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Employers hold the cards but playing them needs care

By Scott Wilson, Partner and Josephine Toop, Solicitor

First Published in the NBR, 7 November 2008

New Zealand employers are likely to face tough times, with some reports suggesting that there could be more than 40,000 redundancies before the end of next year. The retail and construction sectors are among many that are likely to be hit hard.

Employers need to tread carefully to ensure they don’t make a bad situation even worse. Redundancies need careful handling. Employers should make an effort to dot the 'i's and cross the 't's to try and minimise costly personal grievances that could strain already stretched resources.

Generally, employers have the management prerogative to organise their business as they see fit. In most instances, courts will not interfere with redundancies if the employer has genuine reasons. However, process is everything.

The penalties for failing to be fair can be substantial. Other considerations include the cost and amount of management time that personal grievances take up. There is sense, then, in trying to reduce the risk of a personal grievance before going down the redundancy path. Employers should spend some time planning the process and taking legal advice.

If someone challenges their dismissal by redundancy, as mentioned, employers must be able to prove they had genuine reasons for making an employee redundant and that the process leading to that redundancy was fair.

What is a genuine reason? There is no iron-clad definition. But for instance, there is likely to be a genuine reason where the employer honestly and reasonably believes that the position has become surplus to the company's needs (such as if fewer salespeople or production staff are needed due to a decline in demand for a product).

Regardless of the reason, employers are required to follow a fair procedure. Each situation will need to be assessed to determine what is appropriate; no one formula applies in all circumstances.

In general, however, employers should consult with potentially affected employees (at an early stage) and ensure that they have applied fair selection criteria in deciding who is to be made redundant. Employers should also consider redeployment possibilities, and give adequate notice to potentially affected workers. It is particularly important that, before decisions are made, employees are given the opportunity to have input into a number of matters (like the restructuring proposal and possible impacts).

Where employers are unsure about whether they have genuine reasons, or the appropriate procedure to use, or how to implement redundancies in their business generally, they should seek some advice.