A redundancy occurs where an employee's role is considered surplus to the requirements of his or her employer. In determining whether or not an employee's employment is redundant the focus is on the position, not the person.
An employer has the right to run its business as it sees fit. However, the reasons for the employee's position becoming surplus to requirements must be for genuine commercial reasons. This means that the employer must sincerely believe the reasons for making the position redundant.
Reasons for an employee's redundancy can include:An employee's position is not surplus to requirements in a restructuring if it will be replaced by a substantially similar position (or if, before the redundancy takes place, there is a vacancy in a substantially similar position). In deciding whether two roles are "substantially similar", the employer must consider the hours, pay, location, duties and conditions of the two jobs.
If a position is changing location, but nothing else, whether an employee's role is redundant will depend on a number of factors, including: the distance from the old site to the new site; the employee's ability to get to the new site; the employee's current arrangements for getting to work, and whether a relocation has been provided for in the employment agreement.
Because the focus is on whether the position is redundant, not the person, redundancy cannot be used to dismiss an employee for misconduct or poor performance. Doing so could result in a claim of unjustifiable dismissal against the employer.
The Employment Relations Act specifically states that where an employer proposes to take an action that affects the employment of the employee, or intends to make an employee redundant, it must act in good faith towards that employee.
This means the parties to an employment relationship have to be active and constructive in establishing and maintaining a productive employment relationship in which the parties are among other things responsive and communicative.
In addition where an employer is proposing to make a decision that will, or is likely to, have an adverse effect on the continuation of employment of one or more of his or her employees the duty of good faith requires an employer to provide employees with:
The requirement to act in good faith also includes a duty of some level of consultation with an affected employee.
Consultation involves discussing any restructure or potential redundancy with an affected employee before a final decision is made. Consultation should begin as early as possible for the employer.
Consultation doesn't require that the employer and employee end up agreeing on the employer's course of action. However, an employee who may be affected by a redundancy or restructuring must be given a real opportunity to provide feedback or input into the proposal, and the employer must consider such feedback with an open mind, and must make a genuine effort to accommodate those views.
The level and duration of consultation with an employee required in a redundancy situation will depend on the size of the business, the urgency of the situation requiring the redundancy.
Where there is a possibility of redundancy, you should:
When an employer is making one or several positions redundant within a larger pool (e.g. 50 per cent of your salespeople), it is necessary to have a fair process to select which employees are to become redundant.
There is no absolute obligation to consult on selection criteria to be applied to any redundancy situation, unless the applicable employment stipulates so. However it is recommended that affected employees are consulted about the selection criteria.
If you are bound (by an express or implied term of the employment agreement) to apply specified selection criteria to a mass (where two or more identical positions will be affected) redundancy situation, then you will be in breach of that agreement if you do not.
If you are not bound to apply specified selection criteria to a mass redundancy situation, then you can adopt any selection criteria that best suits the needs of your organisation so long as it is not unfair or unreasonable.
If you are not bound to apply specified selection criteria to a mass redundancy situation, then you may involve your employees in determining which selection criteria will be applied.
When you apply selection criteria to individual employees and that process involves an evaluation of the employees' performance to date, employees should be given clear information about the criteria being applied and the opportunity to make representations on their own behalf. This adds another layer of consultation to the process, as it should follow the same kind of procedure as consultation on the redundancy itself.
Types of selection criteria include:
Once you have decided that an employee's position will be made redundant, you should inform him or her in a meeting with a support person. At the meeting, you should also discuss the options which are open to the employee with respect to his/her future employment with the organisation, e.g. redeployment, relocation, etc. and discuss any assistance that the employer is prepared to provide, including:
Give the employee an opportunity to discuss these issues, to think about them further if necessary and to come back to you on these. Ensure that that any issues that remain outstanding or unresolved are followed up. Remember to take notes of all meetings and conversations with the employee either during or after, but preferably during the meeting or conversation.
An employee is not entitled to a payment for redundancy unless this is expressly provided for in his or her employment agreement. A redundancy payment is taxed as a lump sum, and does not count as gross earnings when calculating the employee's final holiday pay. An employer must give an employee at least as much notice of his or her redundancy as is required to be given under the employment agreement for termination.
are not ordinarily transferable between employers. Where part of a business is sold, or its work contracted out (outsourced), the employees will be redundant.
The purpose of an employee protection provision is to provide protection for the employment of affected employees if their employer's business is restructured. It includes:
Since December 2005 all employment agreements must contain an employee protection provision. An employer is bound to follow the process outlined in the employee protection provision in regards to the proposed redundancy and negotiation of on-going employment of affected employees. The provision also outlines the obligations an employer will have in regards to redundancy compensation (if any.
The Employment Relations Act 2000 defines some employees as "vulnerable employees". These employees attract special protections in the case of restructuring if their work is to be contracted out by their employer or their part of the business is to be sold. They may elect to transfer their employment to the organisation where the work has been transferred. A vulnerable employee includes the following categories of employees:
If the employer's business is sold, from one incorporated company to another, then the identity of the employer does change, and the employee's of the original employer will be made redundant.
In many cases, the new employer will wish to employ all the former employees, on the same terms and conditions they were previously on, and for all intents and purposes treat the employment as being continuous. This is called "technical redundancy".
Technical redundancy is only relevant to the former employer if its employee is to be made redundant, and under their agreement that employee is entitled to compensation for redundancy. It is recommended that where an employee's agreement contains an entitlement to redundancy pay, the employer should include a technical redundancy clause. The effect of most technical redundancy clauses is such that if an employee, whose employment is to be terminated by reason of redundancy, is offered alternative employment which is substantially similar to the employment which is to be lost, then the employee is not entitled to receive compensation for redundancy.