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Dealing with Redundancy

On 26 March 2020, the government shut down large sectors of the New Zealand economy in response to the coronavirus. The full ramifications of the lockdown are not yet clear, but the effect on businesses will be severe. Most will struggle through, some will not and many more will have to reduce staff in order to survive.

Sacrificing employees to rescue a business can be a highly emotional experience for an employer. The impact of redundancy on families and the predicament of older employees forced to seek alternative employment in a depressed economy through no fault of their own is obvious. No employer wants to be responsible for this and it can affect them deeply. The fact that it was forced upon them by factors beyond their control is little solace.

Most employers will go to great lengths to avoid laying off staff, but sometimes it is the only option. If redundancies are unavoidable as a consequence of the coronavirus, here are some factors that need to be taken into account.

The first thing to note is the government’s Wage Subsidy Scheme. Check the conditions you agreed, as these changed from time to time. In general, no employee can be made redundant while the business that employs them is taking the subsidy, but the moratorium ends with the cessation of the Scheme, currently scheduled for June 9. Businesses will then regain their legal rights, including the power of dismissal on economic grounds. Businesses that did not enter the Scheme can act immediately.

Justification At one time, reduction of staff on non-disciplinary grounds was only justifiable if it was necessary to avoid insolvency. That is no longer the position and staff can be made redundant to regain the profitability or efficiency of the business.

The redundancy decision must, however, be reasonable. The statutory test is “what a fair and reasonable employer could have done in all the circumstances at the time the dismissal or action occurred”. A business seriously damaged by the shutdown and forced to lay off staff is unlikely to be held to have acted unreasonably. A business that emerges relatively unscathed but which then attempts to exploit the economic downturn to shed inconvenient staff might be regarded in a different light.

Procedural Fairness Even if a dismissal is economically justified, it must still be carried out in a procedurally fair manner. Section 4 of the Employment (Relations) Act 2000 requires the employer to act in good faith and to provide –

  1. access to information, relevant to the continuation of the employees’ employment, about the decision; and

  2. an opportunity to comment on the information to their employer before the decision is made.

It is not sufficient, therefore, to inform the employee that they have been made redundant and to state the reasons for the decision. The matter must be discussed and the employee must be provided with enough information to develop and present alternative proposals. The most important information in the current context may be the firm’s revised operating budget. This could lead to discussions about paid or unpaid leave or temporary wage reductions.

Only if there is no viable alternative should notice of redundancy be given.

Redundancies necessitated by factors other than personal misconduct must always be handled with care, but the suddenness and severity of the current crisis has placed employers in a very difficult position. If the candidates for redundancy have similar functions, productivity and length of service, selecting between them on objective grounds could be all but impossible. If the employer then resorts to personal factors to break the deadlock, it could lay them open to claims of irrelevant considerations, inappropriate assumptions or even damage to the employee’s reputation and consequent worth in the labour market. An employer who attempts to avoid this by glossing over or misrepresenting the reasons for the redundancy would breach his or her statutory duty of good faith, again with adverse consequences. It’s a delicate balance.

For further information call us on 03 477 8080.

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