If an Employer is considering a redundancy, not only they will need to have a genuine work-related reason for a redundancy, but they sholud treat the employee in a fair and reasonable manner, acting in good faith and following a fair procedure.

As far as a genuine reason for a redundancy is concerned, there can be a variety of genuine reasons, such as:

• improved technology;
• more productive business processes;
• product changes;
• loss of suppliers or markets;
• a decision to contract out or sell some or all of the business.

Good faith and fair procedure.

The law requires employers to provide information to employees when they are considering changes that will affect their jobs and to give them an opportunity to contribute to any decisions.

The first step is to refer to the employment agreement, since that sets out the basis for the relationship and the procedures for changing its terms.

The more significant a proposed change is, the more likely it is that it cannot be imposed without the employee’s agreement. Even where the employment agreement states that certain changes can be introduced in the future, they should be introduced with early advice and discussion. Employees should have an opportunity to comment before an employer makes a decision.

In April 2014 case, described below, the Employment Relations Authority Auckland (ERA) determined that though the Employer had a genuine reason for the redundancy, they did not follow a fair procedure, that’s why the dismissal was determined unjustifiable.

Mr. B’s employment was terminated by his employer by reason of redundancy. The ERA determined that there existed a genuine reason for the redundancy because the company was experiencing a business downturn resulting in an inability to pay creditors and provide the employees with on-going work. However Mr. B’s dismissal was ruled unjustifiable because a fair procedure was not followed.

Mr. S., the director and sole shareholder of the business, called Mr. B into his office, as he was working, and informed him that he was made redundant with immediate effect, had to leave the premises straight away and could return to collect his tools the following day.

Mr. S explained to Mr. B that an urgent need to reduce the number of employees was caused by a difficult financial position and a reduced work demand. When asked by Mr. B why his position had been the one selected for redundancy, Mr. S replied that, firstly, the other employees were paid less, and, secondly, that Mr. B had been the last person to be employed.

Mr. S later explained to the ERA that though there had been performance issues prior to Mr. B’s redundancy, there had been no formal disciplinary action recorded or taken, and these issues did not constitute a basis for Mr B’s redundancy. The redundancy was rather based on the fact that Mr. B was not meeting the expectation of value to the business of someone with his experience.

Mr. B collected his tools the next day. He was paid his contractual two weeks’ notice payment later.

The reason Mr. B’s dismissal was ruled unjustifiable by the ERA was that his Employer failed to act in good faith and follow a fair procedure in relation to the termination of Mr. B’s employment. As was pointed out above, Employment Relations Act 2000 requires an employer who is proposing to make a decision that will, or is likely to, have an adverse effect on the continuation of employment of an employee, to provide to the employee affected: “(i) access to information to the continuation of the employee’s employment, about the decision, and (ii) an opportunity to comment on the information to their employer before a decision is made”.

Absence of fair procedure manifested itself through the fact that Mr. B was not given prior notice of the meeting with Mr. S regarding his redundancy and had no idea what it was concerning. He was therefore unprepared to be informed by Mr. S that he was redundant with immediate effect. There was no further meeting and consideration of any feedback Mr. B may have submitted, no consultation as the fair and reasonable employer should have done to comply with the law. This resulted in Mr. B being treated unfairly in that he was deprived of any opportunity to comment on the process prior to a final decision in the matter being taken.

The ERA ruled that Mr. B was entitled to remedies in the sum of $7,664.80 for lost wages and $6,000 as compensation for humiliation, loss of dignity and injury to feelings.

This is a general advice only. Please consult your employment lawyer for a more specific advice.