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Redundancy Law in New Zealand

July 2009

NB: The comments included in this publication should not be read as representative of the view of the Court, Authority, or the Department of Labour. Rather, any view expressed is in the nature of an opinion only.

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I       Introduction

When an employee raises a personal grievance after being dismissed for redundancy the Authority or Court will look at both the substantive reasons for the dismissal, i.e. whether the redundancy is genuine, and the procedure followed by the employer. This two-stage approach was confirmed in 2006 by the Employment Court in Simpsons Farms Ltd v Aberhart. [1]

II     Substantive Justification

It has been a long standing rule in New Zealand that the courts will not question an employer’s genuine commercial decision to reorganise their business. [2]  Simpsons Farms stated that this rule remains unaffected by the introduction of s103A Employment Relations Act 2000 (“ERA”), which requires that substantive justification for a dismissal, or other disciplinary action, be determined objectively.

“Although Parliament was prescriptive in 2004 as far as process was concerned, on substance of justification for dismissal it appears to have been satisfied, by enacting s103A, to return to the position espoused by the courts in cases such as, and following, G N Hale and Son Ltd v Wellington Caretakers etc IUOW [3]. So long as an employer acts genuinely and not out of ulterior motives, a business decision to make positions or employees redundant is for the employer to make and not for Authority or the Court, even under s103A.” [4]

In a genuine redundancy situation the dismissal will be substantively justified as an employee has no right to continued employment. [5]  The Court in Simpsons Farms commented that when a dismissal was substantively justified, the reality of the case meant it was one of alleged unjustified disadvantage, rather than a case of unjustified dismissal. [6]

A       Whether a redundancy is genuine

A genuine redundancy is generally one made for valid commercial reasons and “determined in relation to the position, not the incumbent”. [7] 

In Allen v Johnson’s House Removal Co Ltd [8] the Court found that the dismissal had “all the hallmarks of an employer who has, for whatever reason, tired of an employee and sought to justify her dismissal by relying on management prerogative.”  The company had negative views about Ms Allen, did not ask her if she would consider working fulltime to keep her job, and re-hired a former employee shortly after the dismissal. The Court held there was not a genuine reorganisation or a redundancy on genuine grounds. The employee was awarded, inter alia, $5,000 compensation for hurt and humiliation and 24 weeks lost wages.

In Farmers Transport Ltd v Kitchen [9] the Court found there was a “blatant attempt to disguise a dismissal for performance as redundancy”. The employer had been concerned about the employee’s performance for at least six months before the alleged redundancy, and had effectively demoted him by removing him from his management position. While the Court accepted there was a genuine need to improve the performance of the business, it considered Mr Kitchen’s performance should have been dealt with in an open way. It was also not a genuine redundancy as the position held by Mr Kitchen at the time of his dismissal was not disestablished or surplus to his employer’s needs. Mr Kitchen was awarded $12,000 compensation by the Court.  

Doubt was cast on the genuineness of the redundancy in Staykov v Cap Gemini Ernst & Young New Zealand Ltd. [10]  The employee had a positive work record and the employer had previously given assurances that there would be no redundancies that year. The employer provided no evidence to justify the redundancy and the Court considered it more probable than not the dismissal came about to mask the adverse view management had formed of Mr Staykov. The Court took these factors into account and award him $30,000 compensation and 14 weeks lost wages.   

On the surface, the employer’s reasons for redundancy appeared to be sound in Lewis v Greene. [11]  The employee had gone on parental leave and, instead of replacing her with a temp, the work was reallocated among existing employees. The employer claimed that there was no longer enough work for a legal executive (Ms Greene’s role) and that the other employees were able to cope with additional work, which Ms Greene could not have done without training. However, the employer failed to properly compare conveyancing fees generated by Ms Greene with fees generated during the comparable period after she left. That was an important omission in deciding whether a legal executive position could have been maintained. The Court found the main reasons for making Ms Greene’s position redundant were the extreme bad feeling between the parties when she went on parental leave; the employer’s desire not to disturb the smooth running of his firm; and a redundancy situation that probably occurred before the employer approved the employee’s parental leave. Ms Greene received reimbursement of 85 weeks lost wages, and $15,000 compensation for hurt and humiliation.

