Beware: Redundancy Selection Essentials

How you select which employee is to be made redundant is not only emotionally fraught but also technically challenging and takes considerable time. Legislation does not set out a procedure for this. The overall duty of good faith means that an employer is required to follow a fair and reasonable process when selecting employees for redundancy. This involves setting clear selection criteria and making decisions based on those criteria after giving employees an opportunity to discuss the assessments.

In the case of Smartlift Systems Ltd v Armstrong [2021] NZEmpC 66 the Court found the two redundant employees had been unjustifiably dismissed. The employer had appropriately consulted with the employees in respect of the restructure proposal itself. However, they failed to consult about selecting which employees would remain and who would be made redundant. The employer provided the employees with a copy of the selection criteria matrix but did not consult with them before it was used. They then failed to discuss the scores with the employees before confirming their selection. The two redundant employees scored lowest on the selection matrix and were the chosen two for redundancy.

The employees were also not told how information would be obtained for the assessment process, who would participate in that assessment, how the scoring process would operate, and whether they would be given an opportunity to comment on the results before any decision as to their employment interests was made. The employees were not offered an opportunity to comment on their scores once they had been assessed, and before relevant adverse decisions were made about their employment. The Court considered this latter breach the most significant.

There are a number of lessons from this case. Selection criteria should be as objectively measurable as possible and must be communicated clearly to affected employees, with an opportunity to comment on the criteria. It is also important that staff have enough time to prepare for and to participate in the process.

Employers do not have to disclose confidential information if there is good reason to maintain the confidentiality of that information. Good reasons include:

• complying with legal requirements to maintain confidentiality
• protecting the privacy of individuals
• protecting the commercial position of an organisation from being unreasonably biased.

Good faith obligations require that consultation take place prior to every decision an employer makes which may have an adverse impact on an employee’s ongoing employment. That includes decisions made throughout the selection process when it is determined which employees out of a group are selected for redundancy.

It can be a minefield with the added challenges of stress, emotion and time constraints. This is not the time to cut corners and we recommend taking advice before embarking on a redundancy process.