Making Employees Redundant… The Importance of the "Why"
About the Authors:
Hannah Carey
Special Counsel at Parry Field Lawyers
Hannah specialises in litigation and dispute resolution, providing advice on a broad range of legal disputes including insurance, employment, estates, trusts, and relationship property matters.
Carly Armstrong
Solicitor at Parry Field Lawyers
Carly works in the area of family and employment law. She has degrees in social psychology (with honours) and law from Lincoln University and Canterbury University respectively.
When an employer is considering making an employee(s) redundant, there are three key steps they need to get right:
Following the terms of the employee’s employment or collective agreement and, in particular, what it says about making employees redundant.
Making sure that the reasons for the redundancy are “genuine”, rather than, for example, simply a cover to remove an underperforming employee. In other words, being able to demonstrate that any redundancy is genuinely justified on the basis of valid commercial grounds.
Following a fair and reasonable process.
At the centre of this is being clear from the start about why a redundancy may be needed in the first place.
This may seem obvious but not infrequently we see employers coming unstuck at this point. They are unclear and/or imprecise, sometimes in their own minds but, more frequently, when communicating with the employee, about why exactly they are proposing to remove a role and what evidence they are relying on to back up that proposal.
The law is clear that it is not enough for an employer to say or show that it genuinely believes a redundancy is required. While employers are entitled to make their businesses more efficient, whether or not the business is in financial dire straits or not, an employer must still:
Be able to clearly advise the employee, and with sufficient detail, about what the relevant issues are, giving rise to a possible redundancy;
Provide the employee with accurate evidence substantiating those issues; and
Give employees a real opportunity to be able to comment on those issues and, in particular, put forward alternative proposals if they are able to.
This means that, in general, it is not enough to simply advise the employee in broad, imprecise terms, as to why a redundancy is proposed. For example, to simply say that the employer has reviewed the business and redundancies are necessary to “streamline” the business, improve efficiencies or to save costs.
While those – making a business more efficient or saving costs – can be valid reasons for a restructure, the employee is entitled to know more on the how and why. The courts have been clear that:
“there must be made available to the other party sufficient information to enable it to be adequately informed so as to be able to make intelligent and useful responses” or, put another way, there must be “the provision of sufficient information to fully appreciate the proposal being made and the consequences of it and, secondly, an opportunity to consider that information and, thirdly, a real opportunity to have input into the process before a final decision is made.”
Consequently, in the example given, this may include providing information on:
What the employer’s review of the business showed? What issues were revealed? For example, “over the past 6 months, we have experienced an X% downturn in work in these areas. This is as a result of the loss of the X and Y contracts, which, on re-application, were re-tendered to Z Group. The effect of this on the company is that revenue has dropped over the same period by an average of by X% and productivity by X%. We are anticipating that these figures will continue over the next Y months because ….”
The evidence the employer has that demonstrate those issues, such as current and projected revenue or productivity figures?
What does the old and new employee structure look like under the restructuring proposal? For example, are other roles proposed to be removed? Who will undertake the employee’s existing role (if the duties under it are still required by the employer)?
How would removing the employee’s role help address the issues identified by the employer?
Have any options, other than removing the employee’s role, already been considered?
Could the employee be redeployed?
In our experience, where employers get this right, it reduces an employee’s disquiet and, consequently, the likelihood of an employment relationship issue arising. It also helps employers make better decisions, more accurately identifying what changes are actually needed and how best to implement them.
Finally, there are some limits on the information employers are required to provide employees. For example, information which would breach the Privacy Act 1993 or commercially sensitive material, the disclosure of which would unreasonably prejudice the employer’s commercial position.
In these cases, certain information may need to be redacted, before being provided to the employee or, in some circumstances, there may be grounds to withhold particular information altogether. We recommend, however, that the employer gets advice before doing so. It is not enough for an employer to simply say they believe withholding information is necessary. That decision can also be scrutinised and will need to “stack up”.
Special Counsel Solicitor
Parry Field Lawyers
03 348 8480
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