Time to Restructure?
26 April 2024We are now witnessing many business failures, massive drops in revenue in many businesses, and very public job cuts in many sectors.
The mistake most businesses make is waiting too long to act and/or not being aggressive enough with the changes they need to make.
Any change process should be transformative and improve the operating model of the business, because focusing solely on headcount reduction runs the risk of just ending up with a smaller business.
Right to Restructure
The Court of Appeal has consistently held that the right to restructure is an essential part of management’s right to manage. However, that right is subject to there being genuine reasons for the restructure and a fair process.
Genuine Operational Reasons
Clear evidence of genuine commercial reasons for redundancies is required. Obviously poor financial performance could be one such factor but the business does not have to be loss making to justify redundancies. Proposals to increase profitability may also constitute a genuine operational reason. Other factors may include changes made in anticipation of market fluctuations or changes to simplify business processes. A key point to remember is to focus initially on the proposed changes to the business structure. The personal impact only comes into consideration after the new structure is confirmed.
How much change constitutes a change of role?
In a 1998 NZ Fire Service Commission case the employer wanted to disestablish all firefighter positions and establish fire officer positions, the latter involving some different emphasis in duties. The Court said that the mix of activities making up the job content may alter, but if the work is still there and needs to be done, it cannot be said that the incumbents are redundant.
Following the Westpac Banking case in 2000, it is generally accepted that a change of at least 20% is needed to justify a change to a role.
What about a change of hours?
There are few cases on a change from full-time to part-time work, but it is generally accepted that the two positions are different; but that is a question of fact. A change from 5 days to 1 or 2 days can easily be characterised as a substantial change and a legitimate commercial reason to restructure, but there would be a risk that a change from 5 days to just 4 days (ie a 20% reduction in work) may not be a valid reason to restructure.
What about a cut in pay?
Redundancy situations do not give an employer the right to unilaterally alter the terms and conditions of employment. However, a comprehensive proposal may also involve changes to terms of employment, but seek specialist advice before you start.
Fair Process
The key elements of a fair process in redundancy situations are:
Right to Representation
If employees are not advised of their right to representation, the process is in trouble from the start.
Provision of Information
If you are proposing to make a decision that is likely to have an adverse effect on an employee, you must give the employee access to relevant information and an opportunity to comment on the information before making that decision. The bottom line is that if you want to persuade people to your point of view, provision of relevant information and a commitment to an effective communication strategy is required.
Consultation
Consultation does not require that there be agreement, but it clearly requires more than mere prior notification.
Selection Criteria
Any decision as to the selection of employees to be made redundant must be carried out in good faith, without reference to irrelevant factors, and with reference to relevant criteria. As far as possible apply selection criteria based on skills, qualifications and relevant experience so the business retains employees who can make the best contribution to the future. However, if you’re in a hurry, don’t overlook “Last On, First Off” as it removes subjectivity and is easy and fast to implement.
Redeployment Options
As the employer you have an obligation to consider alternatives to redundancy. Even if you think there are none, actively seek suggestions from the employee as to any alternative positions in which he/she may be interested, whether as an employee or a contractor.
Representations of the Employee
Afford the employee a reasonable opportunity to give feedback about the potential redundancy before any action is taken to dismiss. The employee has the right to be represented in that process. It is also vital to demonstrate feedback was considered before making the final decision.
Notice
The redundant employee is entitled to the amount of notice specified in their employment agreement (or payment in lieu of such notice). Where no period of notice is set out in the employment agreement, reasonable notice must be given.
Redundancy Compensation
Redundancy compensation must be in accordance with the express provisions of the employment agreement. If the agreement does not provide for compensation, the employee has no entitlement. There is no statutory entitlement to redundancy compensation.
Summary
Be ambitious and innovative. Don't feel constrained by traditional norms, but seriously consider transformative change that will really improve the operating model of the business. Like investing in new plant and machinery, real change requires an investment in the people - those who are going and those who will shape the future.
This process will require your total commitment because what is noticeable in recent times is the amount of push back from affected employees and their representatives, because it is clear the next job may take some time to secure.
Whether your project drivers are revenue growth, cost reduction, a new business model or integration of a new acquisition, we can lead both planning and implementation of the required change. From organisation re-design, changes to terms of employment to support the new plan, communication strategies that build understanding and momentum for change, through to selection and appointment, we provide guidance, hands on support, proven tools and most of all, results.
For more information contact: Tony Teesdale 021 920 323, Justine O’Connell 021 920 410, Michelle Battersby 021 993 735, or Esther Cohen-Goh 021 178 4111