De-bunking myths around restructuring.

 

 

2021 remains uncertain, with Auckland in particular experiencing a further Alert Level 3. COVID-19 continues to permeate many industries.

It is critical for leaders and business owners to take stock of the strategy, direction, mission and vision of the business in early 2021. The rest of the team are counting on the leadership group to provide this purpose and direction.

Strategic and critical analysis of the business in early 2021, should include a focus on:

• Customer and market trends
• Productivity and profitability (as well as the inverse) by department
• Operational efficiencies, double-handling
• Streamlining management, processes and systems

 

Our employment lawyers can provide strategic input regarding the human resources side of the business and provide potential solutions to issues.

 

Following strategic analysis, it’s likely that a new shape/structure/direction of the business may emerge. If it’s clear that you need to restructure, it is important to be aware of the pervading myths in society regarding restructures. So, let’s de-bunk some of them.

 

1. COVID-19 means I do not have to follow a proper restructure process

False. Employment law trumps any policy put in place by the Government (e.g., the Wage Subsidy) unless employment laws are specifically repealed or suspended. So, in the case of a lockdown it is imperative to understand the employment laws, and ensure you act within them.

There are two cases that have come through the Authority which show that employers were not exempt from following employment law, as far as redundancies and changes to hours and pay were concerned.

 

2. Good faith requirements can be waived

As above, this is not true. The elements required in connection with good faith (i.e. responsiveness, communication, openness) are codified in section 4 of the Employment Relations Act 2000. The pandemic crisis did not (and does not) do away with good faith. In fact, at times of crisis, empathy and compassion (which are arguably elements of good faith) are required at all times.

3. I can no longer use a Trial Period to exit an employee

False. Trial periods are still available to be used by employers who have 19 or fewer staff. It is possible that an employer could use a trial period to exit an employee. It would be imperative to take legal advice on the decision and process prior to taking any steps.

4. I’m worried about the recession. I’ve heard I can just hire a casual employee so it’s easy to terminate that arrangement if work does not pick up

Employment laws remain firmly in place, regardless of any economic recession.’ This means that you can only hire a casual employee if they are truly casual (i.e. if there is no pattern or work or expectation of on-going work). Casual employment arrangements are great and provide flexibility for both parties, providing that the nature of the work is truly casual and providing that proper casual employment agreements are put in place.

5. Someone I know is now only employing staff on a fixed term agreement. I’m keen to do this too so it is easy to move people on.

As above, employment laws remain firmly in place. There is a pervasive myth that businesses can easily hire fixed term employees, and that such employment can easily be brought to an end. This is not correct. Employers can only hire an employee to be a fixed term employee if the requirements in section 66 of the Employment Relations Act 2000 are met. Section 66 is clear – there must be a genuine reason for the employment arrangement being fixed (as opposed to open-ended). A ‘genuine reason’ does not include uncertainty in the market or nervousness on behalf of the employer to hire permanent staff. Strict requirements are needed to be put into the employment agreement of a fixed term arrangement, so legal advice needs to be taken to ensure the employer gets this right.

6. Restructures are too hard – I’ll leave it for another time

False! Our experienced and skilful team of employment lawyers will guide you through the process and can be involved as much or as little as you need. The process of a restructure or re-shaping shows a commitment to leadership, the business, the team. However, it also requires real strategic skill to ensure that a restructure is needed; it may be that problems a business owner has identified could be solved by a different mechanism. If a restructure is required then our employment law team will guide you through the process to ensure the process is carried out with empathy, openness and respect.

Where to from here?

2021 is a new slate. We urge business owners and leaders to take stock of their business in early 2021 and strategically and critically look at the size, shape, model and effectiveness of their business.

Davenports Law provides strategic and legal advice for businesses, in relation to the re-shaping, re-modelling and/or restructuring of businesses. Get in touch with our Commercial Law Team today.