Restructuring, Risk & Redundancy

Employment

Employers need to be aware of the risks involved with restructuring which can include having to defend claims by employees that they have been unjustifiably dismissed from their employment. If such claims are made, employers face the prospect of spending thousands of dollars defending the claims or worse paying large awards to employees in the event that it is found that they were in fact unjustifiably dismissed.

The termination of an employee's employment on the grounds of redundancy may be found to be unjustifiable if:

  • There were not genuine reasons for the redundancy; or
  • a fair process was not followed by the employer in reaching the decision to make the employee’s position redundant.

The important point to note is that it is not enough that an employer has good reasons for making an employee redundant. If the employer does not go about making the employee redundant in a manner that is fair they may still face a claim.

In our experience it is the failure to follow a fair process that puts employers most at risk. A common reason employers are found to have not followed a fair process is that they fail to consult with their employees before making a decision to make them redundant. Employers are obliged to consult with any employees that could potentially be affected by a proposed restructuring. This process of consultation will generally consist of a number of meetings between the employer and employee where the employee is told of the reasons why their employment may be in jeopardy, provided with information about what is proposed and given the opportunity to discuss the proposals and alternatives to it.

The employee should be made aware that he or she is entitled to have a legal representative or support person present at these meetings. Of course the result of the meetings can never be pre-determined. The employer must go into the meeting with an open mind as to the outcomes that are possible.

The Employment Court has made it quite clear that it is not acceptable for an employer to decide that a position is to be made redundant and then to treat consultation as a mere formality. The essential elements of a fair process that an employer must follow are:

Provision of information

The first meeting should involve the employer providing the employee with all information that is relevant to the employer’s restructuring proposal. The employee should be forewarned of the meeting and the reason for it and invited to bring a legal representative or support person along with them. At the meeting they should be given:

  • Supporting financial information where that is relevant; and 
  • The criteria that the employer has applied to identifying the employee’s position as possibly redundant; and
  • Current and proposed structure diagrams; and 
  • Details of possible alternatives to restructuring that have been considered by the employer.

Reasonable opportunity to provide comments/input Once the relevant information has been provided to the employee, the employer must provide a reasonable opportunity to the employee to comment on the proposal and/or provide alternative suggestions for cost savings. This usually means a few days at least to think about what is proposed.

Consideration of the comments/input

The employer is obliged to consider any input or suggestions provided by the employee as alternatives to redundancy with an open mind and make a genuine effort to accommodate those suggestions. This could involve amending the restructuring proposal or reconsidering the proposal altogether.

Making a decision and dealing with the consequences If the employer decides that the proposed restructure is still the most appropriate commercial decision at the end of this process, it is obliged to assist any effected employees in dealing with the consequences of the decision. This could range from providing the employee with time off work to attend interviews to assisting the employee to access counselling.

Of course the employee who is made redundant is entitled to all their contractual entitlements on termination including appropriate notice, redundancy compensation if that is provided for in their contract, and unpaid wages, holiday pay and other entitlements.

The above article is just a brief overview. If you propose to restructure and make employees redundant you must always first contact us to obtain full legal advice. Alternatively, if you are an employee who is facing a possible redundancy then you should also contact us to ensure that your employment rights have not been breached.

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Copyright © Cavell Leitch. All rights reserved. Redistribution is only permitted with express written permission. For enquiries please contact us. This article by its nature cannot be comprehensive and cannot be relied on by clients as advice. It is provided to assist clients to identify legal issues on which they should seek legal advice. Please consult the professional staff of Cavell Leitch for advice specific to your situation.