In Rillstone v Product Sourcing International 2000 Ltd [12] , the Authority found that if an employer appears to have mixed motives and dismisses an employee for a combination of genuine commercial reasons, but with underlying personality or performance concerns,

“the employer bears the burden in justifying a redundancy dismissal of persuading the Authority that the redundancy was both genuine and the predominant motive or reason for dismissal. If the predominant motive was a genuine commercial decision, the dismissal will be justified if carried out in a fair manner. If the predominant motive was for another reason, the dismissal will be unjustified. An important indicator of whether a redundancy was for genuine commercial reasons is whether the employer can show ‘a significant paper trial or other solid foundation of evidence demonstrating its consideration of a reorganisation.”’

B       Other grounds for finding a redundancy is substantively unjustified

A redundancy can also be unjustified if it does not conform to the requirements in the parties’ employment agreement. In Nee Nee v TLNZ Auckland Ltd [13] seven employees were found to be unjustifiably dismissed because “the dismissals did not meet the definition of redundancy in their collective employment agreement and were in breach of the employer’s contractual obligations to prefer permanent employees over casuals.” 

III    Procedural Fairness

Employers have to follow a fair process when dismissing an employee for any reason. The required procedural steps in a redundancy situation depend on the individual circumstances of each case. Two key features of most redundancy processes are consultation and notice.  

A       Consultation

Consultation is more than notification [14] and is usually required [15], although the courts have stopped short of making it an absolute requirement. In Aoraki Corp Ltd v McGavin [16] it was noted that to impose an absolute requirement to consult would lead to impracticalities in some situations e.g. mass redundancies.

Relevant factors when considering the need for consultation include:

In Communication & Energy Workers Union Inc v Telecom NZ Ltd [20] the Court discussed the meaning of “consultation” in the context of redundancy, and listed a series of propositions extracted from the Court of Appeal’s decision in Wellington International Airport Ltd v Air NZ Ltd [21]. In particular, the Court noted:

  1. Consultation requires more than mere prior notification and must be allowed sufficient time. It is to be a reality, not a charade. Consultation is never to be treated perfunctorily or as a mere formality.
  2. If consultation must precede change, a proposal must not be acted on until after consultation. Employees must know what is proposed before they can be expected to give their view.
  3. Sufficiently precise information must be given to enable the employees to state a view, together with a reasonable opportunity to do so. This may include an opportunity to state views in writing or orally.
  4. Genuine efforts must be made to accommodate the views of the employees. It follows from consultation that there should be a tendency to at least seek consensus. Consultation involves the statement of a proposal not yet finally decided on, listening to what others have to say, considering their responses, and then deciding what will be done.
  5. The employer, while quite entitled to have a working plan already in mind, must have an open mind and be ready to change and even start anew. [22]

Consultation will ordinarily (subject to the terms of the particular agreement) include a duty on the employer to consult over the employee’s suitability to fill any vacancies, disclose all available options, and advise the amount of compensation to which he or she might be entitled. [23]  A failure to consult can result in parties being ordered to comply with the consultation obligation in s4(4)(c) ERA. [24]

It is not just the act of consultation that is important; the quality of the consultation will also be taken into account. The employer must not withhold the true reason for the restructuring, mislead the employee as to the criteria for selection, or predetermine the outcome. [25] 

B       Notice

Notice is given to employees when it has been decided that their employment will end. The Courts have made a number of comments on the purpose of notice periods in redundancy situations.

Notice periods:

It is important that employers comply with the notice provisions set out in their employment agreements; failure to give the required notice can make an employer liable for arrears of wages. [30]  The denial of adequate notice can also be a breach of an employer’s obligations of fair dealing and good faith.

