The case of New Zealand Steel Ltd v Haddad recently decided in the Employment Court serves as an important and timely reminder for New Zealand employers regarding restructures and redundancies. Even in the face of commercial and economic necessity, employers must still follow a fair and reasonable process when restructuring or disestablishing positions. Consulting with affected employees and considering redeployment is vital. Employers should explore all possible alternatives before arriving at redundancy, and not immediately assume redundancy as the only option. It is important employers are aware of the potential financial consequences of an unjustified dismissal. By keeping these matters in mind and seeking early and practical legal advice, employers can navigate employment law and restructuring while minimizing the risk of costly legal disputes and personal grievances raised by affected employees.
The first lesson for employers from this case is the importance of following a fair and reasonable process when considering restructuring or disestablishing positions. Fundamentally, proposals and consultations relating to restructuring must be put to employees before a decision has been made by an employer. Employers should consult with affected employees clearly and give them a reasonable opportunity to apply for any new positions that may be available. The Employment Court recently found that by the time New Zealand Steel purported to consult with the employee over the disestablishment of his position, the decision had essentially been made. The use of the word “proposed” was semantic only, with no evidence of an open mind or discussion relating to the restructuring. Such consultation was flawed and failed to meet the obligations of good faith in the Employment Relations Act. The takeaway from this is clear; employers should always ensure that they communicate with affected employees in a manner that is meaningful and responsive. They should provide the opportunity for feedback and for input into the decision-making process. Failure to do so may result in an unjustified dismissal and significant financial consequences for the employer.
A second takeaway for employers is the importance of considering redeploying employees who are affected by restructuring or disestablishment. This consideration must comply with the good faith obligations in Section 4 of the Employment Relations Act, and the employer must be active and constructive in maintaining the employment relationship. Employers should not assume that they have no obligation to redeploy employees unless there is a contractual requirement to do so. The Court found that the introduction of the Employment Relations Act has substantially altered the law in this area, and employers must now consider redeployment as part of their obligations under the Act. Whilst the prospect of redeploying an employee may be extremely remote, employers must demonstrate they meaningfully considered redeployment, as per their obligations of good faith under the Act.
Legally speaking, employers should avoid assuming that redundancy is the only option when considering restructuring or disestablishment of their roles at work. In the above case, the Court found that the employer had not considered redeployment as a viable option for their employee and had not met its obligations under the Employment Relations Act. Employers should ensure that they explore all possible options before making an employer redundant. Employers should consider, and be able to demonstrate the following before making a final decision on a redundancy:
While the above list is non-exhaustive, it is vital employers go into a “proposed” restructure with a genuinely open mind and be prepared for an open discussion regarding differing options for redundancy. These conversations must be more than ‘semantic’, even where redundancy appears inevitable, employers must show they have genuinely considered alternatives.
A final takeaway for employers is to be aware of the potential financial consequences of an unjustified dismissal arising from a redundancy. If an employer fails to meet its obligations under the ER Act and unjustifiably dismisses an employee, the employee may be entitled to reinstatement, lost earnings, and compensation. In this recent case, the Court found that reinstatement was appropriate in the circumstances, along with reimbursement of the whole of the wages the affected employee had lost since his dismissal. Compensation of $25,000 (increased from the $15,000 ordered by the ERA) was also awarded.
As has been reinforced most recently in the Employment Court’s decision, Employers who fail to meet their obligations under the ER Act may face significant financial consequences by way of Personal Grievances raised by affected employees. These often amount to tens of thousands of dollars. These costs can be easily avoided with a transparent and fair process relating to a proposed restructuring, clear communication between employer and employees, and obtaining sound legal advice from the outset of the process.
We understand that restructures and redundancies can be a sensitive and difficult process. Wakefields Lawyers has a strong team of employment experts who can navigate you through employment law and restructuring your business which may have redundancy implications. For expert guidance on employment law matters, contact the team at Wakefields Lawyers today on (04) 970 3600 or email firstname.lastname@example.org.
– Billy Hansen (Solicitor)