Redundancy and restructuring

by The FindLaw Team

Redundancy and restructuring

Redundancy is generally considered to be a situation where an employee’s position is surplus to the employer’s commercial needs. It is important to remember that it is the position that is surplus, not the employee. If a “redundant” person is replaced by someone else in the same position, the redundancy is very unlikely to be justifiable.

Section 4 of the Employment Relations Act 2000 requires employers to act in good faith when making employees redundant. It also requires an employer who is proposing to make a decision that will, or is likely to, have an adverse effect on the continuation of employment of one or more employees to provide those employees with relevant information and an opportunity to comment before the decision is made.

Care must be taken when declaring an employee’s position redundant. Employers must ensure that they do not try to use “redundancy” as a means for dismissing troublesome staff. Due to the significant risks associated with making people redundant, it is advisable to seek legal advice before proceeding with a proposal that could result in redundancies.

Redundancy process

Generally, the process to be followed is:

  • Offer the employees an opportunity to have a representative during the consultation process.
  • Adopt a fair basis on which to select those to be made redundant.
  • Circulate a proposal containing all the relevant information on the proposed changes to the affected staff for their comment/feedback, giving sufficient time for them to respond.
  • Consider all feedback before deciding on the final structure. Further consultation may be needed before a final decision is made.
  • Communicate the final structure, together with timelines for implementation.
  • Meet with affected staff individually to identify opportunities for them to remain employed by the organisation.
  • If employees’ positions are to be made redundant and no other roles have been identified, give adequate notice of termination in accordance with the terms of their employment agreement.
  • Offer career counselling, help with job searching and other appropriate support (eg training).

 

Alternatives to redundancy should be considered by the employer as part of the process, such as:

  • Redeployment;
  • Transferral to other worksites;
  • Retraining; and
  • Voluntary redundancy.

Selection

Any decision about staff chosen for redundancies must be carried out in good faith, without reference to irrelevant criteria.

Any performance criteria relevant in the selection process should be communicated clearly to staff and opportunities to contest or discuss the criteria, and any scores assigned using the criteria, should be given. Criteria should be as objectively measurable as possible.

The “last on-first off” industrial practice is one factor which employers often take into account. This practice is usually carried out where there is a clause in the employment agreement stating such a principle is the practice.

Notice of redundancy

If there is no specific clause in an employment agreement giving a period of notice in a redundancy situation, “reasonable notice” must be given. The length of “reasonable notice” depends on a variety of factors, such as:
  • The reason for the redundancy;
  • The employee’s length of service;
  • The employee’s seniority and/or remuneration package;
  • Custom, practice, and industry norms;
  • The employee’s ability to find alternative employment; and
  • The amount of compensation being paid (if any).

Redundancy compensation

Any term in an employment agreement providing for redundancy compensation is a matter for negotiation between employers and employees, usually at the commencement of employment. If agreed, the amount and method of payment should be included or referred to in the agreement.

The parties may agree that there is no entitlement to redundancy compensation, in which case there is no obligation for the employer to pay compensation in the event of redundancy (although see Restructuring for “vulnerable workers” below).

Technical redundancy

A technical redundancy occurs where a business is sold other than by way of share transfer and employees are offered employment by the purchaser on the same terms and conditions. Employees in this situation will be “technically redundant” because their employment agreements with the employer who sold the business terminate at the point of sale, but their employment with the business will continue if they accept the offer of employment.

Employment agreements that provide for redundancy compensation usually include a clause to say that the employee will not be entitled to compensation if they choose not to transfer their employment in a technical redundancy situation.

Restructuring for “vulnerable workers”

The Employment Relations Act 2000 contains detailed requirements for “restructuring” situations affecting specified categories of employees. The “specified categories” are those providing cleaning services, food catering services, laundry services (in education, health, or age-related residential care sectors), orderly services (in health or age-related residential care sectors), and caretaking in the education sector.

These categories of employees are considered to be at greater risk of losing their job because of factors such as a lack of bargaining power and employment in sectors that are frequently undergoing restructuring. They are sometimes called “vulnerable workers”, although this term is not used in the Act itself.

Meaning of “restructuring”

For the specified categories of employees, “restructuring” means:

  • Contracting in (where a contract with an independent contractor who has employees ends and the employer performs the work in house);
  • Contracting out (where the employee performs the work for their employer and the contract is subsequently awarded to another party who intends to subcontract the work);
  • Subsequent contracting (where a contract between a principal and an independent contractor who has employees ends and the work is awarded to a new contractor); or
  • Selling or transferring an employer's business (or part of it) to another person.

Rights of employees

Employees in the categories specified have the right to transfer to the new employer on the same terms and conditions of employment, including continuity of service, if their work is restructured and:

  • They are no longer required to perform the work as a result; and
  • People employed by the new employer will be performing the same, or substantially similar, work to that performed by the employee.

If they elect to transfer and are made redundant by the new employer, they are then entitled to whatever redundancy provisions are contained in their employment agreement with their old employer. If their employment agreement does not cover redundancy, they can bargain for redundancy entitlements with the new employer, or have the redundancy entitlements determined by the Employment Relations Authority if agreement cannot be reached.

Restructuring for all other employees

Under the Act, all other employees must have an employment protection provision in their collective or individual employment agreement that is aimed at protecting the employment of employees affected by restructuring.

“Restructuring” in relation to all other employees means:
  •  A contract or arrangement under which the employer’s business (or part of it) is undertaken for the employer by another person; or
  • The employer’s business (or part of it) is sold or transferred to another person.
If you need advice on redundancy or other employment issues you can find a lawyer in your area using the FindLaw directory.


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