Although “reasonable” notice may be implied into employment agreements [31], redundancy is a special case and the Court has commented that common law principles relating to reasonable notice offer no guidance. [32]  “Reasonable” notice depends on the circumstances of each situation, and has recently ranged from one week [33] to two months. [34]

Proper notice has been considered particularly important in cases concerning older, long-serving employees. It gives them the opportunity to negotiate a more dignified exit, such as retirement, and to hold appropriate farewell ceremonies. [35]  In Harris v Charter Trucks Ltd, the parties’ employment agreement provided for “at least two weeks notice of termination”. Mr Harris, who had been employed in the business for more than 25 years with only a few breaks, received two weeks pay in lieu of notice. The Court found that a fair and reasonable employer would have recognised that the dismissal was going to be difficult and traumatic for him and given consideration to providing a period of notice longer than the bare minimum stipulated in the employment agreement. Also, keeping Mr Harris out of the workplace by paying him in lieu of notice deprived him of the dignity of working and the ability to say goodbye to his colleagues as equals. [36] 

Once notice of redundancy has been given, the employer cannot unilaterally withdraw it. [37]  In Malaysia Airline System BHD (NZ) Ltd v Malone [38] the employee was entitled to rely on the redundancy notice issued by his employer and to receive redundancy compensation as specified in his collective employment agreement even though the employer’s circumstances had changed and it no longer wished to make him redundant.

C       Other procedural factors

Other procedural factors that the Courts and Authority have taken into account include:

IV    Personal Grievance Remedies

If the Court or Authority finds that an employee has a personal grievance relating to their redundancy they can order that they be reimbursed for wages lost as a result of the grievance and receive compensation for hurt and humiliation. In a genuine redundancy situation compensation is limited to hurt and humiliation resulting from procedural failures only, and is not compensation for the loss of employment. [46]

Compensation awards for hurt and humiliation in redundancy cases between January 2005 and June 2006 ranged from $500 to $30,000. The average award was between $7,000 to $7,999.

The award of $30,000 in Staykov v Cap Gemini Ernst & Young New Zealand Ltd is high in the context of personal grievance awards. The Court found that the redundancy was not genuine and the employee’s situation was exacerbated because, contrary to assurances, the employer did not provide a reference or assist Mr Staykov with obtaining alternative work. The dismissal was carried out in a way which conveyed the impression that there was substantial cause and fault on the part of Mr Staykov. The Court found that he was considerably distressed by the employer’s conduct towards him and that this affected his self confidence, his health, and caused him stress and anguish. He also suffered distress as a result of the job loss and career dislocation. The Court also awarded reimbursement of 14 weeks lost wages.

With a genuine redundancy the employee is unlikely to receive lost wages as their employment would inevitably have ended, even if an appropriate process had been followed. [47] However an employee may be awarded lost wages in recognition of the extra time they would have been employed if there had been consultation, e.g. in Ayers v Advertising Works Ogilvy Ltd [48] Mr Ayers was awarded four months lost wages as the Authority considered two months would have been a reasonable consultation period, and that after consultation, he would then have been given two months notice of his dismissal. Lost wages may also be awarded if the process is so flawed it cannot be said with any certainty which of the potentially affected employees would have been selected for redundancy if a proper process had been followed. [49]
The Court of Appeal in Coutts Cars Ltd v Baguley [50] also commented that it was “arguable, in principle, that the loss of opportunity arising from failure to consult should be brought into account as part of the remedy of reimbursement in settling the grievance.” 

V      After an Employee is Selected for Redundancy

An employer may still have obligations to an employee selected for redundancy.

A       Redundancy Compensation

Where the parties’ employment agreement is silent on the issue of redundancy compensation the Court will not order its payment. [51]  If the parties cannot agree on the interpretation of a redundancy clause the Court of Appeal has held that whether the Authority has jurisdiction to determine the amount of redundancy compensation payable depends upon the interpretation of the redundancy clause. [52]

Redundancy compensation was considered in Vaughan v Canterbury Spinners Ltd. [53] The parties’ redundancy clause obliged the employer to pay redundancy compensation, and to pay such amount of redundancy compensation as was proper at the time and in the circumstances of the particular redundancy. What was left for negotiation was simply the ascertainment of the amount that was proper given those circumstances. The Court stated that the level of compensation must be proper with regard to all the circumstances and can vary between employees e.g. due to differing lengths of service. It can also differ according to the company’s financial position as far as it affects its ability to pay. Current industry practice can also be relevant. “[Compensation] must be an amount that represents redundancy compensation of an amount that ordinary people involved in industry generally and in the particular branch of industry in question would recognise as amounting to a proper payment of redundancy compensation.” 

