Employees: Redundancy

April 6, 2020

A redundancy occurs when an employer terminates an employee's employment because the employee's position has become superfluous to the employer's needs. 


The decision to make one or more employees redundant must be one that a fair and reasonable employer could have made in all the circumstances at the time. An employer must also follow a fair and reasonable process in reaching the decision. If an employer fails to meet these standards, the employee may raise a personal grievance against the employer for unjustified dismissal.


As usual the grievance must be raised within 90 days of the date on which the action alleged to amount to a personal grievance occurred or came to the notice of the employee.



Redundancy must be genuine


An employer must have genuine business reasons for making an employee redundant and cannot use a redundancy to dismiss an employee for poor performance, misconduct or other ulterior motives.


The Employment Relations Authority and courts will look behind the business decision to determine whether it is genuine. 


If a redundancy decision is tainted by some inappropriate motive and the redundancy is masking another and different reason, for example an intention to dismiss an employee, the redundancy will be unjustified, and the employee will have a valid personal grievance.


A redundancy will also not be genuine if incorrect data or analysis has been used as the basis for the redundancy, whether this is innocent or not. 


If there are mixed motives behind a redundancy, the employer has the burden of justifying the dismissal and showing that the redundancy was genuine and was the dominant motive for terminating the employment relationship.


Even where an employer has been motivated by genuine business reasons, the decision must also have been one that a fair and reasonable employer could have made in all the circumstances at the time. In other words, there must be sound substantive reasoning. If an employee brings a personal grievance claim to the Employment Relations Authority, the Authority will apply an objective test as to what a fair and reasonable employer could have done.


Procedural fairness


In addition to having genuine and sound substantive reasoning, a redundancy must be carried out in a way that is procedurally fair. The key elements of procedural fairness in the context of a proposed redundancy include providing all information relevant to the employees' continued employment including around any restructuring or selection of affected employees, to actively consult with the employee at a time when the employees' input could make a difference, and to listen to the employee and consider their viewpoint before making a final decision. 


Procedural fairness is assessed according to whether the process was one that a fair and reasonable employer could have followed.


An employer must also give proper notice of its intention to terminate the employment relationship. If the employment agreement does not determine the period of notice, then an employee must be given a reasonable period of notice. 


Section 4(1A)(c) of the Employment Relations Act makes it mandatory, where an employer proposes to make a decision that will, or is likely to, have an adverse effect on the continuation of the employee's employment, to provide affected employees with:


  • access to information, relevant to the continuation of the employees' employment, and about the decision; and

  • an opportunity to comment on the information to their employer before the decision is made.


The importance of consultation cannot be underestimated. However, following proper consultation, the final decision will be the employer's and there need not be an agreement. 


A fair and reasonable employer must comply with their statutory obligations, in particular section 4(1A)(c). According to the Employment Court:


  • Consultation requires more than a mere prior notification and must be allowed sufficient time.

  • A proposal must not be acted on until after consultation. Employees must know what is proposed before they can be expected to give their view.

  • Sufficient precise information must be given to enable the employees to state a view, together with a reasonable opportunity to do so. This may include an opportunity to state views in writing or orally. 

  • Genuine efforts must be made to accommodate the views of the employees. 

  • Consultation involves the statement of a proposal not yet finally decided on, listening to what others have to say, considering their responses, and then deciding what will be done. 

  • The employer, while quite entitled to have a working plan already in mind, must have an open mind and be ready to change and even start anew. 


The proposed selection criteria for deciding which employees will be made redundant should also be consulted on. 


As far as redeployment is concerned, employers have a duty to offer redeployment to employees who are capable of performing a vacant role, even if they require necessary upskilling and training. If there is a vacancy, it should be offered to an employee who would otherwise be redundant. It is not sufficient to invite an employee to apply.



Redundancy compensation?

In general, there is no obligation on an employer to pay redundancy compensation unless it is provided for in the employment agreement or negotiated as a separate contractual entitlement at the time of dismissal.


However, if the Authority finds that a redundancy dismissal is unjustified, the normal remedies will apply. This will include reinstatement, lost wages and benefits, and compensation for distress, humiliation and anxiety. 


Any compensation awarded will depend on the circumstances surrounding the particular case and whether the dismissal meets the substantive and/or procedural requirements. 



Process of raising a grievance


A particular process must be followed when raising a personal grievance. The grievance must first be raised with the employer. The general rule is an employee must raise a grievance with his or her employer within the period of 90 days beginning with the date on which the alleged action occurred or came to the employee's notice, whichever is the later. If an employee is not satisfied with their employer's response, a free mediation service is available through Employment Mediation Services. If mediation is unsuccessful, an employee may then take the grievance to the Employment Relations Authority. See Personal Grievances for more information.


If you believe you may have grounds for unjustified dismissal, please contact us at employment.law@becker.co.nz or call 04 473 8484


Richard Boud

Staff Solicitor



Disclaimer: The information contained in this article is general in nature and not tailored to your personal circumstances. It is only current as at the date posted and should not be relied upon as legal advice. If you require legal advice, please contact us for further assistance.