Redundancy: The six 'golden rules'.
The Employment Relations Authority (ERA) provides some well-needed clarity on what it deems to be a ‘fair and reasonable’ redundancy process. The recent decision in Jarrett v Bio-Cell (NZ) Limited sets out strict legal principles to be adopted by New Zealand employer’s when embarking on any redundancy process.
Here, Mr J had been employed since 2004 as a Water Treatment Service person with Bio-Cell until his redundancy almost ten years later. His role comprised a mix of duties such as servicing and maintenance of air-conditioning units, obtaining and testing water samples, and the sales of water treatment products.
Since 2012, the business suffered a significant loss in revenue brought about by a steady decline in sales. Consequently, it opted to undergo a business restructure as a means of limiting overheads and unnecessary expenditure. Due to poor sales, Mr J’s role had altered dramatically - many of his previous duties had long since disappeared. There were limited opportunities to promote Bio-Cell products and as a consequence of poor sales, there was even less opportunity for his maintenance services.
Bio-Cell resolved to streamline the workforce by making redundancies. To do so, it embarked on a consultation process with each affected employee – brief discussions were to be held to explain the company’s financial situation and to advise that their roles were “at risk”. 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 contain any explanation as to the reasons 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 ERA concluded that the consultation process was almost over by the time Mr J returned 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 but 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 for his legal costs. The ERA agreed and awarded Mr J a payment of $12,421.90.
Having compared 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 it simply could not demonstrate that it complied with all of the above.
The process was described as “rushed, mismanaged and unfair” - He 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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