Questions over an employee’s entitlement to redundancy compensation can also arise when the parties disagree over whether there is a redundancy situation. In McCain Foods (NZ) Ltd v Service & Food Workers Union Inc [54] the Court concluded that a redundancy situation did arise when the employer closed one of its supermarkets and transferred the employees’ roles from that supermarket to others operated by it. The employer was ordered to pay the employees redundancy compensation in accordance with the terms of their employment agreement.

B       Other assistance

In Aoraki [55], the Court of Appeal commented that “fair treatment may call for counselling, career and financial advice, and retraining and related financial support.”  In Harris, the employee was offered no support or assistance to cope with the effects of the dismissal in circumstances where he had done no wrong and had no alternative employment prospects. It was held to be a case where a fair and reasonable employer would have provided the type of assistance referred to in Aoraki [56].

i         Redeployment

The Court of Appeal held that in “a situation of genuine redundancy, where the position truly is surplus to requirements, in the absence of a contractual provision to that effect, it cannot constitute unjustified dismissal not to offer the employee a different position.” [57]

In Westpac Banking Corporation v Money [58] a number of employees were made redundant but there was only one alternative vacant position. The vacancy was filled by another employee, unaffected by redundancy. The Court of Appeal held that the employer failed to comply with its contractual obligations to make “every reasonable endeavour” to find the redundant employees alternative positions by offering the vacancy to employees unaffected by redundancy.

ii        Preferential rehiring

In NZ Amalgamated Engineering, Printing and Manufacturing Union Inc v Carter Holt Harvey Ltd [59] the parties’ collective employment agreement provided that workers whose employment ended due to redundancy would, where practicable and all other things being equal, be given preference for re-employment. The Authority held the employer could not refuse to rehire former employees based on matters that should have been resolved during the time the employees worked for the company.  

VI    Parental Leave and Redundancy

One area of redundancy law where employers seem to have difficulty meeting their responsibilities is when they are dealing with an employee on parental leave. Parental leave legislation and New Zealand’s international obligations have been held to impose a higher standard on employers in parental leave redundancy cases. [60]  The Court in Lewis v Greene held “[a]n employer who is contemplating the redundancy of an employee on parental leave is bound to take extra precautions to ensure that she has an opportunity to be actively involved in the consultation process in a meaningful way that is at least equal to that of the employees who remain at work.” 

In Apaapa v Whitehouse Entertainment Ltd [61] the employer reorganised its business while the employee was on parental leave. Ms Apaapa was not included in the process or given appropriate information. The Authority found that the employer had designed a false redundancy process to legitimise its actions. The redundancy was not genuine and the whole process had been conducted in bad faith. The employer had completely failed to understand its obligations under the Parental Leave and Employment Protection Act 1987 (“PLEPA”). The employee was reimbursed for lost wages and awarded $15,000 compensation.

In Viegas v The Flower House (2005) Ltd [62] the employee was maderedundant when the employer stopped trading. There was no notice the shop was to be closed or discussion regarding redeployment options. The Authority could not safely conclude the redundancy was genuine. At the time of the redundancy Ms Viegas was 4½ months pregnant and had told her employer she wished to take parental leave. Her difficulty in finding work after her dismissal was compounded by the understanding she was no longer eligible for statutory parental leave payments. Ms Viegas sought compensation from the Authority for loss of this benefit. While there is an express statutory provision to ensure employees whose employment ends during parental leave retain their entitlement to payment, the Authority commented that similar provision did not appear to have been made for those whose employment was terminated before the commencement of leave. The Authority found the question of eligibility for payment in such cases had not been tested. As parental leave payments are a statutory entitlement, not an obligation required to be paid by the employer, they could not be described as a benefit of the employment relationship, and the Authority could not order compensation for their loss. The employee received $5,000 compensation and lost wages from her dismissal until the date she would have started parental leave.

The issue of what happens to an employee’s entitlement to paid parental leave when their employment is terminated before the leave commences was considered in Van Walen v Department of Labour [63]. In that case the employee was made redundant three weeks before she was due to go on paid parental leave, as her employer was put into voluntary liquidation. The Department of Labour advised the employee that she was no longer eligible to receive paid parental leave as her employment had terminated before the leave commenced and therefore she no longer had a position from which to take leave. The employee applied to the Authority for a review of the Department of Labour’s decision.

