What is redundancy, anyway?

Definition can vary depending on employment agreement, case law

BY Gwen Drewitt and Abby Shieh 09 Sep 2023

A lot of employers and employees wind up in the Employment Relations Authority (Authority) - and sometimes in the news - due to a restructure going awry. The employer will defend their restructure, saying it was genuine and backed by sound business rationale; the employee will argue the restructure was a sham or that they weren’t consulted adequately before being made redundant.

But taking a step back, what exactly is considered a redundancy?

The Employment Relations Act 2000 (ERA 2000) does not define the term redundancy. Rather, a commonly accepted definition, cobbled together by way of legislation predating the ERA 2000 and case law precedent, is that an employee’s role becomes redundant where it is superfluous to the employer’s needs.

It is important to note that redundancy affects the role, not the employee themselves (hence the good faith requirement to consider redeployment of affected employees into alternative roles).

An employment agreement may sometimes contain its own definition of “redundancy.” Employers have been caught out by this before:

In Hammond v. Bakel’s Edible Oils (NZ) Ltd, the agreement defined redundancy as a situation where an employee is surplus to requirements.
When the employer disestablished one position and created another (based on hours worked) on the grounds of redundancy, the Authority pointed out that the employee was not technically surplus to requirements. The number of employees required by the company remained the same. The redundancy, and dismissal, were therefore unjustifiable.

So, back to the definition under case law – when does a role become superfluous? Is it sufficient that a company is just changing strategy or direction and has decided that a role is simply no longer required? Or is there an obligation to demonstrate more (i.e., to show the change would lead to increased efficiencies and savings)? Case law suggests the latter:

GN Hale & Son Ltd v. Wellington etc Caretakers etc IUW provided the following statement: “An employer is entitled to make his business more efficient, as for example by automation, abandonment of unprofitable activities, re-organisation or other cost-saving steps, no matter whether or not the business would otherwise go to the wall. A worker does not have a right to continued employment if the business could be run more efficiently without him.”
Grace Team Accounting Ltd v. Brake added a lens of objectivity, outlining that whether a business case and redundancy had merit was to be considered through the eyes of what a fair and reasonable employer would (now, could) think and do.

While some redundancies are due to an area of work ceasing to exist (think a factory closing down or a business divesting from a specific market), others are due to necessary changes to a role’s duties, to the extent that the job becomes entirely different in nature. Many job descriptions will contain a catch-all provision that says something along the lines of, “an employer is entitled to direct the employee to undertake other relevant tasks as reasonably required to achieve the employer’s objectives,” and, “the employer is entitled to vary the employee’s job description upon consultation to reflect changing requirements,” but when does a change cross the line from variation to an employment agreement, to redundancy?

Some older cases suggest a 20-per-cent change to a job is sufficient for the variation to become a redundancy.
We think the assessment should be a bit more holistic, taking into account whether:
- - the new position amounts to a break in the continuity of employment
  - the role is suitable in consideration of the employee’s existing skills and abilities, retraining potential
  - it would result in an unreasonable change of duties.

As can be seen from the brief overview above, redundancies and restructures can be complex processes even from the outset.

Gwen Drewitt is a Special Counsel on the employment team at Lane Neave in Christchurch. Abby Shieh is a Senior Solicitor at Lane Neave in Auckland.