'Planning is key': Employment lawyer offers advice on restructuring process

New Zealand has been seeing a rising number of restructures in the wake of an uncertain economy that has forced businesses to look at where they can reduce costs.

The Employers and Manufacturers Association earlier this year said their AdviceLine has seen a 70% year-on-year increase in calls for support from employers on restructuring and redundancy.

With calls for restructure support in New Zealand going up, HRD spoke to an employment lawyer who gave a solid tip to businesses planning to undertake the process.

"Planning is key," said Rosemary Wooders, Partner, Bell Gully.

"Make sure you have good planning in place, and you really give clear thought to the rationale — the 'why' behind the proposal — and that this is properly and clearly articulated to affected employees when it comes to consultation."

The restructuring process leads to a change in someone's role — whether in reporting lines, some duties, or working hours — but it doesn't necessarily mean a redundancy is in order.

"We would say, as a rough rule of thumb, if there is more than a 20% change to someone's role, that could potentially give rise to a redundancy situation," she said.

Common mistakes in consultation

Wooders also pointed out that there has been an "uptick in restructures" over the past year or so.

And among the most common mistakes employers make during the restructuring process is failure to consult with employees, she said.

New Zealand's Employment Relations Act requires employers to consult with potentially affected employees before a decision that would potentially impact their role is made.

"Consultation is definitely the heart of all of this," Wooders said.

"Consultation effectively involves providing individuals and affected employees with all relevant information regarding the proposal, including providing the rationale or the 'why' behind that proposal, receiving feedback from affected employees on that proposal, and then considering that feedback before a decision is ultimately made to proceed with that proposal, if indeed a decision is made to proceed."

But before consultation happens, Wooders underscored that a pre-step where employers review individual employment agreements or collective agreements would be necessary to see if there are heightened obligations or other unique contractual features in place.

"Sometimes, there'll be a requirement to consult with the union before advising the wider employee population," she said. "There's been a couple of cases recently where employers have failed to have regard to the contractual provisions in the collective agreement, and consequently the court has found that there have been breaches."

Wooders also reminded employers that consultation can only "take place genuinely" if a decision has not already been made on a particular proposal: "It is too late once the decision has already been made."

Other restructuring mistakes

Another common issue involving restructuring is when employers only provide high-level information about the proposed restructuring, according to Wooders.

"If you are going to be potentially making a role redundant or restructuring a role, the affected employees are entitled to receive all relevant information regarding the proposal and the potential changes to their role," she said.

Employers also have an obligation to carry out a "selection process," such as in cases where four roles might need to be reduced to two, she added.

"In terms of the process, there is a requirement to consult on selection criteria before you actually apply that selection criteria to the individuals to decide who is the stronger of the candidates."

And before the outcome of the process is confirmed, Wooders reminded employers that they are still required to consult with affected individuals on the preliminary outcome of the process.

"Because of those process nuances, we do see employers from time to time missing steps that could give rise to practices that could potentially lead to a claim for unjustified dismissal or unjustified disadvantage by their employee if there is that procedural mistake," she said.

Redundancy: what happens now?

Before issuing a notice of redundancy, Wooders stressed that employers have the obligation to search for redeployment opportunities for affected individuals.

Should employers reach the level of issuing a notice of termination, she said it is necessary to go back to the employment agreement to see what the notice requirements are and whether redundancy compensation applies.

"Under New Zealand law, there is no statutory entitlement to redundancy compensation," she said. "Rather, redundancy compensation is a measure of policy or it's the contractual entitlement if the individual has it."

Role of HR leaders in restructuring

HR leaders have the role of helping out the business carry out a good consultation process, according to Wooders.

"The way they can do that is by having really good briefing sessions with managers about what the consultation meetings look like, potentially providing some scripts and providing draft correspondence to help out that process," she said.

They also play an important role in providing support for affected employees.

"It is a really difficult time for anyone to have to go through any type of restructure," Wooders said. "So I think having that support there to provide and answer any questions employees may have and to advise them of potentially using EAP is really important."

Employment Law Masterclass NZ

Wooders is one of the experts joining the Employment Law Masterclass this October 24.

"I am excited to speak at the masterclass," she told HRD. "There are a variety of different issues that are going to be covered at the masterclass."

Wooders will be talking about employers' core obligations in any kind of redundancy and restructure process, as well as looking at some different cases that will provide good guidance on what a good restructuring process looks like.

"I think getting the basics right is key," she said. "It is important for employers to take stock of what the legal requirements are to make sure that they do get it right."