A Quick Guide to Restructuring

The current economic climate in NZ means employers are facing the challenges of rising costs. As a result we are seeing organisational restructures becoming more common as businesses look at ways to reduce costs and/or increase efficiency.

The starting point is that an employer is entitled to reduce its workforce if it does not have the work available. Likewise employers can also make changes to their organisation to make it more efficient or more profitable.

However employers do need to ensure that the restructure is substantively justified and the process followed is fair otherwise they risk personal grievances being raised.

What is restructuring?

A restructure occurs when changes are made to a business structure. This is done generally to make it run more efficiently, optimise performance, change focus, or cut costs.

Restructuring might involve:

  • creating new positions
  • merging existing positions;
  • disestablishing positions that are surplus to requirements; or
  • a combination of the above.

If employees are impacted, employers need to establish a genuine business reason for the change. This can include, financial reasons, downturns in work, changes in products, changes in consumer behaviour, merging with another business or because the business can operate without the position.

What is redundancy?

If a role is disestablished and the employee affected is not redeployed to another role, their employment will be terminated on the basis of redundancy.

Substantive Justification: When can an employer make a role redundant?

The employer needs to establish genuine business reasons for disestablishing the role.

Sometimes we see employers use the guise of redundancy to exit an underperforming employee or a troublesome employee . There are processes to address failure to perform / misconduct . Redundancy is not the correct process.

To reduce the risk of a personal grievance claim, employers should always ask themselves is it the role / position we don’t need or is it the person we don’t want . If it’s the role / position that is surplus the correct process is a restructure . If it’s the person then consider other options such as performance management or a disciplinary process.

Procedural Fairness Requirements : How to follow the process properly

The second limb to justify a redundancy is following the correct procedural steps. This includes the requirement that an employer undertake a genuine consultation process before any decision is made to disestablish a role. We strongly advise getting advice on process . It is not straight forward and even if there are genuine reasons for making someone redundant a failure to adopt the correct procedure can still result in a successful personal grievance claim by a terminated employee.

Once someone’s position is made redundant the employer still has a positive obligation to see if there are other roles in the business the person can be redeployed into.