The world around us is continually changing, as the current COVID-19 global pandemic has highlighted. As society adapts and changes, employers have a right to make changes to the structure of the business to better align it with their business strategy or simply to make it more financially viable.

Employers can respond to these challenges and opportunities by making changes to their staffing, which could include:
  • adding new roles
  • removing superfluous roles
  • merging two or more existing roles
  • a combination of these things.
When considering a restructure that affects people’s jobs (including redundancy and changes in responsibilities), businesses must take the time to get the process right to avoid claims of unjust dismissal and breaches of good faith.

Three things that should be taken into account to avoid such claims:

  1. There must be genuine reasons for the restructure.
  2. The employer must effectively consult with affected employees.
  3. The process must be fair.

Genuine reasons

Restructures should be made for legitimate reasons, and employers should communicate these reasons clearly with employees. Employers should do this by offering a detailed proposal that includes evidence in support of the proposed changes or the benefits that these changes may provide.

Redundancies can not be made on the basis of ulterior motives, such as performance or conduct concerns. If an employer decides to make an employee redundant to get rid of an employment problem, the employee may bring a claim of unjust dismissal. The employer then bears the burden of showing that the redundancy was genuine and was the predominant motive for ending the employment.[1]

Genuine reasons could include:

  • financial reasons
  • shifts in suppliers, markets and consumer requirements
  • improved technology
  • rebranding and product change
  • no longer using a department
  • wanting to outsource certain business functions
  • business mergers.

Consultation

When embarking on a restructure that might affect peoples’ jobs, it is essential to consult with potentially affected employees. In Simpsons Farms v Aberhart,[2] the Employment Court provided some helpful guidance on the requirements of consultation:

  • Consultation must be genuine and not treated as a formality.
  • Consultation must precede change. A proposal must not be acted on until after the
  • Employees must know what is included in the proposal before they can be expected to give their view. They should be given sufficient precise information which allows them to form and articulate an opinion. Employees must then be given reasonable opportunity to offer these opinions which may be shared orally or in writing.
  • Genuine efforts must be made to accommodate the views of the employees.
  • Following consultation, there should be an effort to seek consensus. Consultation involves the statement of a proposal not yet finally decided on, listening to what others have to say, considering their responses and then deciding what will be done.
  • The employer, while entitled to have a working plan already in mind, must have an open mind and be ready to change and even start anew.

Simpsons Farms Ltd v Aberhart illustrates how seriously the Courts will treat a lack of consultation. In that case, the Employment Court found that Simpsons Farms’ managerial restructuring, in which Mr Aberhart’s job was disestablished, and a new position was created, was fair and reasonable in that there were genuine reasons for the decision that was made. However, the Court held that Simpson Farms had breached its consultation obligations by not considering Mr Aberhart’s proposal (even though it was not required to accept it) that he try out the new role. It further breached its consultation obligations by not responding to Mr Aberhart’s reasonable requests for information. Mr Aberhart was awarded $15,000 compensation for Simpsons Farms’ breaches of its obligations to consult and provide information.

A common mistake is a lack of proper consultation through leaving inadequate time for employees to consider the proposal and give their feedback and failure to hear employee’s feedback. An employment lawyer can help ensure that consultation is legal and effective, saving the hassle of having to resolve personal grievances.

Fair process

Specific processes apply regarding reducing numbers and redeployment.

Reducing numbers

If the restructure will involve redundancies, the employer should be careful to adopt a fair and transparent method of selecting who is to be made redundant. During the consultation stage, there should be clear communication about the criteria used to make these decisions. When deciding which roles are up for redundancy, it is crucial that employers use the proposed criteria and not base their decisions on any other reasons.

Redeployment

Employees who are affected by restructuring can be placed in any new roles that are created if the new role is within their abilities. Fair processes for considering redeployment to a new role need to be followed.

Issues of redundancy and restructuring are technical and fact-specific. Obtaining legal advice in these areas before and throughout the process can be a valuable resource in ensuring employers know their obligations in order to avoid costly mistakes.

To get our free detailed guide to restructuring, download it here.

For customized help with the restructuring process, contact Bell and Co at (04) 499 4014 or info@bellandco.co.

[1] Forest Park (New Zealand) Ltd v Adams [2000] ERNZ 310.

[2] 4 NZELR 170 at [62].