Will courts look behind restructuring decisions?

In Totara Hills v Davidson, the employment court decision focused attention on the approach to redundancy rather than the process.

 The employer, who owned a farm, decided that he needed to reduce costs due to years of drought and poor prices. He settled upon the idea of disestablishing the position of one of his two farm managers, claiming that this would reduce his total remuneration bill by 10% and was, thus, necessary.

The court was tasked with deciding whether the employer’s action was what a ‘fair and reasonable’ employer would have done in all the circumstances. However, when making its own calculations, the court found that the employer had misrepresented the savings achieved. As a result, the genuineness and justifiability of the decision was questionable.

So what does this mean for employers? This decision shows that the Court (and Authority) could now look more closely into an employer’s rationale behind a restructuring decision. As a result, employers should ensure that they gather documentary evidence to demonstrate and justify the rationale for their decision at each point in a restructure.

An employer must always justify any changes to staffing and so this decision doesn’t represent any significant shift in approach.

In previous redundancy cases the court has not tended to focus on the legitimacy of the employer’s decision to make positions redundant but rather that they have followed a fair and reasonable process with regard to the employee (that is in line with agreed provisions in the employment agreement).