How to challenge being made redundant in New Zealand

Introduction

What is a redundancy and what can I do about it?

A redundancy is when an employer dismisses an employee on the ground that the employee's position is being discontinued for business reasons.

In general, an employer is entitled to make you redundant if this is for genuine business reasons, and is not required to pay you compensation unless there is a specific agreement with you to do this.

But in some situations - for example, if the process by which you are made redundant is unfair - you will be able to apply to the Employment Relations Authority for a remedy against your employer.

Redundancies and restructuring

Special laws protect employees affected by restructuring where the work they do will be carried on by employees of a new employer or by another person. Employees in specified industries where restructuring is frequent and employees have little bargaining power (such as cleaning and food-catering services) have the automatic right to transfer to the new employer on the same terms and conditions. If the new employer then makes the employee redundant, the employee is entitled to redundancy payments, either as agreed with the new employer or as set by the Employment Relations Authority: see below, "Protections for vulnerable workers affected by restructuring".

Employees outside the specified industries are given a lesser form of protection. Their employment agreement must include a negotiated provision setting the process and content for negotiations between the employer and any new employer in a restructuring situation as it affects the employees, and the process for determining what entitlements, if any, will be available to employees who don't transfer to the new employer: see below, "Restructuring: Protection for workers outside the specified industries".

Compensation for redundancy

Am I entitled to compensation if my employer makes me redundant?

You have no automatic right to be compensated for being made redundant.

Whether or not you are compensated will depend on whether you or your union has agreed on this with the employer, either in your employment agreement (that is, before the redundancy) or after the redundancy has been planned.

The rule that there is no automatic right to compensation does not apply in the case of restructuring in specified industries where workers are particularly vulnerable (such as cleaning and food-catering services), if the new employer makes a transferring employee redundant: see below, "Protections for vulnerable workers affected by restructuring".

Challenging a redundancy

On what grounds can I challenge being made redundant?

You can challenge the redundancy if:

• the redundancy was not for genuine commercial reasons (that is, it was not substantively justified), or
• your employer did not act fairly and reasonably in carrying out the redundancy (procedural unfairness), or
• your employer did not comply with any terms of your employment contract dealing with redundancy

If one of these grounds apply, what action can I take?

If any of these grounds apply, you can bring a personal grievance against your employer to the Employment Relations Authority: see How to bring a personal grievance against your employer. (There are a number of grounds for bringing a personal grievance: a personal grievance on the basis of a redundancy comes under the general ground of unjustified dismissal.)

It may be that your employment agreement deals in some way with redundancy and that your employer hasn't complied with those contractual terms. For example, your employer may have refused to pay some or all of the compensation due to you under the agreement, or the employer may not have followed the procedure that the agreement specifies for selecting the employees that will be made redundant. If this is the case, then you also have the additional right to apply to the Employment Relations Authority to have those terms enforced. In the employment legislation this is called a "dispute", and is separate from the personal grievance procedure.

Whereas you must raise a personal grievance with your employer within 90 days, there is no such restriction in the case of a "dispute". The only time limit is that you must apply to the Employment Relations Authority within six years of when the events in question happened.

If your agreement is silent on the question of redundancies, then your only course of action is a personal grievance (on the basis that the employer did not have genuine commercial reasons or that the process was unfair). But it may be that an employer's failure to follow contractual terms will be the ground, or one of the grounds, for a successful personal grievance. For example, if the employer ignores a selection procedure set out in the agreement, the courts are very likely to see this as procedural unfairness justifying a personal grievance.

Employment agreements in most industries must have a negotiated provision protecting employees affected by restructuring where their work will be carried on by employees of a new employer or by some other person. The provision must set out, among other things, the process for determining what redundancy entitlements, if any, will be available to employees who don't transfer to the new employer. These rules covering restructuring are explained in detail below, under the heading "Restructuring: Protection for workers outside the specified industries" and the headings that follow it.

What are "genuine commercial reasons"?

For a redundancy to be substantively justified, there must be genuine commercial reasons for it.

This does not mean "adequate" commercial reasons. The courts are interested only in whether the employer is genuinely motivated by business considerations, and in general will not substitute their own judgement for the employer's about whether the reasons for the redundancy are adequate. Provided the employer made a business decision in good faith, the courts will leave it up to the employer to decide what is best for the business.

This means that you will not succeed against the employer on this point merely by showing, for example, that the redundancy was avoidable and that the business would have survived had your job continued. To be successful you must show that the employer had improper motives for the redundancy – for example, that the employer was unhappy with your work performance.

If the employer creates a new position that is substantially the same as the old position the redundancy is not justified.

The NZ EMPLOYMENT RELATIONS ACT 2000 also specifically requires employers to act in good faith when making employees redundant.

