June 2009

Redundancy issues for employers

With the challenging economic times our community is currently facing many employers are having to consider restructuring and/or redundancy.

Unless employers deal with these situations carefully and comply with the legal requirements they may end up facing additional costs in the form of personal grievances raised. Seeking our assistance at the outset may save time, stress and money.The general approach of the Employment Court is that employers are entitled to manage their business as they see fit. However, they must have genuine commercial reasons for making employees redundant and they must follow a fair process. It is in the process that employers often come unstuck.As a guideline employers must be able to show:
  • the redundancy was based on genuine commercial reasons
  • the provisions of the employment agreement have been followed
  • the employer has been fair and reasonable in the way they have carried out the redundancy, and
  • the action the employer has taken is fair and reasonable in all the circumstances.
Genuine commercial reasons for redundancyGenuine commercial reasons for redundancy may arise from restructuring and/or contracting out work, a decline in demand, or a sale or transfer of the employer’s business. Employers must not use redundancy as a way of dismissing an employee who is not performing. Where redundancy occurs as a result of restructuring, the employer must make sure that any new positions formed are not substantially similar to the position being made redundant. A position that has a different title, but the same duties, will most likely be substantially similar. The following are just some of the factors that will be relevant:
  • substantial changes to duties
  • change in level of seniority
  • changes to salary or benefits
  • change to the number of hours worked
  • increased or reduced responsibility for other staff
ProcessHaving passed the “genuine reason for redundancy” hurdle, employers must follow a fair process, as required by the duty to act in good faith. This will generally involve:
  • consultation about any proposal that may impact on the employee’s employment
  • a consideration of any alternatives to dismissal e.g. redeployment, reduction in hours, job sharing
  • providing affected staff with information about proposed redundancies and the selection criteria for appointment to any new positions
  • following the terms of the employment agreement with respect to notice periods, payment and any redundancy compensation
  • advising the employee of their right to representation and offering support, and
  • where possible, providing counselling, career, financial and retraining advice
Getting our advice at the front end of the process is vital in achieving legal compliance.