One of the most well established principles of redundancy law is that the courts cannot substitute their own decision for an employer’s about whether a role should have been made redundant. In essence, the courts have long accepted that if an employer made a role redundant for genuine business reasons, that part of its decision cannot be challenged.
However, in a series of recent cases, the Employment Court has indicated that under s103A of the Act it is statutorily required to investigate whether what the employer has done (and how it was done) were what a fair and reasonable employer could have done in all the circumstances.
This means that if an employee challenges a redundancy decision, the courts must take a close look at the reasoning of the employer and the data relied on, and decide if the employer’s actions were reasonable and fair.
In Rittson-Thomas t/a Totara Hill Farms Ltd v Davidson  NZEmpC 39 (“Totara”) Totara entered into a restructure which merged two roles into one. One employee was made redundant as a result.
The Employment Court found that the decision to make the employee redundant was not one which a fair and reasonable employer could have made and the dismissal was held to be unjustified. The Court considered the employer had failed to justify the redundancy by the “standard that he had set himself” for the restructure. Totara stated in its proposal that the cost saving to be achieved by the restructure was $10,000, however post dismissal, the cost savings were found to actually be only $6,000. The Court said it was insufficient for an employer to simply assert that it had made a “genuine business decision”. In this case, it had relied on erroneous information, and therefore could not show its decision was one which a fair and reasonable employer could have reached in all the relevant circumstances.
A similar approach was taken in Brake v Grace Team Accounting Ltd  NZEmpC 163 Ms Brake was made redundant with two other employees, six months after commencing employment. She successfully challenged that decision. The Employment Court found her employer had relied on erroneous information and could not establish that its financial position had deteriorated substantially in the six months since Ms Brake had been hired. It also found there was a lack of evidence as to why Ms Brake had been selected for redundancy amongst its various staff. The Court was unimpressed by evidence the company had been underperforming for five years, noting it had that information when it hired Ms Brake, it must have needed her at the time, and there was no evidence the position had materially changed over the next six months.
The Court awarded the employee $65,000 in lost wages, $20,000 for humiliation and costs.
We understand the employer is appealing this decision. In the meantime though, these two cases illustrate that an employer’s decision to make a role redundant is likely to be examined far more closely than in the past. Employers should ensure that any business reasons put forward for a restructure are carefully researched, accurate and can survive close scrutiny.