Restructuring and redundancy
The recent OCR announcement provides a clear demonstration that the business landscape is ever changing – with many businesses struggling to keep their doors open. Recent economic conditions have demonstrated that adaptability is no longer a strategy but a necessity.
Employment restructuring is often a necessary step for employers to adapt to shifting market conditions, however more often than not we are getting it wrong.
This article dives into the key legal considerations employers must navigate when restructuring their businesses, including redundancy, the consultation process, and good faith obligations,
Be transparent
Businesses are facing significant financial challenges that threaten their stability and long- term viability. Decreased consumer demand, rising operational costs and increased competition can place immense pressure on companies.
Often restructuring becomes a necessary step to adapt to these difficult conditions, reduce costs and ensure survival. When a business undergoes restructuring, the employment implications are often the most challenging aspects of the process. Restructuring can involve downsizing, merging departments, or eliminating roles- all of which directly impact employees.
Employers are legally required to follow specific processes to ensure that employees are treated fairly, as set out in the Employment Relations Act 2000 (ERA). When looking at any changes to the employment relationship, it is also important to thoroughly review an employee’s employment agreement to ensure that any process is in accordance with the contents of their employment agreement.
The consultation process is one of the most critical stages of restructuring. Under the ERA, businesses must engage in genuine consultation with employees before making a final decision. Employers need to ensure that they provide clear communication explaining the reasons for the proposed restructuring. They must be transparent about how the changes will impact employees, including potential redundancies or changes to job responsibilities.
After presenting the restructuring plan, employers must give employees a genuine opportunity to respond and provide feedback. This means allowing employees to ask questions, raise concerns and suggest alternatives. Employers are legally obligated to consider this feedback prior to making a final decision.
The employer must engage in the consultation process in a meaningful way, not just as a matter of formality. If it is presented as a ‘done deal’ then this could result in an employee raising a personal grievance on the basis of unjustified dismissal or a breach of the good faith duties under the ERA.
Redundancy
If restructuring leads to job losses, redundancy must be managed carefully and lawfully. Redundancy is defined as the termination of employment due to the role no longer being required, it must be for a genuine business reason and cannot be used as a tool to remove underperforming staff.
Employers must prove that redundancy is necessary due to financial constraints or a change in the operational needs of the business. An employee may challenge the decision if they believe the reasons for the redundancy are not genuine.
If only certain roles are being made redundant, the selection process must be fair and transparent. This may involve reviewing employee performance, skill sets and other relevant factors. Arbitrary or biased selection can lead to legal claims.
While the ERA does not require redundancy compensation to be paid, an employer will need to consult the employment agreement as this may include provision for redundancy compensation to be paid. In the absence of a compensation clause, the employer may still offer financial support to an employee as a gesture of good will.
Employers are still required to provide employees with sufficient notice of redundancy in accordance with their agreement.
Good faith obligations
The ERA places a strong emphasis on good faith during the restructuring process. Good faith means that both employers and employees must be honest and constructive in their interactions, especially when restructuring involves potential job losses.
Employers are expected to share relevant information with employees about the restructure process, withholding information or providing incomplete details can be seen as a breach of good faith.
Employers must also consider alternatives to redundancy, such as redeploying employees to other roles within the business, offering reduced hours or retraining employees to take on new responsibilities.
The restructuring process can be highly stressful for employees. Employers must handle the situation with care and respect, providing emotional and practical support where possible. This may include offering counselling services, outplacement assistance or access to employee assistance programs (such as help with CV writing and interview preparation).
Under the Health and Safety at Work Act 2015 employers must continue to meet their health and safety obligations during a restructure. Changes in staff numbers, job roles or working environments can create new risks and employers are responsible for ensuring that these risks are identified and managed appropriately.
Summary
In summary, managing a business restructure requires careful planning, transparent communication and adherence to employment laws. Ensuring that redundancies are based on genuine business needs, following a fair selection process and providing the appropriate notice and support are critical for both legal compliance and maintaining staff morale. A well drafted employment agreement is vital as it will clearly outline the restructuring process, redundancy procedures and other key aspects that ensures that it is a smooth process from start to finish.
For tailored guidance on restructuring and redundancy (and drafting any letters and proposals that go with that process), please contact Dayna Dustan or Joanne Jogia, they can provide the professional support needed to navigate these complex situations effectively.
