An employer must follow a fair and proper process before an employee is made redundant. Employers will have to make some difficult decisions to survive tough times. The last resort may be to reduce staffing levels through a redundancy process. This can be a sensitive and stressful time for all parties involved, but employers need to ensure they are meeting all of their obligations by consulting with employees.
In this exclusive guide for employers, we define redundancies, the steps in a redundancy and tips for conducting the process.
Redundancy
Redundancy is when a role is disestablished as it is no longer needed by the business. Employers must have a genuine business reason to start a redundancy process. This means that the reason for the redundancy should be about the role itself and not the person in the role. Genuine business reasons include:
- The business is financially unable to continue to employ people in a certain position.
- The business needs to reorganise positions to increase efficiency.
- The role is being replaced by a machine or automated.
- The role is being outsourced.
Some examples of non-genuine business reasons are:
- An employee’s performance.
- An employee’s conduct.
If an employer has an underperforming employee that they are looking to dismiss, there may be other processes that will be better suited e.g. performance management plans and disciplinary processes.
There is no set redundancy process however it must be fair and reasonable. Conducting a fair process means employees will stay informed and involved. Holding meetings with employees individually and giving them an open channel to ask questions will help show that employers are properly consulting with them before communicating any final decisions.
Steps in a redundancy
- Put it in writing - Employers need to create a written proposal outlining the reasons for the redundancy and the impact it has. The proposal should include all important information related to the purpose of the restructure. This includes: the expected benefits of the restructure, the roles affected, any newly created roles, the selection criteria and any opportunities of redeployment. Anything you put in this document needs to be based on facts and any numbers need to have data behind it. Employers must also provide any evidence that will help support the reasons for the redundancy.
- Invite the employee to consultation meetings - Send the proposal to the employees and invite them to confidential meetings to discuss any concerns they may have about the redundancy. Ensure they have a reasonable amount of time to prepare and inform them that they are allowed to bring a support person.
- Hold the meeting - The meetings should be used to answer any of the employee's questions and concerns. Allow space for everyone to communicate and offer feedback. Multiple meetings may be required depending on the employee's feedback and questions.
- Gather feedback - Give your employees the opportunity to think about the changes.
- Consider the feedback - Employers must genuinely consider the feedback offered and respond to any suggestions in writing or in further consultation meetings. If the feedback results in substantial changes, then a new redundancy proposal may be required.
- Have a final meeting to communicate the outcome - Give the employee a final opportunity to provide feedback before communicating a verbal outcome. In this meeting you should reconfirm all the details and let them know that you are available to answer all their questions.
- Confirm the outcome in writing - Following the meeting, provide the outcome in writing as well as details about their final day, notice period and redundancy pay.
Selection criteria
If there are multiple people in the same role and the business can only keep a few employed, then a selection criteria must be used. The purpose of the selection criteria is to choose the ideal employees for the remaining position through objective criteria that is more focussed on the role rather than an employee’s personal attributes. Using a selection criteria will help the process be fair and minimise employees feeling targeted.
Some examples of objective selection criteria are:
- Length of service.
- Qualifications.
- Experience.
The selection criteria must be disclosed in the redundancy proposal so that employees can provide feedback on what they will be scored on.
If there are redeployment opportunities within the business, a selection criteria can also be used to identify who would be the best fit for the role.
Redundancy notice period
Any employee who is made redundant must be given their contractual notice period unless both parties agree to waive the notice period.
If there is no notice period in the employment agreement, ‘reasonable notice’ must be given. Reasonable notice depends on several factors such as:
- The length of the service.
- The reason for redundancy.
- Employee’s seniority.
- Employee’s remuneration.
- Employee’s ability to find alternative employment.
- Amount of redundancy pay (if any).
- Custom and industry norms.
Redundancy pay
Employers are not obliged to provide redundancy pay unless it is written in their employment agreement. This stipulates how much the employee will be paid on top of their notice period and outstanding wages should their employment be terminated through a redundancy process.
Unjustified dismissal and unjustified disadvantage
An employee could raise an unjustified dismissal claim if they are terminated and/or an unjustified disadvantage claim if there are any faults in the consultation process.
To minimise the likelihood of a successful personal grievance, employers must ensure that they only begin a redundancy process when there is a genuine reason to do so. Targeting and dismissing employees through a redundancy process, instead of following performance or disciplinary processes, may result in expensive personal grievances.
Things for employers to remember
A redundancy is a very difficult time for everyone involved. The key is to act in good faith conduct a fair consultation process. Peninsula has worked with thousands of businesses in New Zealand offering them support, resources, tools, factsheets, and updates on employment relations and health and safety at work. Our goal is to manage all your employment headaches while you focus on growing your business. Making employees redundant is a complex and challenging time for any business. For initial advice on your obligations, contact the Peninsula team on 0800215030.