In our newsletter earlier this year, we referred to two important decisions by the Employment Court (Brake and Totara Farms) and indicated an employer’s decision to make a role redundant was likely to be examined far more closely by the courts than in the past. We recommended employers make sure that any business/financial reasons put forward for a restructure were carefully researched, accurate and could survive close scrutiny.
Since then, the courts have reinforced not just the importance of having clear and accurate information available to support a redundancy decision but also the importance of sharing that information with affected employees.
In Ngatai v Ward Demolition Limited1 the employer had decided it needed to close its Christchurch office. As a result, Ms Ngatai and another employee were potentially redundant.
An initial consultation meeting occurred at which Ms Ngatai attempted to negotiate an “exit package” for her and the other at risk employee. When that was unsuccessful, Ms Ngatai instructed counsel who alleged that a significant amount of information had not been supplied. He demanded copies of a large amount of information pursuant to section 4(1A) of the Employment Relations Act.
The information requested included details of the company’s operations, its work levels, its overall staffing, and the previous three full years’ financial accounts. The employer provided some of the information requested but not all. Personal grievances for unjustified disadvantage (as a result of the failures to provide the information) and unjustified dismissal were raised.
In its determination, the Authority examined the motivation for the redundancy and concluded it was based on a genuine view about the Christchurch market. As such, the employer was substantively justified in making Ms Ngatai’s position redundant.
However, in terms of the withheld information, it found it was all ultimately “relevant” to the “continuation of Ms Ngatai’s employment” and that a reasonable employer would not have refused to provide the information.
The employer claimed the demand for information was just a tactic and that it was unreasonable for an employee to seek such a wide array of information. The Authority acknowledged “that some representatives play a tactical game when representing prospectively redundant employees, seeking a wide range of information to both delay the decision and to pressurise an employer to cut a deal”. Nevertheless, the Authority found that the employee was entitled to relevant information beyond just what the employer thought was relevant when developing its proposal. As a result, the Authority held the failure to provide the requested information caused Ms Ngatai to suffer humiliation, loss of dignity and injury to her feelings and awarded her $5,000 under section 123(1)(c)(i).
More recently, in Whaanga v Sharp Services Limited, the Employment Court determined that Mrs Whaanga was not given sufficient information relevant to the decision to restructure her role. In particular, while the employer emphasised the need for staff to consider possible efficiencies, it did not make it clear that redundancies might arise as a result of a restructuring of the business. The employer stated it needed to become “more efficient” but the proposal to restructure and the possible implications for Mrs Whaanga, were not clearly set out to her. Further, she had no adequate opportunity to comment on the proposal before the decision to terminate her employment was made. She was awarded lost wages and damages under section 123(1)(c)(i).
The message for employers is simple; make sure any restructure is supported by a strong business case, share that information (and supporting evidence) with affected employees during the consultation process and make your communications clear and unambiguous.
1  NZERA Christchurch 11.