Making redundancies? Have you made your best efforts? What employers and employees need to know, part two

Today, we begin by discussing how employers can act with the utmost good faith during a redundancy process. These are principles employers must follow, but they also directly affect the interests of the employees involved.

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• When redundancies are unavoidable, how can employers minimise conflict?

Under employment law, the test for a lawful redundancy is whether the action was fair and reasonable in all the circumstances. Whether a fair process was followed must also be considered.

What constitutes “fair and reasonable” in the COVID-19 environment remains unclear, and the market conditions and cost forecasts informing employers' business decisions are also highly uncertain. However, the following is clear:

First, employers must have fair and reasonable grounds for redundancy and demonstrate that they have made their “best efforts” to avoid it, reaching the decision only because those efforts were unsuccessful and no alternative remained.

Second, any draft restructuring or redundancy proposal must be communicated to, and discussed with, potentially affected employees before it is finalised, giving them an opportunity to provide feedback. Employers must consider all feedback before making any actual decision.

Employers are reminded to keep written records. For example, when explaining a proposal to employees and inviting their thoughts and suggestions, we recommend using email or letters. If the employer and employees normally communicate through WeChat, messages sent through WeChat can also be recognised.

The key point is that the entire process must demonstrate the employer's good faith, rather than a deliberate intention to dismiss someone. Suppose your business is operating normally, or can still meet its current expenses after receiving a government subsidy, but you have a conflict with an employee and want to use a downturn in business as a reason to dismiss them. You have not genuinely discussed alternatives with the employee or explained the compromise options the company has considered, and simply tell them not to come to work. That employee may well raise a personal grievance. The company would then need to engage a lawyer to respond or attend mediation to resolve the issues with the employee. This would cost time and money and create considerable trouble.

• How can employers demonstrate that they made their “best efforts” before making redundancies?

When the Government first introduced the 12-week wage subsidy, employers applying for it were required to make their “best efforts” to retain staff. Subsequent amendments made this an explicit obligation for employers.

There is no comprehensive legal definition of “best efforts”. Our advice is to try the following measures, then discuss the possibilities with employees in good faith to find an outcome acceptable to both parties.

First, has the company's board carefully considered the restructuring and redundancies, along with alternative options? Possible alternatives include:

• Agreeing to reduce working hours;
• Agreeing that employees take annual leave or annual leave in advance, for example unpaid leave;
• Assigning employees other duties and/or adjusting the business model.

Second, has the business considered and tried any measures to reduce expenses in order to protect employees' jobs and wages?

Good faith is a legal requirement. Refer to Section 4 of the Employment Relations Act 2000: http://www.legislation.govt.nz/act/public/2000/0024/latest/DLM58328.html

• What specifically must employers do during a redundancy process?

Employers must:

• Give employees all information relating to the redundancy decision.
• Give employees a reasonable opportunity and time to consider the decision.
• Allow employees to make suggestions about the decision. Employers must consider those suggestions in good faith and respond promptly.
• Discuss the matter with employees, through meetings or other means, before making a final decision, rather than simply informing them after deciding to make them redundant.
• Follow the redundancy procedures set out in the employment agreement.
• If other vacant positions need filling, give priority to considering whether the employee could be redeployed.

If employers do not take these steps, employees can raise a personal grievance. A PG can usually be raised within 90 days after the employment relationship ends. The Employment Relations Authority will ultimately determine whether the employer's decision was fair and reasonable and whether the redundancy process was followed.

• What else must employers do during the exceptional circumstances of the pandemic?

First, employers should of course use all relevant government support to do their best to retain staff. If redundancy is unavoidable, they should still make every effort to offer employees whatever assistance they can, such as:

• Career counselling;
• Career and financial advice;
• Vocational training;
• Providing references and other assistance.

Second, employers also have a responsibility to maintain workplace and employee health and safety. If an employer's negligence exposes employees to health and public safety risks, both the employee and the company will face serious legal penalties.

A reminder: if a dispute arises, we recommend trying to resolve it through discussion rather than going to a hearing. Mediation is a better option. Hearings take place through the Employment Court, and litigation is time-consuming and demanding for both sides, so we advise employers and employees to avoid it. Ideally, resolve matters privately through communication with the employee or negotiate with the employee with a lawyer's assistance.

• Beyond the law, what other advice is there for employers?

Even aside from this pandemic, business restructuring and redundancies are common under normal circumstances. Employers can manage this fairly and lawfully by meeting their legal and contractual obligations. However, the process and its practical details are crucial. As our discussion shows, good faith, best efforts and procedure are key concepts that may determine whether a redundancy is lawful. We recommend first consulting a specialist employment lawyer to understand how to carry out the process fairly and lawfully in light of your company's circumstances and the nature of your business.

Of course, we hope employers can maintain healthy, positive working relationships with employees and enjoy healthy business growth without having to worry about redundancies. Above all, although business restructuring and redundancies can be carried out lawfully and fairly, the process is relatively complex. A small misstep could result in an unjustified dismissal, costing time and money.

 

Joy Yuan, a senior associate at Turner Hopkins, has extensive experience in commercial and property law. She also assists the firm's partners with a range of employment and commercial disputes.

Elaine Li is a legal executive in Turner Hopkins' commercial property department. Her areas of work include commercial lending, business sales and purchases, changes in shareholding, commercial leases, sales and purchases of houses, apartments and commercial properties, subdivisions, and changes to easement and title registrations. She also assists the firm's partners with a range of employment and commercial disputes.