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01 Mar 2010

Restructuring is a sensitive issue. To justify restructuring, an employer needs to base their decision on ‘genuine commercial reasons’ and carry out the restructuring in a procedurally fair manner, which includes consulting with affected employees – those whose roles may change or who may be made redundant. Here we give an overview of the restructuring and redundancy processes*. What constitutes a genuine commercial reason can be tested by asking the question "is it good business sense to restructure?". The economic climate alone is not a reason to restructure. An employer still needs to link this to its specific business situation and demonstrate how its financial stability has been impaired to justify restructuring on this basis. An example of a genuine commercial reason (and one commonly used to justify restructuring) is to improve the business’s financial situation by reducing the number of positions and saving on salary costs. Another common reason is to reduce costs by outsourcing the tasks performed by a position or positions to an external party. Employee protection provisions Employment agreements must include an employee protection provision (EPP) setting out what the employer will do where it proposes to sell, transfer or contract out part or all of its business. Certain groups of employees classed as ‘vulnerable’ (including cleaners, caterers and rest home orderlies) have automatic rights of transfer in these defined restructuring scenarios. Fair process - consultation Fair process in restructuring requires consultation with affected employees. Generally the first step in any restructuring process is to prepare a proposal, which may include a chart outlining the current and proposed organisational structure. If what is proposed includes a reallocation of existing tasks, or new tasks or positions, it may include draft job descriptions for any new positions. An employer is obliged to begin consultation once a proposal is formulated and before a decision about the proposal is made. Consultation involves telling affected employees about the proposal, providing details of the proposal and giving the opportunity to provide feedback on the proposal, considering that feedback, and making and communicating the decision. Exactly how consultation occurs will depend on the nature of the proposal, the size of the business and how many employees are affected. For example, where many employees are affected, an employer may hold a group meeting or a series of individual meetings to present the proposal initially before receiving individual feedback. Consideration needs to be given as to how much information about the business reasons for restructuring should be provided to employees, especially where that information includes commercially sensitive and financial information. The duty of good faith requires an employer to be responsive and communicative in the employment relationship. In a restructuring situation, this involves providing information, including confidential information, unless there is a good reason to protect its confidentiality such as a statutory requirement, a need to protect the privacy of people, or where disclosure would unreasonably prejudice the commercial position of the employer. Employees must be given enough information to allow them to give informed feedback on the proposal, including suggesting possible alternatives to it. Fair process - selection criteria Where some of a type of positions are to be made redundant while some are retained, an additional step in the process is necessary, to select who will be appointed to the remaining roles. The duty of good faith requires an employer who is selecting employees for redundancy to follow a fair and reasonable process, which means proposing and communicating clear selection criteria and consulting about these criteria. Then, an employer must select redundancies based on the criteria after giving the employees an opportunity to discuss the initial assessment of their suitability. Selection criteria must be objective and measurable and can include, for example, an employee's experience, skills and qualifications. Your duties The law sets out that termination of employment for whatever reason should be a last resort. This means that where an employer has decided to make an employee's position redundant, it must consider options for redeployment and give the employee the opportunity to apply for other available roles. Employers are also expected to be sensitive to the impact redundancy can have on employees. Counselling, outplacement support, assistance with preparing curriculum vitae, positive references and even contacting other possible employers in the same industry, are steps that are looked upon favourably by the courts where a redundancy is challenged.