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The common missteps of restructuring

By EMA Acting Head of Legal Ruthi Bommoju

There’s a right way and a wrong way to restructure a business.

As New Zealand’s largest employment law organisation, the EMA has received an increasing number of enquiries about restructuring this year.

It’s reflective of the economic conditions, with redundancies potentially following on from that process.

Restructuring is never pleasant; it can be complicated and time-consuming to manage. But if you fail to follow your obligations you can end up with a personal grievance, and worse – a visit to the Employment Relations Authority.

While you’re entitled to make changes to the business, these must be genuine, supported with evidence, and implemented through a formal consultation process. This is important, as employees can raise a personal grievance during the process or, more commonly, afterwards when their employment is terminated for redundancy.

According to Thomson Reuters Westlaw New Zealand, recent statistics showed that 65% of personal grievances, which includes personal grievances for unjustified dismissal determined by the Authority, were found in favour of employees. The best way to avoid being on the wrong side of these statistics is to not end up in front of the Authority at all.

To minimise that risk, it’s important that restructure and redundancies are capable of being substantively and procedurally justified.

Substantive justification is the “why” – it means you can show that the redundancy is genuine, and that the role is surplus to the business’s needs because of a reduction in work, or will save costs, or another efficiency-related reasons.

However, you need to set out the areas of concern in detail in a proposal document with any and all relevant supporting information to the affected employee upfront.

The Authority typically will not second-guess your decision to restructure. Instead, it will look at whether there’s good evidence for what you’re doing. So, justifying the substantive reasons for your decision generally shouldn’t be an issue. However, some common mistakes include:

• Pursuing an ulterior or hidden motive, such as a restructure instead of performance management.
• Hastily preparing the supporting business case and rationale.
• Not verifying the data you’re relying on as the basis of your proposal, such as sales figures and revenue loss.
• Not ensuring an adequate selection process or selection criteria is consulted on and used to inform the decision-making process where multiple roles are being disestablished.

Procedural justification is the “how” – it means showing how you went about implementing the proposed change and the steps you followed.

Once you’ve given staff the proposal and supporting information, you need to allow them a reasonable opportunity to consider and comment on it, let them know they can seek independent advice and have a support person during the process.

Any feedback should be considered with an open mind, and any opportunities for redeployment should be identified, explored and considered before confirming the outcome.

Most issues tend to come up during the procedural aspect of restructures and redundancies because it’s the most time-consuming and requires multiple steps, which can trip you up. Some common mistakes when dealing with procedural justification include:

• Predetermining the outcome, such as going through the motions of a ‘sham’ consultation process or wording the proposal that indicates predetermination.
• Not consulting on selection criteria and not explaining the weighting of the proposed criteria.
• Withholding or drip-feeding relevant information to support the business case.
• Being unprepared and not anticipating obvious and/or contentious questions.
• Not being responsive and communicative in respect of queries or even challenges from affected employees.
• Not genuinely considering redeployment opportunities.
• Rushing through the process, including leaving a very short timeframe between the proposal announcement, the feedback/consultation meetings, and the final outcome meetings.
• Not adequately assessing whether redeployment should be by way of offer or invitation to apply for an alternative position.

It’s also worth noting that the average overall cost to an employer in relation to an employee’s successful claim in the Authority is significant. Accordingly, it is important to ensure you are meeting your obligations.

Restructuring/redundancy processes can clearly become a contentious area of employment relations and should not be undertaken without careful planning and professional advice. This is particularly important for those who are not familiar with this area of employment law.

Accordingly, for reasons such as this, it’s a very good idea for employers to seek independent legal advice before embarking on a restructure.

If you need any help or support, call our Member AdviceLine on 0800 300 362 or visit www.ema.co.nz.  

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