Restructuring and Redundancy

With New Zealand in the midst of economic turmoil, many employers may be in a situation where they need to reduce costs and ensure the structure of their business is appropriate as a result. The unfortunate impact on businesses, because of an uncertain economy is that the business itself may not be viable in future without significant change.

Reviewing staffing levels is an option available to businesses to achieve a reduction in costs and ensure appropriate resourcing is relevant to the current climate for the business.  Restructures can often result in redundancies.  Restructuring is the process by which the structure of a business is changed - by removing, replacing or varying positions within that workplace.  Redundancy is the termination of an employee’s employment, attributable to the fact that the role filled by the individual is superfluous to the needs of the employer.  It is important to remember it is the position that is surplus - not the employee.

Conducting a successful restructure process is not as simple as it may appear and because of the adverse consequences experienced by affected employees, there is a high risk that if not conducted well, a restructure could result in personal grievances being raised against the employer.

A restructure process has many elements that require careful consideration.  It is important to deliver a process that is procedurally correct, and that each employee potentially impacted by the change should be treated fairly with compassion and care.  Not only is it important to care for those potentially impacted but also other employees who may not be directly impacted but are watching from the side-lines. It is important they can see the process and approach taken by the employer is fair, so that no lingering feelings of dissatisfaction exist after the process is complete.

Key Considerations

• Proposal:  The process of restructure must always commence with a written proposal presented to potentially impacted employees individually by an employer representative,  providing them reasonable time (dependent on the scale of the change), to digest the proposal and to prepare their feedback. 
• Genuineness:  There must be a genuine commercial reason for the restructure. It cannot be used as a vehicle to address individual or group performance.  
• Consultation:  A full and fair consultation process (as part of ‘good faith’ employment provisions) must take place with those employees potentially affected. This requires a process to be followed that allows for employee representation, time to consider the proposal, time to provide feedback and the opportunity to suggest alternatives to a redundancy or to the change itself, or other feedback on any aspect of the proposal. Should the proposal result in a selection between employees to be retained by the employer, then the written restructure proposal must also include a selection criteria for impacted employees to consider and provide feedback on.  Employees must be made aware they may bring a support person to any significant meetings regarding their role, seek legal advice and allow them space and time to consider the proposed restructure and provide feedback.
• Feedback:  Once the feedback has been received, the employer is legally obligated to consider it and make a fair and reasonable decision. While the proposed changes may seem obvious to the employer, it is possible an employee could identify a flaw in the proposal or present a novel and innovative suggestion that might ultimately save a business.  Should an employee present a valid idea causing changes to the proposed restructure, the employer would need to redo the proposal and consult on it again. 
• Outcome Decision:  The employer must communicate the decision to affected employees along with justification and how their feedback was considered.  Relevant processes set out in employment agreements must also be honoured.
• Alternative Employment Options:  A restructure can be a stressful and uncertain time for employees. Once an outcome is decided, employers have an obligation to consider all the possibilities for an employee, particularly if their role is being made redundant. Employers should consider redeployment into a new role or a suitable alternative role, where their skillset can be applied elsewhere in the new business model.  Implementing changes can take a while, especially if there are redundancies or new people being hired to new roles.

Be mindful that employment and livelihoods are important, so there will be a lot of scrutiny of the proposal, the consultation process, and the resulting decisions. There will likely be emotion and distress.  Offer impacted employees support such as counselling throughout the process.

Key elements of a successful restructuring process are planning, paperwork and communication.  Ultimately, a successful outcome is one that achieves necessary change required for the business while being as fair and compassionate as possible, with as little adverse consequence to those impacted, and the business’ morale and reputation remaining intact.

Ensure there is open communication with employees and allow time to ensure a genuine restructure and any resulting redundancies are managed in a procedurally correct way.  This will allow for a smooth transition to the new structure with minimal distress to employees, lessening the risk of business disruption and personal grievances being raised.

If you are considering a restructure and are unsure if your employment obligations are being met, call the SBS Team - Freephone 0508 424 723.