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Restructuring in the aftermath of COVID-19

2 June 2020

The potential need to restructure your business operation to survive these times will likely be a question on many business owners’ minds at present given the unprecedented impacts of COVID-19.

A proposal to restructure your business to make it leaner and more efficient might mean that you are considering the need to make certain positions redundant. Be very aware that any restructure requires a careful and considered approach along with the need for specialist employment law advice if redundancies need to be made.

Whilst the impacts of Covid-19 are in many ways unprecedented, the pandemic and fallout from it have not suspended legal obligations that Employers owe to their Employees in New Zealand. The principle source of those obligations is found in the Employment Relations Act 2000. This Act sets out legal obligations owed by Employers that must be followed if you propose to make someone redundant. Therefore, it is critical that you get very clear on your obligations before you launch any restructure or redundancy process and, if in doubt, take advice. It is no understatement to say that this area is littered
with pitfalls and traps for the unwary.

If you are looking to restructure your business operation and make some positions redundant, you must at all times adhere to a ‘good faith’ process and what that looks like will be similar and different for each organisation depending on the individual circumstances.

What to consider before restructuring

In brief a good faith process includes the following elements:

  • A careful and detailed assessment of the businesses position, financial health and staffing needs (this will require you to take advice from your accountant and any other professional business advisors you engage).
  • A clear identification of why staff are surplus to the requirements of the business with a solid substantive justification (the business case).
  • Not using the process for improper means (known as a camouflage redundancy) to get rid of an under-performing or ‘irksome’ employee.
  • Consulting with your staff over the proposal and carefully adhering any process mandated in their employment agreements.

I cannot over-stress the importance of spending time and effort in planning at the front end if this process if you are contemplating this path. Again, you should look to take detailed legal and accountancy advice.

What process do you need to follow?

So what happens when you are ready to proceed with your restructure? Once you have designed a process in good faith then typically these processes share similar characteristics including:

  • Formal written notification of your proposal to your staff with the relevant information you are relying on in forming your view that restructure and/or redundancy is required.
  • A clear outline of the process to be followed, timelines for each step in the process and that the employee has the right to take legal advice and have a representative or support person present at any meetings that might occur (whether in person or virtually!)
  • That you will consult with each potentially affected employee and they have the right to provide feedback on the proposal and put forward any alternatives to redundancy which you will seriously consider in good faith.
  • Development and dissemination of a selection criteria if there is more than one role that might be made redundant (this needs to be disclosed as part of the consultation process).
  • Consideration of any alternatives to redundancies such as redeployment to another role or part-time work.
  • An outline of any support available to affected employees such as access to free and confidential counselling services.

Once a thorough and considered consultation process is complete you will then need to make some decisions (taking into account all the feedback received throughout the process) before reaching any decision on what steps you might take.

What should you do if redundancies are necessary?

Any decisions reached at the conclusion of your process need to be formally communicated to your employees including end dates for employment and whether they are required to work out their notice period.

If you make anyone redundant then you should consider offering them access to free counselling support or job seeker assistance and training. You could also consider making an ex-gratia payment (in good faith) over and above any redundancy notice payment or compensation (be careful here as these two things are separate and distinct) to soften the impact of what will be a real body blow for the employee/s affected.

Finally, there is closing off the relationship correctly and making sure you adhere to all the payments that need to be made.
The above is a ‘rough guide’ of the sorts of considerations and steps involved.

Please note that this is not exhaustive and is not intended to replace specific employment law advice tailored to your particular situation. Of utmost importance in any restructure process is the legal obligation of dealing with employees in good faith by:

  • Being open and transparent about what is going on;
  • Being responsive and communicative to concerns and questions they raise with you throughout the process; and
  • Acting compassionately and treating people with dignity and respect.

Ultimately, any decisions you make could severely impact someone’s livelihood and that of their family. Redundancy is usually a devastating blow for most people and among one of the most stressful life events anyone can experience.

Aside from the human cost, the financial costs of getting this process wrong and being on the end of an unjustified dismissal claim can run into the tens of thousands of dollars. No business owner needs that sort of cloud hanging over their head at any time let alone in this landscape.

Proceed with care, caution, and good faith and remember to take advice early in the piece. For more information or advice before you take action, contact the Employment team at Godfreys Law.

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