When can I challenge a redundancy for "procedural unfairness"?

Even if you were made redundant for genuine commercial reasons, you may still have a remedy of some kind if the procedure that your employer followed was unfair.

The requirements for procedural fairness will vary depending on the particular circumstances, and it is possible to give only some general guidelines here. In some cases, particularly where there are only a few employees involved, the courts will place more extensive requirements on employers, and in determining whether the process was fair will consider such things as whether the employer consulted you, whether redeployment options or other alternatives were considered, whether you were given access to counselling, and whether you were given reasons for the decision.

In other cases, however – for example, if redundancies are inevitable because of major restructuring or solvency problems – the requirements of a fair process will be relatively minimal, and will probably focus on the selection process for the redundant employees, the notice they are given, and the payment of any compensation. (Note that employment agreements in most industries must include a negotiated provision to protect employees where the work they do will be carried on by employees of a new employer as a result of restructuring. The provision must set out, among other things, the process for determining what entitlements will be available for employees not transferring to the new employer: see below, "Restructuring outside the specified industries".)

If your employer has ignored relevant procedures specified in your employment agreement, the courts will very likely see this as procedural unfairness.

How much notice must I be given?

If the employment contract specifies a particular period of notice, then you must be given that period of notice.

If the contract doesn't deal with notice, then you must be given a "reasonable" period of notice. What is reasonable will depend on the particular circumstances.

What remedies are available to me?

The Employment Relations Authority can impose a number of remedies in personal grievance cases, including reinstatement or monetary compensation.

If your employer had improper motives in making you redundant, then the Authority may reinstate you in your former job.

If there has been procedural unfairness, you may be awarded compensation for the distress caused by the manner in which the redundancy was carried out. In these cases, the remedy is directed to the particular wrong done to you: the Authority will focus on the stress and trauma that you were caused by the way in which the redundancy was carried out, and not on the effects of losing your job. Therefore any compensation cannot take into account future economic loss.

Protections for vulnerable workers affected by restructuring

The NZ EMPLOYMENT RELATIONS ACT 2000 gives you some protection when, as a result of restructuring, the work you do would be carried out by employees of a new employer or by another person.

The level of protection depends on whether you work in one of several industries specified by the Act in which workers are particularly vulnerable. In those industries, you can choose to transfer to the new employer, on the same terms and conditions as you had before.

Workers outside those specified industries are given a lower level of protection. Their employment agreement must include a negotiated provision setting the process and content for negotiations between the employer and any new employer in a restructuring situation as it affects the employees, and the process for determining what entitlements, if any, will be available to employees who don't transfer to the new employer. See below "Restructuring: Protection for workers outside the specified industries".

What are the specified industries in which workers are given extra protections?

These are industries in which restructuring is frequent and has tended to undermine terms and conditions of work, and in which workers have little bargaining power, namely:

• cleaning or food-catering work in any workplace
• laundry work in hospitals, rest-homes or educational institutions
• orderly work in hospitals or rest-homes
• caretaking work for schools, universities, polytechnics and other educational institutions

What types of restructuring are covered by the protections for vulnerable workers?

If you work in one of the specified industries, you'll be protected in the following types of restructuring situations:

• when the company you work for is sold
  • for example, you clean for a cleaning company and that company is sold to a different cleaning company
• when the company you work for loses the contract for the work you do to another business (the Act calls this "subsequent contracting")
  • for example, you work for a catering company that has a contract with an airport, and the airport then gives the catering contract to another catering company
• when the work you do is "contracted out"
  • for example, you work for a school doing cleaning work and the school then gives the cleaning work to a cleaning company
• when the company you work for loses the contract for the work because the customer wants to do the work themselves (the Act calls this "contracting in")
  • for example, you work for a catering company doing catering work for a rest-home, and the rest-home then decides to get the catering done by its own employees

Employee can transfer to new employer

In those restructuring situations, you have the right to transfer to the new employer, on the same terms and conditions.

Before the restructuring your existing employer must tell you that you have the right to transfer, and tell you the date by which you must decide. You must be given a reasonable opportunity to make a decision. The employer must give you access to all the relevant information about the restructuring.

The new laws do not prevent you, before you decide whether to transfer to the new employer, from bargaining with your existing employer for alternative arrangements. Any alternative that you agree on must be in writing.

If you decide to transfer, you become an employee of the new employer, on the same terms and conditions, including as to whether you're full-time or part-time. This means that your old employment agreement continues, except that it's now with the new employer.

The date of the transfer is set by agreement between you and your previous employer; if you can't agree, it's the date on which the restructuring takes effect.

