In order for a redundancy to be justified, an employer must satisfy the requirements set out in s 103A of the Employment Relations Act 2000. This requires an objective assessment of whether the employer’s actions, and how it acted, were what a fair and reasonable employer could do in all the circumstances at the time the dismissal occurred.
Employers need to demonstrate not only that there is a basis for redundancy but also that the process they choose to embark upon is procedurally fair to the employee.
To ensure that a redundancy process is procedurally fair, employers must ensure they comply with their good faith obligations contained in s 4 of the Act. In accordance with these obligations, affected employees should be provided with access to information relevant to the continuation of the employee’s employment and an opportunity to comment on that information before it makes its final decision. This includes details as to what the criteria for selection for redundancy are and the weight to be applied to those criteria.
An employer is only entitled to terminate an employment agreement due to redundancy if the termination can be genuinely justified on the basis of valid commercial reasons.
Genuineness of the redundancy is therefore a key focus but once genuineness has been established, the court is not to substitute its business judgment for that of the employer (Grace Team Accounting Ltd v Brake [2013] NZEmpC 81).
Recent decisions have focused on the employer demonstrating genuine commercial reasons and emphasised the need for there to be a clear paper trail justifying the business case for redundancy (for example, Phillips v Juken New Zealand Limited [2018] NZERA Auckland 413).
Underpinning any proposed redundancy should be a process which is fair to the employee and complies with the rules of natural justice.
Roach v Mega Jump Ltd [2017] NZERA Christchurch 183 is a good example of a case where the consultation process regarding a proposed redundancy was found to be flawed and therefore procedurally unjustified.
In that case, the employee was summonsed (without prior warning) to a meeting and told that her employer was considering disestablishing her role due to a fall in sales and profitability. Requests were made by the employee for certain financial details. Some information was provided, but only on a drip feed basis and only after it was requested by the employee’s lawyer.
In the meantime, the general manager resigned, making a significant difference to the financial position of the company.
It was held by the Authority that the employer had pursued a faulty consultation process in reaching its decision to make the employee redundant. This was for the following reasons:
- the employer had drip fed information through and only when requested by the employee’s lawyer,
- the employer failed to consider the impact on the business of the resignation of the general manager,
- the employer made the employee redundant despite illness and a legitimate inability to attend a meeting.
- The employer had misled the employee about consulting other employees.
The employee was awarded $15,000 for humiliation, loss of dignity and injury to feelings. No award was made for lost remuneration because although the redundancy was procedurally flawed it was nevertheless substantively justified.
