When an employer is considering making an employee(s) redundant or restructuring job positions, it is important that an employer shows good faith to its employees. The employer needs to ensure that the redundancy is genuine and must follow the correct process when carrying out either the redundancy or restructuring.


Reasons For Redundancies Must Be Genuine

Redundancies are a matter of managerial prerogative. The Court cannot question the commercial wisdom of a decision to create redundancies.  Rather, the issue is whether the redundancy is genuinely the reason for terminating the employment.

A redundancy is genuine if it is made for genuine commercial reasons.  Factors that may suggest that a redundancy is not genuine include;

  • Having job positions after the restructuring which are substantially the same as the previous positions, but may just have a different job title;
  • Hiring someone shortly after the redundancy for the same position that has been made redundant;
  • Where the redundancy is not the real reason for the dismissal – a redundancy is
    sometimes used as a camouflage to dismiss a worker for another reason e.g. poor performance or misconduct.

It is important that an employer keeps a clear paper trail of the background to the decision to restructure the business or make employees redundant.  These could be board or management meeting notes, letters to employees, financial records or any other documentation that may show that the redundancy was genuine.

Redundancy Process Must Be Procedurally Fair

Not only does the redundancy have to be genuine, but it must be carried out in a procedurally fair way. Under the Employment Relations Act 2000, it is part of an employer’s good faith obligation that when they are proposing to make a decision that will or is likely to have an adverse effect on the continuation of employment for 1 or more employees, the employer must provide the affected employees access to information relevant to the continuation of the employee’s employment and an opportunity to comment on the information before the decision is made.  Consultation with employees prior to the decision being made is an important part of this process.

The requirements of procedural fairness will depend on the size and nature of the business, but will usually require the following aspects;

  • Providing notice of the possible redundancy.
  • Consulting with staff who could be affected and giving them an opportunity to suggest any alternatives to redundancy.  This could involve options such as redeployment, job sharing or working part-time.
  • If the employer is intending to go through a selection process to decide which
    employees will be made redundant, an employer must adopt a fair basis for this selection policy and advise employees of how this decision will be made.  This could involve advising of what the selection criteria are, details of the positions available, information on who will be making the decision and a timeline for this process.
  • The employer must genuinely consider any options put forward by the employees during consultation prior to making a decision to dismiss.  The decision should not be pre-determined and should be free from bias.
  • Once the decision has been made, this needs to be communicated to the affected employees.  Pursuant to the employer’s duty of good faith, the employee needs to be given reasonable notice of their last working day.  Contractual notice periods need to be considered as part of this. There may also be an obligation on an employer to provide other practical assistance such as offering counselling, providing a work reference and assisting the employee in finding other employment.

Redundancies Where Business Sold

If a business is being sold or transferred, generally the provisions of an employee’s employment agreement must be followed. However, if the business has employees who work in the cleaning and food catering services at any workplace; laundry services for the education, health or age related sector; orderly services for the health or age-related sector; or caretaking services for the education sector, there are special rules that apply to them.  They have a right, inter alia, to choose whether to transfer on the sale of the business to the new employer.


This article is not a substitute for legal advice and you should talk to a lawyer about your specific situation. Should you need any assistance with this, or with any other Employment matters, please contact Lois Flanagan at Parry Field Lawyers (348-8480) or

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For Employers

My business couldn’t operate for a period of time after the earthquake, am I entitled to any financial assistance towards paying my employees?

Yes possibly.

There are two possible avenues:

(a)     If you held business interruption insurance prior to the earthquake, you may be entitled to financial assistance from your insurer under that policy.

You should contact your insurer as soon as possible to discuss and check the terms of your policy to confirm what, if any, assistance you may be entitled to and in what circumstances (don’t just take your insurer’s word for it!)

If an insurance payment is likely to take some time, you may also be entitled to receive the Government Earthquake Support Subsidy (see below) in the meantime but will have to repay it when the insurance payment is received.  You could also ask your insurer to make an advance payment under your policy.

(b)    You may be entitled to receive the Government Earthquake Support Subsidy

This is available to employers, the self employed or business owners who draw a wage but only in the following circumstances:

i. You are unable to operate due to damage, a police cordon, a key service is not available, or you are a small business who can operate but you are undergoing significant loss of business; and

ii. You are New Zealand owned; and

iii. You are based in the Christchurch City Council region.

You cannot receive the subsidy if you can continue to operate and/or meet your obligations to pay your employees, are a government or government-related organisation or if you have staff who have been injured or bereaved and who are receiving weekly compensation from ACC (but you are only limited n relation to that staff member(s).

The subsidy is paid:

for up to six weeks from 22 February 2011 (5 April 2011) at a rate of $500 per week per fulltime employee (over 20 hours per week) or a rate of $300 per week per employee for part time employees (anyone working 20 hours a week or less) the subsidy is not subject to GST but is subject to PAYE.

You can apply on line with Work and Income New Zealand or contact the Earthquake Government Helpline.