Redundancy: the six golden rules for employers.

If you are looking to reduce overheads by making a role redundant, there are six golden rules that will keep you working within legally recognised principles. The case study below shows how and why one business got it very wrong.

Bio-Cell: A case study

 

Mr. J had been employed since 2004 as a Water Treatment Serviceperson with Bio-Cell until his redundancy almost ten years later. His role included a mix of duties such as servicing and maintenance of air-conditioning units, obtaining and testing water samples and the sale of water treatment products.

From 2012 the business suffered from a significant loss in revenue. This decline was brought about by a prolonged drop in sales, so a business restructure was undertaken to limit overheads and unnecessary expenditure. Over the same period, Mr. J’s role had altered dramatically and many of his previous duties (particularly sales-related activities) had become obsolete. There were limited opportunities to promote Bio-Cell products and as a consequence of poor sales, less opportunity for his maintenance services.

Their redundancy process

 

Bio-Cell resolved to streamline the workforce by making redundancies. To do so, it embarked upon a consultation process with each affected employee. Brief discussions were held to explain the company’s financial situation and to advise that their roles were ‘at risk’. Not surprisingly, Mr. J fell into the affected category.

Unfortunately for Mr. J, he was about to head off on annual leave when the process began. Not wishing to seem unfair, Bio-Cell convened a two-minute meeting with him before he left in which he was presented with a letter supposedly outlining the process. The letter pointed out that his feedback would be welcomed and that he would be consulted before any final decision was made. The letter did not explain why a redundancy process had been instigated, nor did it disclose any information as to the criteria used to assess the affected employees to determine who (if any) would be selected for redundancy. Mr. J was not permitted to ask any questions.

The outcome

 

The Employment Relations Agency (ERA) concluded that the consultation process was almost complete by the time Mr. J returned to work and that Bio-Cell had already selected him for redundancy. In a further two-minute meeting, convened on his first day back at work, Mr. J was informed of the decision to ‘disestablish his position’. Subject to final approval from Head Office, Mr. J would be made redundant with no redundancy compensation over and above a payment equal to one weeks’ notice of termination (as per his contract) and an extra payment as a gesture of goodwill.

Mr. J did not go quietly.

A complaint was filed with the ERA for unjustified dismissal seeking reimbursement for lost wages, compensation for humiliation and loss of dignity, plus a contribution to his legal costs. The ERA agreed and awarded Mr. J a payment of $12,421.90.

The ‘six golden rules’

 

According to the six golden rules required to conduct a fair and reasonable redundancy process, it was abundantly clear to the ERA that the actions of Bio-Cell were procedurally defective. In its judgement, the legal principles that all New Zealand employers must follow before terminating on the grounds of redundancy are:

  • Provide the employee with all relevant information (details of the financial situation, the proposed restructure, and/ or any assessment criteria)
  • Allow the employee time to comment / give feedback on the information
  • Allow the employee to seek advice
  • Provide a genuine business reason to terminate (no ulterior motive)
  • Consider alternatives such as redeployment
  • Implement the duty of good faith


Bio-Cell was in financial trouble and had genuine business reasons for making Mr. J redundant, but the business could not demonstrate that it complied with all of the principles above.

The process was described as ‘rushed, mismanaged and unfair’. Mr. J received little or no information about the process or about the restructure; he had not been given any opportunity to comment on the proposal (despite being assured that his feedback would be welcomed); he was not offered the chance to seek advice or bring a support person, nor was the possibility of redeployment ever discussed. By failing to adhere to all of the principles, Bio-Cell had categorically and fundamentally failed to comply with its statutory and contractual obligations.

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