Redundancy Issues in the Workplace
Redundancy is an inevitable consequence of business growth, development and contraction. In this way, it is a phenomenon which affects many different industries alike, says Jennifer Mills, Head of Employment Practice at Anthony Harper. Here she canvasses the legal landscape of redundancy, and briefly outlines the requirements which employers ought to adhere to in order to lawfully implement a redundancy dismissal.
What is redundancy?
Redundancy is defined as a circumstance where a position filled by a worker is, or will become, superfluous to the needs of the employer. As with all dismissal situations, the decision to make an employee redundant must be both substantively fair and procedurally justified. Specifically, the Employment Relations Act 2000 (the Act) provides that, in order for a dismissal or action to be justified, the employer's actions, and how the employer acted, must be what a fair and reasonable employer could have done in all of the circumstances.
In the context of redundancy, the decision to make an employee redundant must be genuine, in the sense that it is not a pretext for dismissing an unwanted employee. Further, as part of the mutual duty of good faith, the employer must provide the employee with information relevant to the decision, and ensure that it gives the affected employees an opportunity to comment before the decision is made. In requiring employers to undertake an extensive consultation process with the employees in question, these requirements have been clarified. Ultimately, the employer, although entitled to have a working plan in mind, is required to attempt to seek consensus, and be ready to change and even start afresh.
A case on point: Scarborough v Micron Security Products Ltd
A recent application of these principles is set out in the decision of Scarborough v Micron Security Products Ltd. This case featured Miss Scarborough, who commenced her employment with Micron Security Products following an anticipated increase in demand for its products. In this case, Micron was in the business of manufacturing medical response and alarm accessory products for both New Zealand and a number of export markets. Unfortunately, however, the proposed upswing in demand did not materialise. Due to these concerns, and as Miss Scarborough had been the most recently employed, the proposal was that Miss Scarborough’s position be disestablished.
The company’s managing director, subsequently met with Miss Scarborough, advising her that the company did not have sufficient work for her. To that end, her position was made redundant and she was given one week’s notice. This was followed by a letter confirming the company’s decision, and outlining its reasons for her dismissal. Miss Scarborough subsequently raised a personal grievance for unjustified dismissal.
What did the Court hold?
The Employment Court ultimately found for the employee in this case. In its analysis, the Court first noted that, following the decision of Grace Team Accounting v Brake, it was entitled to enquire into the merits of the redundancy decision. In applying this principle, it noted that the company’s financial records supported the position advanced in favour of the employer.
Moreover, the Court held that there were genuine reasons for the redundancy. Specifically, while Miss Scarborough had engaged in some unusual behaviour since her commencement of employment, this had no bearing on the decision to make her redundant. Furthermore, the Court acknowledged that the employer had understandably felt a strong moral obligation to safeguard the viability of the company and protect its long-standing staff members. As such, the decision to select Miss Scarborough’s position for redundancy on the basis of last on, first off, was held to be reasonable in the circumstances.
On the other hand, the Court took a dim view of the employer’s redundancy procedure. It was found to be flawed, even having regard to the fact that the company was a small business. Specifically, it had failed to actively engage with Miss Scarborough, and such procedural failing were not considered to be minor. The employer had also failed to provide information relevant to its decision and Miss Scarborough was disadvantaged as a consequence. The Court however recognised that even if such requirements had been met, the result would have been the same.
This decision provides a clear example of how an employer may go wrong in implementing a redundancy dismissal. Although smaller employees may not be held to the same rigorous standards as their larger counterparts, this is no excuse not to consult with employees throughout any redundancy procedure. In this way, this decision is yet another reminder that employers ought to exercise utmost care when undertaking a dismissal for redundancy. On the other hand, the fair and reasonable employer test provides a benchmark against which an employer may evaluate its actions when undertaking such a procedure, and qualifies the employer’s obligations in such matters.
The law of redundancy may come into play across many different sectors in the economy, making it a common theme in personal grievance claims. Indeed, the factors which brought about the need for redundancy in the Scarborough decision were that the employer was vulnerable to fluctuations in demand for its products, it being a small company. Against this background, the decision is a useful illustration of the requirement that an employer has genuine reasons for the redundancy dismissal, and, as a practical application of the duty of good faith, must consult with its employees during the dismissal procedure. As contained in s 103A of the Employment Relations Act, the ultimate test is whether the employer’s actions, and how the employer acted, were what a fair and reasonable employer could have done in all of the circumstances.