The Authority found the employee was entitled to paid parental leave for the previously accepted period. The Authority reached that conclusion for two reasons. Firstly the Authority found that an employee, in various circumstances, can begin maternity leave earlier than the “expected date of delivery” [64]. Secondly the Authority found that the employee’s employment agreement provided for a notice period of one month. The notice period did not cease to exist because of the employer’s decision to go into voluntary liquidation. The Authority found that the termination of employment must be taken from the expiry of an agreed notice period. Because of the one month notice period the employee was still in employment at the time her period of paid parental leave was due to start. She was an eligible employee for the purposes of the PLEPA.

The employee then had the benefit of the protections in the PLEPA for employees whose employment was terminated whilst they were on paid parental leave. The Authority noted that the matter was resolved “by the application of the uncontroversial notion that an employee’s employment ends according to the terms of [their] written employment agreement” [65] The Authority found that in similar cases, the employee’s employment agreement, including any notice period, should be looked at before deciding whether the employee was within or outside the statutory criteria of eligibility.

VII   Conclusion

Personal grievance cases concerning redundancy are relatively common in New Zealand. The majority of these cases involve alleged procedural failures by the employer, and often relate to a failure to adequately consult employees, provide sufficient information, or appropriately take into account the specific circumstances of each employee, especially in parental leave situations. When these procedural failures unjustifiably disadvantage an employee they will usually be compensated for the hurt and humiliation caused by the unfair process. Other entitlements, e.g. to redundancy compensation or preferential re-employment, generally depend on the terms in the parties’ employment agreement. Throughout the redundancy process both employers and employees must act in good faith and observe the obligations in the Employment Relations Act 2000 and their employment agreement.


Endnotes

[1] Simpsons Farms Ltd v Aberhart [2006] 1 ERNZ 825

[2] G N Hale and Son Ltd v Wellington Caretakers etc IUOW [1991] 1 NZLR 151

[3] G N Hale and Son Ltd v Wellington Caretakers etc IUOW[1991] 1 NZLR 151

[4] Simpsons Farms Ltd v Aberhart [2006] 1 ERNZ 825, para 67

[5] G N Hale and Son Ltd v Wellington Caretakers etc IUOW [1991] 1 NZLR 151

[6] Simpsons Farms Ltd v Aberhart [2006] 1 ERNZ 825, para 72

[7] NZ Fasteners Stainless Ltd v Thwaites [2000] 1 ERNZ 739

[8] Allen v Johnson’s House Removal Co Ltd unreported, Shaw J, 19 November 2003, AC 59/03

[9] Farmers Transport Ltd v Kitchen unreported, Shaw J, 14 December 2006, WC 26/06

[10] Staykov v Cap Gemini Ernst & Young New Zealand Ltd unreported, Travis J, 20 April 2005, AC 18/05

[11] Lewis v Greene [2004] 2 ERNZ 55

[12] Rillstone v Product Sourcing International 2000 Ltd unreported, R Arthur, 7 June 2007, AA 167/07

[13] Nee Nee v TLNZ Auckland Ltd [2006] 1 ERNZ 95

[14] Assn of Salaried Medical Specialists v Otago DHB [2006] 1 ERNZ 492

[15] Coutts Cars Ltd v Baguley [2001] ERNZ 660

[16] Aoraki Corp Ltd v McGavin [1998] 1 ERNZ 601

[17] Dymocks Franchised Systems (NZ) Ltd v Robson unreported, Shaw J, 4 December 2001, AC 80/01

[18] Holmes v Ken Rintoul Cartage & General Contractors Ltd [2002] 2 ERNZ 130

[19] McGuire v Rubber Flooring (NZ) Ltd unreported, Travis J, 2 March 2006, AC 9/06

[20] Communication & Energy Workers Union Inc v Telecom NZ Ltd [1993] 2 ERNZ 429

[21] Wellington International Airport Ltd v Air NZ Ltd [1993] 1 NZLR 671

[22] Brookers Databases>Employment>Employment Law>Employment Relations Act> Employment Relations Act 2000> Part 9 Personal grievances, disputes, and enforcement> Personal grievances>103 Personal grievance>ER103.21 Accessed 10/12/2007

[23] Cammish v Parliamentary Service [1996] 1 ERNZ 404

[24] NZ Amalgamated Engineering, Printing & Manufacturing Union Inc v Carter Holt Harvey Ltd [2002] 1 ERNZ 597

