Managing redundancies: key risks to avoid
Examining the common mistakes and pitfalls when employers undertake a redundancy process
Restructures and redundancies remain commonplace in the New Zealand workforce since the fall out of COVID and the subsequent recession. Employers often opt to restructure and look at disestablishing roles within their organisation in order to cut costs and increase efficiencies, but when redundancy is done wrong it can end up costing employers more time and money than they bargained for. This article traverses the common mistakes and pitfalls that arise during the process which could ultimately result in a personal grievance being raised.
We are seeing a pattern emerging of increased scrutiny over redundancy processes by the employment law institutions, the Employment Relations Authority (ERA) and the Employment Court. One mistake in a key area of the process can leave to a finding of unjustified disadvantage and/ or unjustified dismissal.
Not providing sufficient relevant information
Section 4 of the Employment Relations Act 2000 requires an employer who is proposing to make a decision that will or could impact on the continuation of employment to provide to the employees affected—
- access to information, relevant to the continuation of the employees’ employment, about the decision; and
- an opportunity to comment on the information to their employer before the decision is made.
Information provided to the employee(s) must explain the problem(s) the organisation is trying to solve, how it landed on the change proposal (proposal to restructure and/ or make roles redundant), and how they think it will solve the problems identified. For example, when a change proposal resolves to save costs and/ or financial strain, the employer will likely need to provide facts and figures about the purported cost saving and how the proposed change will seek to resolve or address that. In KMW v ZIB Digital Limited [2025] NZERA 806, the ERA determined that broad references to “current business needs, market dynamics, and operational efficiency” and “cross-functional collaboration,” were found not to be specific enough and resulted in a finding that the employer had breached its obligation to provide information. However, that does not necessarily mean an employer will have to provide full financial accounts. The key is that Employers should avoid using jargon or buzzwords, and the information provided should be clear and easy to understand.
Flexibility
Employers should include the next steps and timeframes for those steps within their change proposal documentation, as this gives employees a clear picture of what to expect and when. However, employers should be wary not to get too wedded to those timeframes or imposing timeframes that are patently too short. Employers should be prepared to be flexible to allow for contingencies (for example, when employees elect to take advice on the proposal).
Predetermination
An organisation will always have a plan for the outcome of any restructure or an idea of how it will go, however, employers must be careful to r genuinely consider feedback and alternatives to a proposal and be aware that the process and justification may later come under scrutiny. The ERA and Court will look closely at the language used in communications regarding restructuring, redundancy and redeployment and whether those signal any element of predetermination.
For example, in New Zealand Steel v Haddad [2023] NZEmpC 57 a comment made during the consultation process that the employee was “saving his bacon” by seeking a redeployment opportunity, was regarded by the Court as evidence of the employer’s mindset that the employee’s role would not survive the restructure and led to a finding of predetermination.
This case also serves as an important reminder that employers should be aware that internal emails can often become discoverable and can be used as evidence in legal proceedings.
Redeployment
Employers are obliged to act as a fair and reasonable employer; this includes seeking to retain affected employees where possible. Employers must genuinely consider whether there are any alternative roles available roles within the business prior to ending an employee’s employment by way of redundancy. If there is a suitable role, an employee must be offered redeployment into it before considering external candidates. If role(s) exist which may require upskilling or additional training for a redundant employee to be suitable, the employer must consider doing so. Often that can be a fine line to ascertain.
Keep it clean
Employers may have other reasons as to why they would like to see an employee leave the organisation. Employers need to remember the importance of having a genuine business reason for considering redundancy. Redundancy is about the role, not the person occupying it.
Avoid muddying the waters by introducing or conflating other issues such as performance or cultural fit in the redundancy process. Similarly, if performance or disciplinary matters are already in motion in relation to an employee going through the redundancy process, employers must ensure that those processes and the communications regarding each are kept entirely separate. It is worth considering whether a performance or disciplinary process can be paused while a restructuring process is being undertaken.
Selection criteria
When reducing a number of the same or similar roles, an employer must carry out a selection process to decide which employees will retain their role. Typically, this involves the use of selection criteria.
Any selection criteria must be fair. Selecting an employee based on factors such as their visa status, parental or family status, the frequency of annual/sick leave taken or their attendance record are likely to be considered unreasonable. Appropriate selection criteria should be a balance of objective and subjective criteria and should be provided in draft in the first instance for employees to feedback on before the selection criteria is actually adopted. Any employees going through the selection process should also be provided with their scores based on the criteria and given a chance to comment before any final decisions are made. The Authority is becoming particularly pedantic at scrutinising issues to do with selection criteria.
Right to representation
Employees must be told of their right to seek legal advice in relation to the restructuring process and to be represented either by a legal representative or support person(s) at the outset of the process.
Key takeaways
Employers need to be aware of their obligations when undertaking a restructure or redundancy process, nothing that any process should be tailored to the situation and the roles potentially affected. Be wary before replicating restructure processes you have followed in the past and applying it to current or future restructures. Just because they worked in the past doesn’t mean they will be compliant now. If in doubt, it is always worth seeking tailored legal advice.
Special thanks to Partner Kirsty McDonald, Senior Associate Jeremy Ansell, and Solicitor Holly Kerr for preparing this article.
Contact our employment law team for tailored advice for your situation.
Disclaimer: The content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.
