The key practical issues in workforce restructuring include:
- Legal justification
- Works council and employee representatives’ process
- Labor administration process
- Costs and timing
- Litigation risk
Workforce restructuring and any resulting employee redundancies must be managed by employers in accordance with the relevant provisions of the Employment Relations Act 2000 (ERA) and relevant case law in New Zealand.
“Redundancy” is not defined in the ERA, but is widely accepted to mean the situation in which an employee is terminated, the termination being attributable wholly or mainly to their role being (or becoming) superfluous to the needs of the employer. In New Zealand, there is no difference between the requirements for large-scale (or collective) restructurings and smaller-scale restructurings.
Any redundancy process should meet two legal tests:
- Substantive legal justification
- Procedural fairness (including a fair selection process, genuine consultation, sufficient notice and payment of any applicable redundancy compensation, and any other contractual or statutory entitlements)
Required legal justification
For a redundancy to be justified, the employer must be able to show that it performed everything that a “fair and reasonable employer could have done in all the circumstances at the time the dismissal or action occurred.” What amounts to a rationale that is “fair and reasonable in all the circumstances” is largely governed by case law and based on the factual circumstances surrounding the decision. The courts should not substitute their view for that of the employer, but should consider whether the decision fell within the spectrum of options open to a reasonable employer.
There must be a genuine and honest commercial reason to substantively justify a redundancy. Examples for genuine commercial reasons that could lead to an employee’s position being superfluous may include:
- Changes in workforce requirements due to technology, industry or market influences
- A business restructuring to increase efficiency or reflect a newly adopted strategy
- The closure or sale of a business, including as part of a post-deal integration process
- Responding to changes in revenue or client demand
- Changes in business location
The Employment Relations Authority or Employment Court can require an examination of the reasons behind a redundancy decision in order to examine the commercial rationale of the business decision. While there remains a certain amount of managerial discretion around the commercial decisions that a business makes, the decision to disestablish a role must be one that a fair and reasonable employer could have made. In addition, the basis for the decision must be one that a fair and reasonable employer would be entitled to rely on.
Works council/unions or other employee consultation requirements
Consultation requirements with works council/unions
Works council: There is no works council or equivalent body in New Zealand.
Unions: Consulting with any unions who represent affected employees in a restructuring situation is required, both as an essential element of the redundancy process and as part of the statutory duty of good faith.
In addition, it is common for collective bargaining agreements to contain consultation provisions; which the employers must verify and follow.
In general, the consultation process with unions mirrors the individual employee consultation process, save that, in some circumstances, the employer may give the unions a short amount of advance notice (either of the proposal or the outcome) so that they are better placed to assist their members.
Consultation requirements with other employee representatives
There is no obligation in New Zealand for the employer to consult the health and safety (H&S) committee or H&S representatives unless the decision or workforce restructuring process may affect the health and safety in the workplace or there is a requirement to do so within the employer’s H&S policy or any relevant collective bargaining agreement. If an H&S consultation will be undertaken, this usually takes place at the same time as the union and employee consultation.
Consultation requirements with employees
If an employee’s individual or collective bargaining agreement sets out a consultation requirement for a proposed redundancy, the employer must follow this. In addition, there is the overarching statutory obligation on the parties to an employment agreement to deal with each other in good faith and there is a statutory obligation on an employer, under the good faith requirements in the Employment Relations Act 2000, to consult employees specifically about a restructuring. An employer that proposes to make a decision that will or is likely to have an adverse effect on the continuation of employment of an employee, must provide the employee with access to the information relevant to the continuation of his or her employment and an opportunity to comment (and must consider any comments made in good faith) before the decision is made.
It should be noted that “consultation” means informing an employee of a proposal and listening to and considering their feedback before making a decision. An employer is not required to agree to an employee’s proposal, but should be ready to respond to a feedback to demonstrate that it has been considered.
Based on case law, the fundamental components of a fair and reasonable consultation, before a proposed restructure is finalized, include:
- Consultation about the proposed restructuring: This must be more than a mere formality and greater than mere notifications and must be carried out before a decision is made to proceed. Usually the employer meets with affected employees either as a group or individually, explains the proposal and its potential effect, and then informs the employee of their right to seek advice and to provide feedback on the proposal.
- Sufficient and timely information and feedback: The affected employees must have sufficient and timely information and be given an opportunity to provide feedback. This means that the employer must be prepared to provide any relevant documentation or information that has influenced the proposal (such as relevant financial information where a proposal is being made on financial grounds). Employees are usually given the opportunity to provide feedback in writing or verbally and one to two weeks to provide the relevant feedback.
- Genuine consideration: The feedback of affected employees must be given genuine consideration before a final decision is made. Any refusal to adopt the suggestions made by the employee must be fair and reasonable in the circumstances.
Approval/notification of the labor authorities or other government authorities
There are no approval or notification requirements to Labor authorities or any other government authorities when an employer is undertaking workforce restructuring.
Employee selection criteria
Where a restructuring proposal involves a downsizing in similar roles (i.e., there is more than one employee to choose from), fair and objective criteria must be used to select the employees. Employees should be provided with the opportunity to give feedback on the proposed selection criteria. The Employment Relations Act 2000 does not prescriptively govern employee selection criteria. However, the courts have determined that selection criteria must be fair and objective, and that employees should have the chance to provide input into what the selection criteria will be and understand the finalized selection criteria.
