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Making staff redundant? It’s in your interest to follow a proper process

The COVID-19 situation continues to be stressful and challenging for many businesses.

Some employers are feeling the pressure to adapt quickly to the new environment. Some have to make difficult choices that may include restructures and redundancies.  

Despite the pressure, it’s important to remember that employment legislation has not changed. Employers still have the same legal obligations to comply with, which includes following a proper process in any changes that involve employees. Fortunately, MBIE has best practice guidance to help you.

Restructuring and redundancy explained

Employers need to be able to adapt and restructure their business so they have the right roles and structures to suit the changing external environment. This may involve changing the way the business is set up to improve its operations. It may or may not involve making staff redundant and replacing staff with new people with different skills set.

Redundancy is when an employer reduces their workforce, including because of financial factors, or functions that are no longer needed or relevant to their business model, or when there are changes in consumer behaviour. It’s an outcome of a restructuring process. However, it is illegal for employers to make someone redundant and then replace them with someone else in a similar position with a different job title, or make someone redundant to manage poor performance issues. Section 4 of the Employment Relations Act 2000 requires employers to act in good faith when making employees redundant.

If you think a new structure could improve the way your business operates, you might want to investigate restructuring your business. This doesn’t necessarily mean that you will make employees redundant (though that could happen) but it might mean people’s roles change.

Employment laws protect some groups of employees, eg cleaning, catering and laundry staff, in certain restructuring situations.

Reasons for restructures and redundancies

You need a genuine business reason to restructure and you’ll need to state this reason clearly to the employees or union as you go through the proper process.

Genuine reasons include:

  • financial issues resulting in the need to downsize or realign
  • no longer needing a department or job functions
  • wanting to outsource certain business functions
  • realignment of brand
  • changing your product or service offerings
  • changing your business model
  • changes in consumer behaviour eg shopping on line
  • merging with another business. 

How to restructure – the step-by-step process

  1. Document your proposal including the reasons for the changes and what you are trying to accomplish.
  2. Invite the affected employees and/or the union to a meeting.
  3. At the meeting, explain your proposal and give affected staff a copy of the proposal.
  4. Ensure you have given enough time (days/weeks) for staff and/or the union to provide feedback.
  5. Genuinely consider the feedback.
  6. Make any necessary adjustments based on the feedback you received and agreed with.
  7. Confirm the structure.
  8. Meet to discuss next steps.

Common mistakes to avoid

  • Treating the proposal as a done deal before you have heard and considered the feedback.
  • Not giving your employees enough time to consider the changes, provide feedback and arrange support.
  • Not being clear about what the proposed structure is.
  • Using redundancy to get rid of non-performing staff.
  • Making a person redundant and replacing them with someone else in a similar position with a different job title.
  • Giving out confidential information, or refusing to give out information that you should disclose.
  • Not consider re-deployment or re-training employees instead of making them redundant.
  • Not acting in good faith.

Consequences of not following a fair process

Not following a proper process can impacts on an employee’s well-being. An employee who has been made redundant and feels unfairly treated, can take a personal grievance case to the Employment Court. If their claim is upheld, you could be liable for reinstatement, reimbursement of lost wages, payment of compensation for hurt and humiliation and penalties.

Task lists to help you avoid the common mistakes

You can download task lists to plan and track that you are following a proper process:

Employee redundancy – business.govt.nz (external link)

More information

Redundancy has your employer obligations on the period of notice you must provide and final payments including the amount of redundancy compensation.

Workplace change covers the fair process that must be followed.

Terminating employment agreements during COVID-19 response and recovery has information on the good faith processes to follow for workplace change.

Visit the Employment Law Database for recent cases on this topic.

Employment Law Database