Thinking of a Restructure Before Christmas? Some Things You Should Know:

Christmas time is a difficult time for many employers.  It often means the pay-out of large chunks of annual leave and includes an obligation to pay statutory holidays.  If, like many,  your business or organisation has suffered over the last few years and looks unlikely to recover with your current structure, then it is sensible to consider how you can save costs.  If you are tempted into rushing a restructure before the Christmas break then consider your steps very carefully.  A restructure which may result in lost positions, must still be considered thoroughly.   There are strict legal obligations on the employer notwithstanding that the writing is on the wall.  Don’t be tempted to rush your ‘restructure’ by missing important steps.

The importance of the employer’s obligations towards their employees when considering a restructure was highlighted recently in a recent case of Ian Johnston v Dacombe Motor Company Ltd.   This case highlighted that even if it is absolutely clear that positions will need to be lost, there is still an obligation on the employer to continue to consult with employees potentially affected in a restructure and full (and on-going) information provided to these employees to allow them the full opportunity to consider matters fully.  

The facts of this case briefly:  Mr Dacombe (senior) was a director of the company.  Mr Johnston worked as an office administrator. Mr Dacombe was diagnosed with a terminal illness and foreshadowed to his staff that the company would probably be closing down by the end of 2020.  This was confirmed to the staff again in a follow-up meeting at the beginning of 2020.  Mr Johnston was again advised this to be the likely situation for him.   However, it was identified by the company that Mr Johston’s role was an area where costs could be saved pending the final winding up of the company.  A meeting was held with Mr Johnston in July 2020 and it was explained to him that the company would be definitely winding up, and that his position would probably not last until Christmas 2020 as originally thought.  A discussion ensued over the options open to Mr Johnston.  Mr Johnston claimed that he was told he needed to leave at the end of that week.  The company claimed that they were giving him the benefit of a ‘heads up’, and that he should consider looking for employment earlier than first anticipated.  They denied that they ‘sent him away’.  The following day Mr Johnston resigned from his position but claimed a personal grievance on the basis that he was constructively dismissed (and therefore unjustifiably dismissed).

The Employment Relations Authority did not accept that Mr Johnston was constructively dismissed, but did find that the actions of Dacombe Motor Company Ltd had amounted to an ‘unjustified disadvantage’.   It was held that unilaterally pulling forward Mr Johnston’s anticipated end date was an ‘action’ by the company.  This was ‘unilateral’ because it had not properly investigated all matters with Mr Johnston, including consulting and discussing with him the ‘possible’ conclusion.  The company had made its own mind up that he was to leave earlier without recourse to Mr Johnston first.  The discussions that had been held with Mr Johnston about him ‘leaving earlier than anticipated’ which did result in Mr Johnston resigning earlier had, however,  disadvantaged Mr Johnston. It left him feeling less secure in his position (as it was going to end sooner – but no specific date was mentioned as to when) and made him feel he needed to make decisions earlier without knowing what the alternative end date would have been.  This was not fair to Mr Johnston.

This is a reminder that, irrespective that a company may be confronted (expectedly or not) with the inevitability of  closing it’s doors or that a restructure must happen immediately – the employer still has an obligation of ‘good faith’ to:

1. Give all relevant information to potentially affected employees as soon as possible.
2. Give all potentially affected employees the opportunity to comment on the information before a decision is made. This has to be a real opportunity, notwithstanding that decisions may need to be made in haste.
3. These obligations extend to all employees – including casual workers, if it may affect them.
4. Even if you think that this process will make no difference to the outcome, you can never tell what suggestions or solutions your employees may present to you.  Consider all of them with an open mind before deciding.
5. Don’t automatically fall back on a ‘trade or industry practice’ of “last on first off”. This may be the selection criteria that you eventually adopt, but your employees are entitled to be consulted on this and provide feedback before you adopt this default criteria. There may be many reasons why this approach is unfair.

Merely providing an employee with a termination notice or letter (without more) will make your restructure unjustified.   Or, it may, as in Dacombe Motor Company Ltd result in an unjustified disadvantage claim against your company or organisation.

If you are unsure how to proceed with your employees, and need to make decisions quickly then please contact us for advice on the best way forward.