Getting the redundancy process wrong can be very expensive in terms of compensation awarded to employees who bring personal grievances for unjustified dismissal or disadvantage.

These awards can run to tens of thousands of dollars, plus the sunk costs of defending the claim and the lost time in dealing with them. In one instance, the Employment Court ordered an employer to pay an employee $85,000 for a flawed process.

These costs are faced despite employers often having a genuine reason for the redundancy.

Getting the process right is not difficult if an employer acts reasonably.

From my experience the 6 most common mistakes are:

No genuine reason…

In order to carry out a redundancy process, an employer requires a genuine reason (such as financial constraints, loss of work, wanting to outsource etc).

Make sure you can support your reasons for redundancy with sound data and information if you face a challenge. What are the cost savings, what contracts have been lost, what other alternatives have been considered, what is the financial position now and projected position if the proposal is implemented etc.

Many employers still use redundancy as a disciplinary tool for misconduct, or as a means of eliminating poor-performing individuals. Neither of these are genuine grounds for redundancy and these issues should be handled under disciplinary and performance processes instead.

No consultation…

As part of the redundancy process, employees must be consulted before any decisions are made to implement the plan.

Once the proposed redundancy plan has been provided to employees, the employer should meet with anyone affected (one on one if possible) to tell them about the proposal and later to get their feedback.

At these meetings notes should be taken, including of any input an employee may have in relation to the plan. A failure to take notes can be taken to mean that you are not genuine in listening to the feedback.

Many employers have either skipped the consultation process entirely, opting to effect the redundancy immediately, or failed to genuinely consider any feedback provided to them.

Failing to consult makes the process unfair. Failing to consider input, particularly alternatives to redundancy, has been held to be a flaw in the process. Both are grounds for a grievance.

It is critical that those employees affected have the opportunity to give input, and that the input is seriously considered. This may even result in having to change the redundancy plan and going through further consultation if the plan changes significantly.

Failure to provide information…

Employers must provide enough information for employees to genuinely be able to consider the proposal and give feedback. If there are reasons for the proposal, the supporting information should be made available (subject to commercial sensitivities).

If employees seek further information, then consider whether it is reasonable for them to receive that information. A slight delay in providing it will often be better than arguing about the insufficiency of information later.

Not allowing a reasonable time to respond…

During a redundancy process, employers must give affected employees a reasonable amount of time to go away, consider the plan, and get advice to assist them with responding to the proposal (should they decide to do so).

It has been the mistake of many employers to force through the process too quickly, so that the consultation process is not fair and reasonable.

Putting up the proposal last thing Friday and seeking a response by Sunday night is not reasonable! In most circumstances a week is a reasonable period for feedback, but longer may be needed.

In some circumstances (e.g. the business is shutting down urgently) it is possible to shorten the timeframes, but they must still be reasonable in those circumstances.

Taking too long with the process…

Allowing the process to drag on will create uncertainty and stress for all involved. A process that drags on for months will impact other employees as well, and badly erode morale. Act as quickly as is reasonable to reach the decision, and let employees know the outcome.

Not considering alternatives to redundancy…

Before anyone is made redundant the employer must genuinely consider alternatives.

Are there any other positions that the person can be redeployed to? This may be another position they are capable of doing, on the same terms or hours, or it may be different in terms of work, pay and hours.

Suitable alternatives should be offered to the employee, as they have the right to redeployment (uncontested from outside applicants), if there is a suitable position available. Redundancy is the last resort.

Redundancy is a process generally undertaken to help a business survive or become more efficient. It is important to make sure the process is followed correctly, otherwise you risk facing significant penalties that the business may be better off to avoid.

 

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Alan Knowsley
Employment Lawyer
Wellington


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