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Is your business struggling to recover following lockdown, requiring you to make redundancies?

Is your business struggling to recover following lockdown, requiring you to make redundancies?

Is your business struggling to recover following lockdown, requiring you to make redundancies?

Wednesday 3 June, 2020

Circumstances may have changed, but the principles of employment law have not. 

As New Zealand exits the COVID-19 national lockdown and takes steps towards normality, many businesses are finding that “business as usual” is a long way off. They are faced with needing to make changes in order to adjust to a very different business environment. 

Many will have reopened after a time of extreme financial hardship and a complete operational shutdown, to find that revenue falls well short of the pre-lockdown forecast, demand has fallen away, restrictions still imposed mean that operations must be significantly different, or a new strategic direction will be necessary in order for the business to remain viable. Furthermore, this comes when the end of financial assistance, such as the wage subsidy, looms near.  

Reducing staffing levels/labour costs, may be a necessary part of the response.  However, a sudden jump to “make redundancies”, without conducting a proper process, is unlawful and could cost the business tens of thousands of dollars. 

The risk

The impact of COVID-19 on businesses nationwide, though unprecedented, does not absolve an employer of its legal obligations. In order for any redundancy to be justified, it must be based in genuine business reasons (substantively justified) and have followed from a full and fair process (procedurally sound).

If the employer fails to meet either test, it could find itself faced with a successful personal grievance for unjustified dismissal from a redundant employee.  This means that even with the best business reasons in the world, a dismissal can be unjustified where procedural requirements were not observed.

Employers should also be aware that making staff redundant during the wage subsidy period could breach the wage subsidy obligations.  This, and the possible consequences, will depend on when the wage subsidy application was applied for, and how that relates to the timing of redundancies. 

Proper process

An employer who is considering changes to the structure of the business must consult with staff before making any decisions that may impact on their continuing employment.  The basic steps involved in a simple restructuring process are as follows:

  • Present a restructuring proposal to employees potentially affected by changes being proposed and give them time to review, consider and seek advice.
  • Obtain feedback on the change proposal from affected employees.
  • Consider feedback before deciding whether to proceed with the proposed changes.
  • Communicate decision for new structure (if as proposed) and consult with affected employees on any alternatives to redundancy, such as redeployment.

Employers should keep an open mind to alternatives presented by staff throughout the process and give due consideration to their comments.  It is only after consultation has occurred and all other options have been exhausted that redundancies should be confirmed. 

We are able to provide a comprehensive step-by-step guide to the process if that would be of assistance.  Our team of employment experts can also provide support throughout the process including being available to answer questions as they arise, providing template documents, reviewing and/or preparing documents, and providing guidance ahead of meetings with employees.