Restructures, redundancies, workplace change

Significant weather events, the lingering impact of Covid-19, inflation, new legislative requirements, and generally the cost of doing business are hitting many businesses hard. 

Difficult discussions relating to shedding staff, making fundamental changes to roles, through to closing are occurring on the regular. 

In all cases, a restructure of the business’ operations must occur.  We discuss some of the key elements of a lawful restructure below.   

What are the two key elements of a lawful restructure? 

One, the restructure must be based on genuine commercial reasons.  

Two, the restructure must be carried out in a procedurally fair manner. 

What are genuine commercial reasons?

The need to reduce overall costs and/or perceived internal operational efficiencies – for example the removal of an unnecessary layer of reporting. 

Adapting to keep up with the developing environment within which the business operates – for example advances in technology, or industry changes.

Any asserted genuine commercial reason must be reasonably supported by documentation.  This could be a third-party report outlining perceived deficiencies within the businesses structure, or financial records showing a steep decline in revenue. 

What is considered a procedurally fair process?

The basic elements are putting a tentative plan to potentially affected employees – which includes the provision of all information relevant to the proposal, providing the employees with a reasonable opportunity to consider said proposal and provide their comments on it, genuinely considering the employees’ feedback, and only then deciding about the proposal – e.g., to proceed with it as originally proposed, or make changes to it and begin the consultative process again. 

What impact do terms of employment and policies have? 

Businesses must follow established processes set out in employment agreements and/or adopted policies, provided they are consistent with the businesses statutory and common law duties, such as acting in good faith and as a fair and reasonable employer could in all the circumstances. 

What could happen if one of the two key elements (or both) are not present?

Employees will have actionable claims, such as personal grievances, breach of the employment agreement and statute among others, and if they are so inclined, will pursue those claims. 

The ordinary remedies for a successful unjustified dismissal claim are lost wages, compensation for hurt and humiliation, and a contribution towards the legal costs incurred in pursuing the claim.  In some circumstances, reimbursement of the legal costs incurred by the employee throughout the process can be ordered. 

In June 2023, the Employment Relations Authority ordered an employer to pay an employee $25,000 compensation, and three months’ lost wages (totalling $25,000 gross) among other remedies due to significant failings in the process it adopted prior to ending the employee’s employment by way of redundancy.  

What do we recommend for employers?

Before commencing a consultation process with employees, obtain legal advice about the strength of the business case that is being relied on to justify the restructure, and obtain advice about the correct process to follow.  A seemingly innocuous action can result in the entire process being unwound.  There have been recent developments in what a lawful process looks like for employers.     

What do we recommend for employees?

Upon receipt of a proposal that could potentially affect the role being performed, whether by the removal of duties and responsibilities or the disestablishment of the role, seek independent legal advice.  Issues such as unfair selection could arise, or there could be significant deficiencies with what is being proposed for example.    

At TODD & WALKER Law we have a specialist employment law team that are experts in the restructuring process.  They are often asked to guide clients through these sensitive and difficult processes. If you require assistance with a restructure or have any questions about the process, contact the Employment Law team on enquiries@toddandwalker.com or call 03 441 2743.