Restructuring and Redundancy
Prior to the Global Financial Crisis becoming part of our everyday terminology, the Ministry of Business Innovation & Employment mediation service and the Employment Relations Authority had virtually no cases of disputes and personal grievances, involving restructuring and redundancies, to resolve. However, today a significant number of these matters are ending up at mediation.
Why is this so? There are two main reasons.
- Post the global financial crisis, redundancies became common place and, even though the economy has picked up from these times, employers are now well aware that this is a tool that they can use. However, it is not always used in the correct context as some employers use redundancy as a 'quick fix' to solve other issues.
- The lengths employers must go to, in order to get a redundancy right, is ridiculous.
I will now work backwards from worst case scenario through to best practice.
Total Disaster – Reasons for termination are not genuine.
The 'Total Disaster' occurs when it is proven that the alleged restructure or redundancy was not for genuine purposes, rather it was used as a way to exit an unwanted employee(s) out of the work place. Contrary to the myth, "it's easy, we will just restructure to get rid of the problem," the reality is that this could be a very expensive mistake. If you have problems within the workplace, then face them head on. If you are not sure how to go about it, then contact an employment law specialist such as myself (0800 HELP ME). Don't 'do a Titanic' and attempt to steer around the problem, hoping for the best.
Should the Employment Relations Authority find that your restructure or redundancy was not for genuine reasons, then you are likely to face an award in favour of your employee for three months pay, compensation of approximately $5,000, plus a contribution to the employee's representation costs of $3,500. Don't forget that you will have to pay your own costs which the Employers and Manufactures Association (EMA) currently estimates will be about $15,000. A major factor that employers tend to forget, in addition to this equation, is the amount of time you and your staff will waste on the matter.
Costly Mistake – Genuine reasons – Complete lack of consultation
This is not as bad as the 'Total Disaster', but it will still be a major hindrance to you and your business. The 'Costly Mistake' is when your reasons for the restructure or redundancy are genuine, but you have not involved the affected staff member(s) in the process and have merely informed them that they are losing their job. New Zealand employment laws stipulate that staff must be consulted on every aspect of a redundancy or restructure before the final decision to either make someone redundant or to disestablish their role.
Should the Employment Relations Authority find that your restructure or redundancy was for genuine reasons, but you failed to consult with your affected staff, then you are likely to face an award in favour of your employee for compensation of approximately $7,000, plus a contribution to the employee's representation costs of $3,500. Don't forget that you will have to pay your own costs which the EMA currently estimates is approximately $15,000. Once again, a major factor that employers tend to forget, in addition to this equation, is the amount of time you and your staff will waste on the matter. Due to the situation being found to be genuine, generally no lost wages are awarded.
Expensive Omission – Genuine reasons, genuine attempt at consultation, however process not perfect
This is by far the most common reason for trouble post the redundancy and or restructure. Here an employer tries to do the right process, but slips up in minor areas that are not obvious to the employer until the likes of myself or one of my other colleagues states to you in the personal grievance letter. There are far too many areas to possibly slip up on that makes writing a conclusive list prohibitive. Working on both sides of this matter gives us opportunities to discover new areas of potential slip ups every few months or so.
The employer has an obligation to fully consult their staff prior to a redundancy or restructure decision being finalised. A mere doubtful thought as to whether you are making any assumptions in your thinking, should be reason enough to realise that such matters need to be consulted upon.
The consultation obligation on the employer, in this regard, is very high and extremely difficult to implement correctly without external help. I have personally had multiple employers say to me, as we are going through the resulting personal grievance process, "But I followed everything on the Department of Labour website. I don't understand why I am now in this situation?" It's like trying to pass an exam by only completing self-study and not having any tutor input. Yes, it is possible, but it does make it rather difficult.
Investment in Good Practise
All businesses without their own legal department should explore this route. Bring the likes of myself in from the onset. After a brief consultation, the end proposed objective can be identified and then the steps can be created to follow due process in order for your business to attain the proposed goals. You can then invest your valuable time on the productive side of your business as opposed to the stress and anguish involved in worrying that you may have it wrong. Call Danny, obligation free on 0800 HELP ME (0800 435 763) or email me at firstname.lastname@example.org