Your employment will be treated as continuous for the purpose of service-related entitlements, including annual holidays, sick leave, bereavement leave and parental leave. However, the new employer does not have to pay you for any annual holidays not taken before the transfer.

You cannot also receive redundancy entitlements from the previous employer under the previous terms and conditions.

What if I decide not to transfer to the new employer?

If you decide not to transfer to the new employer, this may mean that you're made redundant. The standard laws governing redundancies will then apply. If any term or condition of your employment excludes redundancy entitlements where you have the right to transfer to a new employer but choose not to transfer, that exclusion will still apply.

What if I transfer but the new employer makes me redundant?

If the new employer decides to make you redundant, you'll be entitled to any redundancy payments in your employment agreement. If your agreement doesn't provide for, or doesn't exclude, redundancy entitlements in that situation, you'll be entitled to redundancy payments from the new employer, with the appropriate amount to be agreed through negotiation with the new employer.

If you can't agree, you or the new employer can apply to the Employment Relations Authority for it to investigate. The Authority will rule on how further bargaining should happen, if it thinks further bargaining is possible. Alternatively, if it thinks further bargaining isn't warranted, the Authority will decide what amount of redundancy payment the new employer should pay you.

What if I have a fixed-term agreement?

If the reason for your agreement having a fixed term is linked to the end of your employer's contract to perform the services, or linked to an anticipated restructuring, you can still choose to transfer to the new employer despite your agreement having a fixed term.

If you transfer, the length of your employment agreement with the new employer will depend on what kind of restructuring it is:

• If the work you do is "contracted out" (that is, your employer contracts another business to perform work that you were doing for your employer "in-house"), or if the company you work for loses the contract for the work you do to another business ("subsequent contracting"), your employment agreement will end when your new employer's contract to do the work ends.
• If your new employer is taking over the work permanently because the company you work for is sold to them, or because the new employer is now doing the work in-house, you become a permanent employee.

If the reason for your agreement being fixed-term isn't linked to the end of your employer's contract or to an anticipated restructuring, you can still choose to transfer, but your agreement will end on the date or in the situation described in your fixed-term agreement.

What if I leave the job after I transfer to the new employer?

You receive holiday pay and other entitlements as if you had always been employed by the new employer.

Restructuring: Protection for workers outside the specified industries

If you work outside the specified industries listed above, you're given a lower level of protection in restructuring situations. In those cases, your agreement must include an "employee protection provision", which specifies the issues that your employer must negotiate with the new employer in relation to your situation, and the process that this negotiation will follow (see below for more details). The level of protection that employees will receive will therefore depend on what is negotiated between the employer, the employees and, where applicable, their unions.

Also, this protection does not apply to all of the types of restructuring in which workers in the specified industries are protected.

What types of restructuring are covered by the protections for workers outside the specified industries?

If you work outside the specified industries, you're protected when:

• the work you do is "contracted out" (that is, your employer contracts another business to perform work that you were doing for your employer "in-house"), or
• the company you work for is sold (including if it sells only the part of the business that affects you)

You're not protected when:

• the company you work for loses the contract for the work because the customer wants to do the work themselves ("contracting in"), or
• the company you work for loses the contract for the work you do to another business ( "subsequent contracting")

What does the "employee protection provision" in my agreement have to include?

If you work outside the specified industries in which workers are particularly vulnerable to restructuring, your employment agreement must include a provision that covers the following:

• the process that your existing employer must follow in negotiating with a new employer about a restructuring, as it affects employees
• the issues to be negotiated, including whether the employees will transfer to the new employer on the same terms and conditions
• the process that will be followed to determine what entitlements, if any, are available to employees who don't transfer

Affected employees can choose whether or not to transfer

When an employer has arranged for an affected employee outside the specified industries to transfer to the new employer, the employee has a choice whether or not to transfer.

The New Zealand Employment website has an additional article on Redundancy.

 

Other New Zealand Employment Law resources

• The New Zealand Government website Employment is an additional useful guide.
   
• The NZ Employment Relations Authority assists you further seek assistance in resolving employment related issues. It is an independent body.
   
• The NZ Employment Court allows you to challenge a decision made by the Employment Relations Authority.
   
• The NZ Human Rights Review Tribunal assists with issues of human rights and privacy at work.
   
• The NZ Employment Relations Authority has a database of previous cases for review.
   
• The NZ Government website Employment has a free tool for creating employment agreements - help yourself.

 

Cautionary notes

• Because of the latitude the courts give employers in deciding whether a redundancy is substantively justified, it may well be that any remedy available to you will be for the process by which the redundancy was carried out. The requirements that your employer would have to meet in order for the process to be fair depends on your particular circumstances, and you will need to consult your union or legal adviser to determine whether the requirements have been breached in your case.