Redundancy without proper consultation led to $20,000 compensation…

A recent determination from the Employment Relations Authority illustrates how a commercially valid redundancy can be deemed unjustified if the process lacks fairness, transparency, and proper consultation.

In this case the employer’s failure to update key information, and unclear application of selection criteria, led to a finding of unjustified dismissal and significant financial consequences.

The case involved a senior employee who worked remotely under a written agreement. When the company announced a restructure to reduce the team from five to three, the employee opted to be considered for one of the remaining roles, stating a willingness to shift to full-time office work if required.

The Authority accepted that the restructure was based on legitimate financial pressures. However, by the time the final decision was made, one team member had already left the business. Another member had also resigned, although the resignation was not read until after the dismissal at issue.

If both resignations had been considered, the goal of reducing the team to three would have been met without needing to dismiss anyone. Failing to acknowledge these changes rendered the consultation process flawed and the redundancy unnecessary.

The employer used a matrix to score employees against various criteria such as length of service, performance, and professionalism.

Although the affected employee scored highly, the final decision also considered undisclosed factors that had not been previously shared with the team such as salary and “implicit knowledge”.

The Authority found this undermined the integrity of the process and breached the legal obligation to act in good faith.

The company claimed the employee was not suitable because he could not commit to work in the office full time. However, as part of consultation, the employee had clearly indicated flexibility, offering to work two to three days in the office.

No follow-up discussion took place. The Authority held that a fair employer would have discussed this point fully during consultation before making a decision of redundancy.

Finding the dismissal was both procedurally and substantively unfair, the Authority awarded the employee $20,000 in compensation for emotional harm. No deductions were made, as the employee did not contribute to the situation. A sum equivalent to three weeks wages, being reimbursement of lost wages, was also ordered.

Key takeaways for employers:

• The consultation must be meaningful and up to date. Employers cannot rely on outdated assumptions if relevant circumstances have changed during the process.
• Selection criteria must be clearly disclosed. Employees must know what they are being evaluated on and how the criteria are applied.
• Good faith requires open communication. Employers must engage with affected employees and consider their input genuinely before making final decisions.

Employers cannot rely solely on business justifications for redundancy. The process itself must be fair, consistent, and transparent. Employers who fail to meet these standards risk legal challenges, reputational damage, and costly remedies.

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