[25] Harris v Charter Trucks Ltd unreported, Couch J, 11 September 2007, CC 16/07

[26] A-G in respect of DGSW v Richardson [1999] 2 ERNZ 866

[27] Hands v WEL Energy Group Ltd [1992] 1 ERNZ 815

[28] Kitchen Pak Distribution Ltd v Stoks [1993] 2 ERNZ 401

[29] Farmers Transport Ltd v Kitchen unreported, Shaw J, 14 December 2006, WC 26/06

[30] NZ (with exceptions) Electrical etc IUOW v Remtron Lighting Ltd (in rec) [1990] 1 NZILR 583

[31] Ogilvy & Mather (NZ) Ltd v Turner [1995] 2 ERNZ 398

[32] Charta Packaging Ltd v Howard [2002] 1 ERNZ 10

[33] Muller v Taam Gardens Ltd and Ors unreported, YS Oldfield, 21 June 2005, AA 226/05

[34] Ayers v Advertising Works Ogilvy Ltd unreported, L Robinson, 20 October 2006, AA 324/06

[35] Farmers Transport Ltd v Kitchen unreported, Shaw J, 14 December 2006, WC 26/06

[36] Harris v Charter Trucks Ltd unreported, Couch J, 11 September 2007, CC 16/07

[37] This is similar to the rule that applies to notice of resignation by employees.

[38] Malaysia Airline System BHD (NZ) Ltd v Malone [2003] 1 ERNZ 494

[39] Farmers Transport Ltd v Kitchen unreported, Shaw J, 14 December 2006, WC 26/06

[40] Harris v Charter Trucks Ltd unreported, Couch J, 11 September 2007, CC 16/07

[41] Harris v Charter Trucks Ltd unreported, Couch J, 11 September 2007, CC 16/07

[42] Nee Nee v TLNZ Auckland [2006] 1 ERNZ 95

[43] NZ Building Trades Union v Hawkes Bay AHB [1992] 2 ERNZ 897

[44] Harris v Charter Trucks Ltd unreported, Couch J, 11 September 2007, CC 16/07

[45] Funnell v Bruce A. Short Ltd unreported, Colgan CJ, 14 March 2006, AC 12/06

[46] Coutts Cars Ltd v Baguley [2001] ERNZ 660

[47] Hutchinson v Signature Security Systems Ltd & Anor unreported, P Montgomery, 30 January 2007, CA 12/07

[48] Ayers v Advertising Works Ogilvy Ltd unreported, L Robinson, 20 October 2006, AA 324/06

[49] Harris v Charter Trucks Ltd unreported, Couch J, 11 September 2007, CC 16/07

[50] Coutts Cars Ltd v Baguley [2001] ERNZ 660

[51] Aoraki Corp Ltd v McGavin [1998] 1 ERNZ 601

[52] Canterbury Spinners Ltd v Vaughan [2002] 1 ERNZ 255

[53] Vaughan v Canterbury Spinners Ltd [2003] 2 ERNZ 495

[54] McCain Foods (NZ) Ltd v Service & Food Workers Union Inc [2004] 2 ERNZ 252

[55] Aoraki Corp Ltd v McGavin [1998] 1 ERNZ 601

[56] Aoraki Corp Ltd v McGavin [1998] 1 ERNZ 601

[57] New Zealand Fasteners Stainless Ltd v Thwaites [2000] 1 ERNZ 739

[58] Westpac Banking Corporation v Money [2004] 1 ERNZ 576

[59] NZ Amalgamated Engineering, Printing and Manufacturing Union Inc v Carter Holt Harvey Ltd unreported, D Asher, 12 February 2006, WA 27/06

[60] Lewis v Greene [2004] 2 ERNZ 55

[61] Apaapa v Whitehouse Entertainment Ltd unreported, D King, 26 June 2006, AA 219/06

[62] Viegas v The Flower House (2005) Ltd unreported, Y Oldfield, 27 June 2007, AA 193/07

[63] Van Walen v Department of Labour unreported, R Arthur, 12 May 2008, AA 174/08

[64] Sections 7, 11 – 14 Parental Leave and Employment Protection Act 1987

[65] Van Walen v Department of Labour unreported, R Arthur, 12 May 2008, AA 174/08, para 42