Restructuring: what does it mean for your business?

Date: 22nd August 2013

Unfortunately some businesses may find it necessary to restructure to ensure the business remains viable. Making staff redundant can be tough on the affected employees and also on employers so it’s important that you follow a fair process.

Like any other decision you make as an employer, the decision to terminate an employee on the grounds of redundancy must be a decision that a ‘fair and reasonable’ employer could make. This means an employer must make such a decision in a fair manner based on sound business reasons.

What is required will depend on the nature of your business, and all the surrounding circumstances of the particular employment relationship.

A fair redundancy process will generally involve:

• Effective consultation with staff. This involves clearly communicating the proposed changes to employees and the business reasons for these proposed changes. Employees need to be provided with all information relevant to the proposed changes so they may make an informed contribution to the process.

• Considering feedback. Genuinely considering any feedback from employees (and their representatives) about the proposed changes. If the employees’ feedback is not taken on board, the reasons for this should be explained to the employees.

• Giving notice. If the decision is made to proceed with the changes, notice of termination of the employees’ employment should be provided to the employees.

Throughout the process redeployment of affected employees into any suitable vacant or new positions should be explored. In some circumstances redundancy compensation may be payable if any employee’s employment ends due to redundancy.

Case study: Totara Hill Farms

Traditionally, the Employment Court has been unwilling to go behind the business reasons of a decision to make an employee redundant, merely requiring that the business reasons for the decision were genuine. However, recent developments in the restructuring context mean that the Employment Court will be taking a much closer look at the business decisions of employers. This is illustrated by the Employment Court decision in Rittson-Thomas t/a Totara Hill Farms Ltd v Davidson (“Totara”).

This case involved a decision by an employer, in the business of farming, to merge two unit manger roles into one, for the purpose of making $10,000 in cost savings. The Employment Court found that although the decision to make the employee redundant was a genuine one, it was not one which a fair and reasonable employer could have made. The employer had said that the proposed restructuring would save $10,000, however it actually only saved $6,000. The Employment Court also did not consider that making the redundancy was justified by savings of $6,000. Therefore the dismissal in this case was held to be unjustified.

The approach in Totara demonstrates that employers’ business reasons for restructuring will be examined much more closely than previously. Employers will have to ensure that the business reasons for the restructuring can be justified. In particular, prior to making a decision to restructure, employers should ensure:

• That any evidence, financial accounts and reasoning demonstrating the need for restructuring are sound and defendable if challenged;

• That any financial information relied upon are wholly accurate; and

• That the proposed restructuring is fully reasoned, and employees are presented with a complete, consistent, and accurate picture about why their position is to be restructured.

From website.


*Image courtesy of by Kittikun Atsawintarangkul at Free Digital Photos


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