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Initiating a restructure that will end in redundancy might seem like an easy way to exit an employee who underperforms, is disruptive, or doesn’t fit into the team or company environment. But here’s some plain advice: it isn’t!
Plenty of employers find themselves on the wrong side of rulings by the Employment Relations Authority (ERA) for not acting fairly or reasonably when making an employee redundant, whether they didn’t have sufficient reason for the restructure in the first place or they didn’t follow proper process.
Compensation to employees and additional penalties for breaching good faith obligations under the Employment Relations Act 2000 can easily cost $30,000 and even reach over $100,000.
In short, restructuring and redundancy aren’t the right procedures for handling an employee’s bad fit, behaviour, or poor performance.
You need to manage performance or behavioural issues using the proper processes (and make sure your recruitment practices are solid so you don’t hire the wrong people in the first place).
What are the risks of getting rid of an employee in a ‘sham restructure’?
The legal tool that employees have to raise complaints about their treatment at work is the personal grievance, for issues such as unjustified dismissal or unjustified disadvantage.
Most personal grievances are settled privately, or at mediation, with outcomes ranging from the employer having to apologise to the employee or provide a reference to paying the employee compensation for hurt and humiliation, reimbursing lost earnings or covering their legal costs.
In 2023, unjustified dismissal claims at the ERA were decided in favour of the employee 64% of the time, and unjustified disadvantage claims 54% of the time.
Beyond legal consequences, NZ is a small place - if an employer gets a reputation for unfairly firing their staff, word will get around, and it will make it much harder for them to hire the people they need to get the work done.
It’s also worth noting that cases that are decided at the ERA are publicly available for anyone to search through and access, giving employers an extra incentive to treat employees fairly and avoid having their name in the ERA’s database for the wrong reasons.
When is it appropriate to restructure a business?
As we’ve discussed in other posts, restructuring is a process that aims to ensure the company has the right roles set up in the right way to meet its business objectives and customers’ needs.
Restructures are generally triggered by change(s) to the business or its market, things like new opportunities, advances in technology, financial pressures, or other internal factors.
In New Zealand, every restructure is a proposal that must be investigated before it’s implemented. There has to be a genuine commercial reason for the change and the company has to put its proposal to all staff whose jobs may be affected, ask for their feedback, and consider that feedback before making a final decision.
In responding, employees must have access to the same information the company used in forming the proposal (unless there is a really good reason to withhold it).
Employers and employees must act in good faith, treat people equally, and follow a fair and reasonable process.
It’s important to remember that restructures focus on roles, not the individuals who do them. Even if the reason for restructuring is genuine, if you exit an employee and replace them with someone in largely the same position, you’ll have a tough time justifying the redundancy.
Remember also that employers are obligated to investigate all options for redeploying people whose roles are no longer needed. Redundancy is the last option.
How to deal with poor performance
If an employee isn’t performing as expected, the law requires that you address the issue before considering dismissal.
Getting the employment relationship off to a solid start and then maintaining it with regular, open communication makes issues easier to raise and resolve.
We stress the importance of having a dynamic performance review system that accurately measures employees’ performance and offers them regular feedback and guidance.
Performance reviews not only clarify objectives and provide a way to measure achievement, they give managers and employees the opportunity to solve problems together.
If an employee’s performance deteriorates over time and they show little sign of improvement, they may need more targeted performance management – such as a performance improvement plan (PIP) – to get them back on track.
Get more tips for dealing with problem employees.
Dealing with bad behaviour
Like poor performance, it’s always better to address negative behaviour early, before it escalates. This may not be the easiest or most comfortable option, but it is better than letting it get established (at which point it could be affecting the whole team or business). Remember, the standard that you walk past is the standard that you accept!
If the employment relationship is strong, then you should be able to manage most issues without requiring a formal process.
It often boils down to making the person aware of the problem and then working with them to change the undesirable behaviour into something more constructive.
Delivering an abrasive tirade might, at times, seem like the best approach, but it could well jeopardise any resolution. It’s far more effective to have people participate in the process to give them a real sense of choice and control.
Of course, misconduct such as bullying, harassment, or being intoxicated at work will leave you no option but to take disciplinary action or look at dismissal (if it’s really serious and you can no longer trust them to do the job).
Likewise, persistent niggling behaviour and an unwillingness to change will also require a more formal response.
Learn how to deal with issues before you need to take disciplinary action.
From there: disciplinary
We’ve written a lot about the disciplinary process as it’s a procedure that can cause employers headaches.
At its heart, a disciplinary is about sending a clear message to a team member that their performance or behaviour is not acceptable and then working to find a productive way forward.
The process is clearly laid out in employment law and must be fair and reasonable at all times. It’s important to get the process right, including presenting your concerns to the employee, giving them reasonable time to provide you with a response, and then taking that response into account before making a decision. It may result in giving them a written warning, or you may decide to conclude the disciplinary with no warning because there was a reasonable explanation or mitigating circumstance.
Done well, the disciplinary process should motivate the employee to improve. If they don’t, you can hold them closely to account through repeated disciplinary processes.
Employment law requires that employees are given “a series of warnings” regarding poor performance or misconduct before they can be dismissed, so MyHR recommends any disciplinary action escalates from a Formal Warning, to a Final Warning, and then to dismissal with notice, as appropriate.
Obviously, going through three disciplinary processes won’t be a quick fix, and it may be tempting to go with a”one-and-done” restructure instead, but following correct procedure is far more legally robust. It’s also better for your company’s culture and reputation.
Learn more about the disciplinary process.
Frequently asked questions
What’s the difference between disestablishment and redundancy?
Disestablishment happens to a position. Redundancy happens to a person.
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.
Do I have to offer an employee whose role is disestablished the newly-created role? Why?
You should always view redundancy as the last option after you’ve explored all redeployment options with your employees. This is part of your good faith obligations under the Employment Relations Act.
If the newly-created role is “substantially similar” (roughly 80% or more similar) to the employee’s current job, or is a suitable alternative (i.e with support, the person could b trained to do the job in less than 6 months and it doesn’t involve a pay cut), you have an obligation to offer it to your existing employee.
If the role is significantly different to the one the employee is currently doing, you can choose to invite all affected employees to apply for the position and select the best candidate.
If you exit an employee and replace them with someone in largely the same position (even if it has a different job title), you’ll have a hard time justifying the redundancy.
Circumstances have changed - when can I recruit for a position I recently disestablished?
If your circumstances have changed, and you now need to rehire for a position that you had previously made redundant, you can do so, but there are a few fishhooks to consider.
If you’re rehiring within 3 months of disestablishing the role, we recommend offering the role to the employee who was made redundant. This makes good sense because this person will hit the ground running (with their previous knowledge of the role and your business), and it also reduces the risk of a personal grievance being raised against you by that employee (the timeframe for raising an unjustified dismissal personal grievance is 90 calendar days).
If you’re rehiring for that role between 3 and 6 months after disestablishment, it’s good practice to offer the role to the employee who was made redundant, but the risk of a personal grievance is much reduced, as you’re now outside the 90 day time frame.
If you’re rehiring more than 6 months after disestablishment, it’s totally up to you whether you want to reach out and see if they’d be interested in coming back to work for you.
If you have created a new position as part of a restructure, then you can't hire someone for that position until you have completed the restructure process and confirmed the outcome.
Get answers to more common questions about restructures and redundancies.