Whether the chosen criteria are fair and objective is generally a fact-specific consideration. Selection criteria used may include length of service, disciplinary and performance records, experience required for a new role and performance in an interview. Employers must take care that criteria are not discriminatory and are truly objective.
Although the duty of good faith requires employers to disclose selection criteria, the ERA states that this does not require an employer to disclose confidential information about any identifiable individual.
Actions required to limit the negative impact and social plan
There are no specific legislative requirements that prescribe what employers must do to limit the negative impact of a restructuring (except for some very specific measures which apply to vulnerable employees in a transfer of business situation). For more information, see “Impact of an asset deal on seller’s employees” under “Asset deal – transfer of employee issues.” However, there are a number of steps that employers are required to consider as part of a fair redundancy process.
Internal alternative employment/redeployment
The employer must consider offering the affected employee an alternative employment within the company, if a role is available. If the alternative role would require upskilling, this should still be considered for the affected employee. If an available position is a lower-ranked position with lower remuneration, an employer should still allow the employee to consider the role before externally seeking applicants. The employer should not assume that the employee will not want the role. If a role is available that the employee could perform (including with additional training) the employee should be offered that role.
In New Zealand, there is no obligation on the employer to create a social plan and there is no statutory entitlement to redundancy compensation.
Case law has set out an expectation that an employer will provide some form of external assistance, including Employee Assistance Programme (EAP) counselling assistance, career planning and outplacement services. It is also common to provide certificates of service and/or written references to departing employees.
Where an individual or collective bargaining agreement provides for redundancy compensation or additional notice of termination, this must be paid to the employee. Where it does not, there is no requirement to provide any financial aid on top of the employee’s contractual termination entitlement.
Care needs to be taken that any accrued leave entitlements are paid out in accordance with the Holidays Act 2003.
The time required to fully implement a redundancy depends on the particular circumstances. Timing will be influenced by the number of redundancies contemplated, whether unions are involved, whether the relevant individual or collective bargaining agreements have prescriptive redundancy consultation clauses, whether the restructuring falls around a holiday period, whether the employees are on sick leave or parental leave, and whether the employee feedback includes suggestions that require further investigation or changes to the initial proposal.
The most simple of redundancy processes can be carried out over a two- or three-week period, but that time frame will be longer in more complex cases. Employers should also be willing to extend their proposed time frame where the circumstances dictate that it would be wise to do so.
The only mandatory costs are the employee’s contractual termination entitlements (such as notice or a payment in lieu of notice and a payment for any accrued leave entitlements). There is no statutory redundancy compensation in New Zealand; but if there is a contractual entitlement, then this must be met or the employee would have a potential claim for breach of contract. While it is common for redundancy entitlements to be calculated based on the length of service, any redundancy entitlement calculated on the basis of the employee’s age is likely to contravene New Zealand’s age discrimination provisions under the Human Rights Act 1993 or the Employment Relations Act 2000.
Customary additional costs
It is common for an employer to offer to pay for outplacement and career services.
Hiring restrictions post-redundancy
There are no specific hiring restrictions post-redundancy. However, if an employer has recently made a person redundant and advertises or hires people for a similar or the same position, this will call into question the substantive justification of the employer’s decision to make the employee redundant. This may lead to the reinstatement of the employee if the role has not been filled, or compensation for lost wages, and hurt and humiliation.
An employee can challenge an employer’s decision to disestablish their position or terminate their employment on grounds of redundancy by bringing a personal grievance for unjustified dismissal under the Employment Relations Act 2000 (ERA). If the employee is employed under a collective bargaining agreement, the union may represent the employee. Under the ERA, an employee (or a union acting on behalf of an employee) has 90 days to raise the personal grievance with his or her employer, starting from the date on which the action amounting to a personal grievance occurred.
Damages and other remedies
Damages for unjustified dismissal
Damages could be awarded to employees based on:
- Absence of a substantive legal justification for the redundancy: The employee may be entitled to reinstatement, lost wages and/or compensation for hurt and humiliation.
- Procedural unfairness: This can include a number of issues such as failure to properly apply the selection criteria, failure to seek alternative redeployment, or failure to undertake a fair and reasonable consultation process. A finding of procedural unfairness can render a dismissal unjustified, even where there has been a genuine business reason, which as above can result in reinstatement (although this is less common in procedural fairness cases), damages for lost wages and compensation for hurt and humiliation.
Compensation for lost wages depends on the amount of wages actually lost and the degree to which the employee has mitigated any damage by trying to find alternative employment.
There is no maximum award for hurt and humiliation awards and these can vary widely depending on the circumstances of each individual case. However, these awards tend to be moderate compared with some other jurisdictions.
Where a redundancy is found to be unjustified, the Employment Relations Authority or the court may order the employee to be reinstated if it is feasible. Reinstatement does not have any preferential status over and above other remedies.
Reinstatement will not be awarded where the relationship between the parties has broken down irretrievably, for example, where either or both parties feel there is a profound loss of trust and confidence in the employment relationship caused by a party’s actions during the restructure process.
There are no criminal sanctions for an unjustified dismissal arising through redundancy.
There are no issues specific to New Zealand.
Primary Contact for New Zealand Labor and Employment Law
EY Law Limited
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