General / 25 February 2016

Many economists are predicting difficult global market conditions in 2016, and this has been borne out already in some sectors including dairy farming.  Given this, having to make people redundant for whatever reason may be a possibility for many businesses.

The law relating to redundancy has become significantly more complicated over the last several years, and reaching redundancy decisions is riskier than ever.  Ensuring that there is a clear plan at the outset of the restructuring, and the business case for the proposed change is well thought through, will assist in avoiding or, worst case scenario, defending, any dispute.

Legal framework

Redundancy decisions must be justified in accordance with the Employment Relations Act 2000 (Act), and particular good faith obligations  apply under the Act too in respect of restructuring processes.  In short, this means employers must be able to demonstrate that:

there was a genuine business reason for making a role redundant, (e.g. financial reasons such as a decline in sales); and
a full and fair consultative process has been followed, by which the affected employee has been given a fully informed opportunity to provide feedback on the proposal to make their role redundant before it is implemented.
What does fair process involve?

Once you have determined the genuine business reason for making employees redundant, you then need to ensure that you follow a fair process.  A brief overview of this process, which usually takes a minimum of two weeks to complete, generally involves:

Developing a written proposal which outlines what is proposed, and why, including any selection criteria and redeployment options. The document should outline what the consequences should be if the proposal was accepted and finally, key dates within the overall timeframe for completion of the redundancy process.

The proposal should then be presented to employees at a meeting, with emphasis on the proposed nature of the change (ie, no decisions have been made!) and feedback invited over a reasonable period of time and in an appropriate format (this will depend on the circumstances but should usually be received at a one to one meeting where the employee is represented or supported if they wish).

Feedback then needs to be considered and responded to, before the consultation process is concluded with announcement of the final decision to all affected employees and their representatives.

A selection process should then commence, if applicable.  Otherwise redundant employees should be given notice of termination, with confirmation of any other entitlements per their employment agreement or applicable policy.

Then, once affected employees’ employment has terminated, the new structure may be implemented.

While the redundancy process can be tricky to manage, ensuring you work within the current legal framework will assist you in achieving the best possible outcome for your business and employees.  There are myriad possible redundancy scenarios, and we recommend seeking advice before embarking on this kind of change, given the complexity involved in the law, and the need to ensure you’re taking the right steps in the circumstances.


Disclaimer:  We remind you that while this article provides commentary on employment law topics, it should not be used as a substitute for legal or professional advice for specific situations.  Please seek guidance from your employment lawyer for any questions specific to your workplace.

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