follow fair and reasonable process, an employee may have grounds for a personal grievance claim. Even businesses that are closing down still have to carry out an appropriate redundancy process with employees.
The Employment Relations Authority and Employment Court closely scrutinise an employer’s commercial reasoning for a restructure or to make redundancies, as well as the consultation process followed.
If they find against you, you may have to pay a costly award to your employee, plus a contribution to their costs. You will also have to pay your own expenses, which could be more than $15,000 (depending on the cost of your lawyer), and you’ll get no compensation for the time you and your staff spent dealing with the issue.
Document all your reasoning and decisions, and share all relevant, supporting information with affected employees.
Offer affected employees all the support and compensation detailed in their employment agreements, company policies, and the change proposal.
Like any significant people process, make sure you get some sound professional advice on any restructure or redundancy proposal before you implement it.
Frequently asked questions
Can I run a restructure with one employee who holds the same position as 10 others in my business?
You could, but it would open you up to a personal grievance claim for unfair dismissal. Restructures focus on the work being done in the business and by which roles, not the people performing the roles.
The proposed changes must be driven by a genuine financial rationale and in making a decision on them, you must ask for and consider the feedback of all affected employees (so all those performing the same role, in this case).
Any selection process for redundancy must be fair and reasonable and you should explore all options for redeployment before you make anyone redundant.
For all these reasons, you would have a hard time justifying the process was fair and reasonable if you have already singled out a person for redundancy while retaining the other 10 employees.
If you are having disciplinary or performance issues with an employee, you need to address these using the proper procedures.
Do I have to pay employees redundancy compensation?
There is no overriding legal obligation to pay redundancy compensation, so it depends on what is written in the employee’s employment agreement or in company policies.
You must give the employee notice as detailed in their employment agreement (or ‘reasonable notice’ if there is no clause in the agreement or company policies) and provide all the redundancy support mentioned in the employment agreement, policies, or the change proposal.
Get more answers to common questions about restructures and redundancies.
