More Restructuring & Redundancy Rules

This year has seen a considerable number of cases that are influencing the restructuring requirements for employers.

In a recent case (Totara Hills Farm v Davidson) the Judge found there was not enough evidence to support an employer’s claims as to why there were genuine business reasons for redundancy. In particular, there was insufficient evidence as to why the employer did not act on suggestions made by the employees, and the cost savings the employer claimed would be possible were not similar to the estimate the judge had calculated and no explanation or clarification was provided.

The Judge also expected evidence from the employer of the cost savings to be made by making Mr Davidson redundant as well as evidence that cost savings were actually required. With the level of skills and experience Mr Davidson had, the Court said a reasonable employer wouldn’t have only suggested that he apply for the lower level role available, but would have offered him the position.

In this case it was ruled that the redundancy did not appear genuine and Mr Davidson had been unjustifiably dismissed.

A further case,( Brake v Grace Team Accounting Ltd )[, Ms Brake was found to be unjustifiably dismissed. Brake was a Senior Accountant and had left long term employment with KPMG to work for GTA. When GTA decided to carry out a restructure, the outcome of their proposal was that two roles would be made redundant; neither being Brake’s role

On 14 April 2010 Brake approached her manager about taking leave for a routine appointment at Auckland hospital as she had Leukaemia. Brake explained that her condition was stable and did not affect her work. Later the same day Brake was asked to have a meeting where she was told that GTA was considering a restructuring proposal in which her position may be surplus to requirements. The company did have many meetings and other correspondence with Blake before deciding to make her role redundant.

The Judge found that GTA had not analysed their financial position accurately or provided Brake with sufficient financial information to support their decision that redundancy was necessary. The Judge also said that if the information was provided to Brake she may have actually identified an error, which amounted to $120,000.

Brake was awarded lost remuneration of $65,000 and $20,000 compensation for humiliation, loss of dignity and injury to feelings.

GTA have now sought the Court of Appeal’s review of the Employment Court’s decision.

Previously when the Courts assessed whether the employer had ulterior motives behind their reason to restructure they wouldn’t look at the merits of the employer’s commercial decision. However, it appears there is a change of approach now in this regard, which provides more protection for employees.

Points to consider before heading down the redundancy track…

Is the reason for restructuring really a performance or behaviour issue?
Consider the culture and reputation you want your business to have
Check that any restructuring fits with your strategy and goals.
Are there alternatives to restructuring that may be better for your business?

Our team has considerable experience with restructuring and redundancy, so if this is a topic you would like to discuss further, please do not hesitate to contact us.