Restructuring when a business is sold or transferred

If a business, or part of it, is going to be sold or transferred to another party, the employer must follow a set of rules that apply to the transfer of work.

Technical redundancy

Technical redundancy happens when a business sells its assets (old employer), and its employees are offered employment by the buyer of the business (new employer).

It does not cover situations where a business is sold by sale or transfer of shares because this does not affect a person’s employment with the business.

Employees are technically redundant when their employment agreement with their old employer ends, and they accept an offer of employment from the new employer. They will then be employed by the new employer.

The old employer must give employees notice of termination of employment. The new employer must provide a copy of the proposed employment agreement to employees to consider and sign before they start working for them.

Protecting employees during restructuring

Every employment agreement must contain an ‘employee protection provision’ clause. 

An ‘employee protection’ clause covers restructuring situations where an employer sells, transfers, or contracts out part of, or all, its business. It should set out a fair and reasonable process for an employer to follow in these situations. It’s important that employers do this, and that they understand their employees’ protections. 

Employee protection clauses do not apply when there is a sale or transfer of shares in a company, or when the employer is bankrupt, in receivership or in liquidation.

The Employment Agreement Builder has a sample clause employers can use.

Employment Agreement Builder – Business.govt.nz (external link)

Fair process

Insolvency and employment

Protections for specified employees

There are extra requirements in the Employment Relations Act (ERA) that protect ‘specified employees’ during certain types of restructuring. The requirements in the ERA describe the process employers must follow in situations where an employee's work will be taken over by a different employer. They give these employees the right to transfer over to the new employer on their existing terms and conditions of employment. 

What restructuring is covered? 

The restructuring covered is any proposal to sell, transfer, or contract out or in work. For example:

  • an employer sells or transfers the business, or part of it, to another person
  • an employer contracts another business to do work that the employer has been doing
  • an employer loses a contract to perform services, and the contract is awarded to another business
  • the business that the employer is working for decides to do the work themselves.

Who are specified employees?

Specified employees are those who work in certain types of employment. These are:

  • cleaning services and food catering services in any place of work
  • laundry services for the education, health, or age-related residential care sector
  • orderly services for the health or age-related residential care sector
  • caretaking services for the education sector
  • services in the security sector, including any one or more of the following:
    • guarding real or personal property (belonging to another person)
    • monitoring premises in real time via CCTV (on site)
    • controlling crowds at events
    • escorting prisoners or performing courtroom custodial duty
    • undertaking mobile patrols, and
    • collecting cash from premises (for example, banks, retail stores). 

The detailed list of which employees receive these additional protections, including some exceptions, is contained in Schedule 1A of the Employment Relations Act.

The categories of employees that receive protection when their work is restructured can be amended through an application process. 
An applicant can ask the Minister to add, amend, or delete a category of employees listed in Schedule 1A of the Act. The Minister may then make a recommendation to the Governor-General. 

To make this recommendation to the Governor-General, the Minister must be satisfied that the employees in this category:

  • are employed in a sector where restructuring of an employer’s business frequently occurs
  • have terms and conditions of employment that tend to be undermined by the restructuring of an employer’s business
  • have little bargaining power.

The request must:

  • clearly identify the category of employees the request relates to; and
  • specify which sector the category of employees provides services in; and
  • include evidence that the employees either satisfy (if adding new category) or no longer satisfy (if deleting a category) the applicable criteria stated above. 

The Minister, before making a recommendation to amend Schedule 1A of the Act by Order in Council, must:

  • receive a report from MBIE about whether the category of employees satisfy the above criteria
  • provide that report to, and consult with, employers, employees, representatives of employers or employees as the Minister considers appropriate.

Restructuring for specified employees 

Specified employees have the right to transfer to the new employer on their existing terms and conditions:

  • if they will no longer be required to do all, or some of, their work for their current employer because of the restructuring, and
  • the new employer will do the same type of work.

Employers must give employees information about the restructure

The current employer must:

  • notify all the employees whose work will be affected as soon as possible, or at least 20 working days before the restructure takes effect
  • give all employees relevant information about the restructuring as soon as possible, or at least 15 working days before the restructure takes effect, so they can make an informed decision about transferring to the new employer. 

Employees must tell their employer what they want to do

Employees can choose if they want to transfer to the new employer on their existing terms and conditions. If they choose to do this, they will become employees of the new employer as if nothing had changed. 

Employees must tell their current employer what they want to do within 10 working days of the time they were given the information about the restructuring (unless they agree to an alternative timeframe with their employer). This is called sending an ‘election notice’. Election notices must be in writing and be signed by the employee. 

The current employer must send the election notices to the new employer as soon as possible, or within 5 working days of the time the employer receives them from the employees.

If employees don’t want to transfer

Employers, employees, and unions can negotiate alternatives to the transfer of employees, like redeployment within the existing business. Any alternative arrangements that they agree must be in writing. 

Employees can also decide not to transfer to the new employer. This might mean, however, that their current employer has no role available for them and, following a fair and reasonable process, may make the employee redundant. 

When employees have transferred 

Once employees have transferred, it’s up to the new employer to decide how to best manage their resources. If the new employer has more employees than work available, they might need to reassess employment needs. This could mean, following a fair and reasonable process, making some employees redundant. 

If the new employer makes transferred employees redundant, they could be eligible for redundancy entitlements if their employment agreement covers redundancy entitlements in a restructuring situation. 

If the employment agreement is silent on redundancy entitlements in a restructuring situation, the employee:

  • could be eligible for redundancy entitlements which they agree with their new employer, or
  • could be eligible for redundancy entitlements which are decided by the Employment Relations Authority (if the employee and the new employer can’t agree).  

The Employment Relations Authority can help negotiate redundancy entitlements in some situations

Employers, employees, and their unions can ask for help from the Employment Relations Authority (ERA) if they cannot agree on redundancy entitlements in a restructuring situation.

The ERA will examine the negotiation process used by the employee and employer and tell them what else they should do to try to reach agreement. If the ERA determines that the employee and employer cannot resolve things themselves, they can decide what redundancy entitlements the employee will be given. To do this, they will consider:

  • any other redundancy entitlements in the employment agreement
  • the employee’s length of service with their old employer and their new employer
  • how much notice of the redundancy the employee was given
  • the employer’s ability to provide redundancy entitlements
  • the likelihood of the employee being able to get another job, and
  • any other relevant matters.

It’s a good idea for employers and employees to keep these things in mind when trying to agree redundancy entitlements.

  • Published:
  • Last modified:
  • Written for: Everyone
  • Share this page:
  • Print this page: