It is well established that employers are entitled to restructure their business.  In many cases, a restructure will result in a position becoming redundant. Provided the employer can demonstrate that the redundancy is genuine and that the employer has followed the correct process, a dismissal for redundancy will usually be a justifiable dismissal.  However, where the:  

a)  redundancy is a ‘sham’ designed to exit an under-performing or otherwise unwanted employee from the business; or

b) employer has failed to follow the correct process including adequately explaining the rationale for the redundancy and consulting with the employee prior to making a decision,

the Employment Relations Authority and the Employment Court will be quick to find that the dismissal was unjustified.

In the recent case of Stormont v Peddle Thorp Aitken Limited [2017] NZEmpC  71 (Stormont-v-Peddle-Thorp-Aitken-Ltd.pdf)  the employee was an interior decorator employed by an architectural firm.  She had an ongoing issue with her bonus.  Without the bonus issue being resolved, the employer advised the employee that it was considering disestablishing her role and she was, therefore, at risk of redundancy.  The rationale provided for the redundancy was that the work performed by the employee was coming from internal architectural briefs and not, as the employer said it had hoped when they hired her, from externally sourced work.

Genuineness of the redundancy

The Employment Court considered whether the redundancy was genuine or not.  The employer was unable to provide any documentation such as a review or market appraisal supporting its rationale.  The employer said that this was because it relied on a ‘gut feel’ that the majority of work was coming from its own briefs.  The Employment Court was highly critical of this approach and said that it resulted in the employee perceiving that the employer’s motivation to disestablish her role was because of “…  a desire to get rid of her because she had continued to pursue the bonus issue”.   The Employment Court found that the employer’s failure to adequately explain the rationale for the proposal to disestablish the employee’s role ‘fatally [undermined] the integrity of the consultation process”.

The Employment Court also did not accept the rationale for the redundancy as genuine on the basis that the importance of sourcing work other than from internal briefs had not been explained to the employee either when she was hired or in performance appraisals.  The employer unsuccessfully argued that the importance of the employee sourcing external work it was ‘implicit’.

In addition, the Employment Court referred to the ‘odd coincidence’  of the appointment of an intern who was hired during the employee’s notice period and was working full-time at the time of the hearing.

The Employment Court was also critical of the employer’s failure to consult with the employee regarding redeployment.  The employment agreement required such consultation to take place and the Employment Court also referred to the Court of Appeal’s decision  in Aoraki Corporation Ltd v McGavin [1998] 3 NZLR where it noted that a failure to consult over redeployment “… may support a finding that the redundancy was not genuine”.

Compensation and special damages awarded

Not only was the employee awarded compensation for lost income and for hurt and humiliation, the Employment Court also made penalties against the employer for breach of good faith and it awarded special damages for legal fees incurred in the redundancy process on the basis that the employee incurred those costs in response to a ‘disingenuous dismissal’.

Tips for employers

Employees should think twice before using redundancy as a disguise to exit an employee from the business.  Even where the redundancy is genuine, employers should ensure they have the necessary information to explain the rationale to the employee.  It is highly advisable to have supporting documents such as business accounts, market appraisals etc to give to the employee as part of the consultation process.

Disclaimer: The above information is for information purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on the information given.