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COVID-19: The Ins and Outs of Redundancy

Updated: Mar 26, 2020

I don't want to scare you, but we have to be realistic; redundancies are inevitable.

We are facing an uncertain time. Employers are being forced to close their doors, and the travel and hospitality industries are collapsing. In the United States alone, they are estimating that 37 million people may be made redundant. That's a staggering 11.3% of their population.

If we consider 11.3% of our population, that could mean 500,000 New Zealanders could be made redundant as a direct result of COVID-19. Of course, our economy is different and it's not appropriate to assume what will happen in the United States will happen in New Zealand; but it nonetheless shows the seriousness of the situation.

We can't blind ourselves to the real possibility of redundancies, but we can educate ourselves. The purpose of this blog post is to inform you of your legal rights during a restructure process.

The Legal Expectations

Section 103A of the Employment Relations Act 2000 imposes a broad obligation on employers to act fairly and reasonably in all the circumstances. Although we are facing an uncertain time, the law has not changed and will still apply during times of crisis.

You're probably asking what it means to be "fair and reasonable in all the circumstances." In breaking this down in redundancy cases, we consider two factors:

  • Was the redundancy made for genuine business reasons?

  • Was the redundancy conducted in a fair and reasonable manner?

This is discussed further below.

Was the Redundancy Genuine?

The first question we must ask is; was the restructure necessary for genuine business needs. In the times of COVID-19, this may seem obvious; but you know what they say ... If you assume, you make an ASS out of U and ME.

Let's consider the case that I was presented with recently; the employee was made redundant immediately following the government announcement that New Zealand would be progressing to a complete lockdown within 48 hours. The employer claimed a genuine business need to reduce its employee base by 20%.

Sounds reasonable?

Wrong. In this case, no other employee was considered for redundancy, which told me that this employee was targeted. In addition, the knee-jerk reaction by the employer meant that there was no time to truly consider the necessity for a restructure.

In assessing whether the redundancy is genuine, some questions you may want to consider include:

  • Is the employer eligible for the Wage Subsidy?

  • Has the decision been made too prematurely?

  • Are any other employees affected, or have you been targeted?

Each situation will be different, but I implore you to put your thinking hats on and question everything.

Was there a Fair and Reasonable Process?

The most important part of a fair and reasonable process is consultation. It is important that an employee is presented with the restructure proposal, and is provided reasonable and meaningful opportunities to provide their ideas and feedback.

This is a vital part of the process, because it gives the employees an opportunity to present potential solutions to the employer, such as:

  • Taking a period of annual leave and/or unpaid leave until the lockdown lifts (and therefore the employer is in a better position to evaluate the potential impact on their business).

  • Receiving a reduced income for a period of time.

  • Reducing hours to a part-time workload.

  • The possibility of working from home (and therefore still adding some value to the business).

  • Being flexible in the role, and adding value to other areas of the business during the lockdown period.

It is also important that an employer genuinely considers this feedback before making any decision. If a reasonable alternative is presented, an employer may find it more difficult to proceed with the restructure.

Let's be pragmatic

During a restructure process, it's easy for the employee and employer to be at loggerheads with each other. The employee doesn't want to lose their job, and often critiques and challenges everything. The employer takes offence to this, and is unwilling to be swayed from their proposal.

This is not about being "right". It's about doing the right thing. Now, more than ever, is a time to work together. Businesses and employees are both going to struggle during this time. Let's work together to find pragmatic solutions.

Employers: don't be hasty in deciding that a restructure is necessary.

Employees: please be flexible in considering what you can offer.

Let's get through this together.


Ashleigh Fechney

LLM(hons), BA

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