Are you 'genuinely' restructuring?

In the past, employers have had a reasonably free reign in deciding how to structure (or re-structure) their business. This meant that as long as an employer followed a fair and proper procedural process, then the grounds upon which the employer decided to restructure would not be questioned by the court. 'An employer has the right to decide how to run its own business!' was the court's general sentiment. However, this stance has now changed since the Court of Appeal decision in Grace Team Accounting Limited v Brake.

Grace Team Accounting Limited v Brake:

The case of Brake involved an accountant who had been working at one of the big accounting firms in New Zealand.She left that firm to work for Grace Team Accounting Limited. Six months after commencing employment for Grace Team Accounting Limited, Ms Brake was made redundant.
Ms Brake raised a personal grievance for unjustified dismissal. The parties could not resolve the issues and the case ended up in the Court of Appeal.

What was the court decision?

The Court of Appeal decided in Ms Brake’s favour and in doing so, it broadened an employer's requirements when undertaking a restructure. The Court also widened its own ability to look under “the veil” of the employer’s decision-making regarding the restructure. The impact of this decision means that:

• The judges can now examine the merits of an employer’s claimed reasons for redundancy.
• An employer will have to justify the grounds on which a restructure has been proposed.

In Grace Team Accounting v Brake, the Court of Appeal decided that the company failed to take sufficient care in consideration of the business’s situation. In addition, the grounds upon which the company decided to make Ms Brake redundant were flawed. The Court considered that although the company was “genuine” (i.e. the restructure was not a mask for poor performance), the standards of a fair and reasonable employer required the company to make sure it’s information was accurate and that there was a legitimate need to restructure. Ms Brake was awarded $85,000.

What does this mean for employers?

Cases such as Grace Team Accounting v Brake have led to legal developments concerning restructure and redundancy. It is essential that employers understand these requirements. For any business’ that is looking to restructure, we suggest the following:

• Make sure that you have a real understanding of the commercial reasons for the restructure. Are they justifiable? Would they stand up to scrutiny?
• Ensure you follow a fair and proper process. The employee must have access to relevant information about the proposal prior to the employee giving feedback.
• Be fair and considerate when going through the consultation process.
• Consider redeployment opportunities. There are a line of recent cases that indicate an employer may be required to redeploy, even when the position is more junior or where upskilling or additional training would be required.

Before undergoing a restructure it is important to seek legal advice. If you are considering restructuring – talk to our Commercial Law Team today.