Resignations During Restructurings

A recent Employment Relations Authority (ERA) decision in Penny v Frello Limited is a timely reminder for employers: even when the business case for restructuring is sound, the process must be watertight.

Frello Limited, a software company, faced genuine financial pressures and undertook a restructure that included reducing its software development team. The company used a selection matrix to determine which roles would be disestablished. But despite this, the ERA found the dismissal of senior developer Henry Penny to be both substantively and procedurally unjustified. Frello was ordered to pay $20,000 in compensation and three weeks’ lost wages.

What went wrong?

1. Inaccurate consultation information
   Frello consulted on the basis that five developers were in the team, when in fact one had already resigned. A second resignation was signalled before the final decision was made, but Frello failed to factor this into its process. The Authority found that had these resignations been properly considered, no redundancy may have been necessary at all.
2. Selection criteria not fully transparent
   While Frello used a matrix, it later emerged that other factors—like salary levels and “implicit knowledge” of certain systems—were also considered but not disclosed. The ERA was clear: if you’re going to use selection criteria, they must be shared, explained, and consistently applied.
3. Office-based requirement poorly handled
   Frello required all developers to work from the Tauranga office full-time. Penny, who had a work-from-home clause in his contract, indicated he was willing to relocate and work in-office. However, this wasn’t followed up during consultation. If location is a deal-breaker, it must be clearly discussed and documented.

Key takeaways for employers

• Consult on accurate, up-to-date information. If circumstances change mid-process (e.g. resignations), pause and reassess.
• Be transparent about selection criteria. Stick to what you’ve communicated. Don’t introduce new factors behind closed doors.
• Respect existing contractual terms. If changes are proposed (like location), consult meaningfully and document the discussion.
• Don’t rush the process. Even with financial urgency, a flawed process can cost more in the long run.

Need help navigating restructures?

If you’re considering a restructure or redundancy process, we can help you get it right from the start. Call one of our Consultants.