For at least the last 20 years it has been a well established part of employment law that the Courts could not substitute their own decision for an employer’s about whether a role should be made redundant. The approach was that if an employer made a role redundant for genuine business reasons, and not because of any other concerns with the employee, then that part of its decision could not be challenged. The rationale behind that approach was that the employer knew its business best and was better placed than an independent third party to decide whether a decision was for “genuine business reasons”.
However, in Grace Team Accounting v Brake  NZCA 541, the Court of Appeal confirmed that it is not just whether an employer is “genuine” in making employees redundant, but whether the employer acts as a “fair and reasonable employer” pursuant to the Employment Relations Act 2000, that is reviewable. This confirms that the Employment Relations Authority and/or Employment Court is statutorily required to investigate whether what the employer has done (and how it was done) was what a fair and reasonable employer could have done in all the circumstances, and that means looking not just at the process but also the fairness and reasonableness of the business decision.
We reported on the Employment Court decision involving these parties approximately a year ago. To briefly recap, Ms Brake was made redundant along with two other employees, six months after commencing employment. The Employment Court found that 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 (its financial position had been relied on as part of its genuine business reason to justify the redundancy). It also found there was a lack of evidence as to why Ms Brake had been selected for redundancy amongst its various staff. Ms Brake was awarded $65,000 in lost wages and $20,000 for hurt and humiliation.
The Court of Appeal has confirmed that the Employment Court’s decision was correct. In particular, it confirmed that key aspects of whether the employer will have acted as a fair and reasonable employer in a redundancy situation are whether it has complied with its obligations under s4(1A)(c) and:
- provided information to the employee which is relevant to the employer’s proposed decision to make position(s) redundant; and
- provided an opportunity to comment on the information prior to the decision being made. In practice this means that an employer must have a robust business case for proposing and making any role redundant. That business case must be carefully reasoned and any information on which it is based must be accurate and able to withstand later scrutiny.
Further, an employer must be active in disclosing that information and engaging openly in consultation with affected employees. This also means that the employer will need to consider and respond to any issues raised by employees during consultation. If an employer does not do all of these things then it will be at risk of unjustifiably dismissing an employee.