Carrying out a staffing restructure of a business used to be reasonably straightforward.  All that was really required was a fair consultation process and genuine business reasons for the restructure proposal.  The Employment Relations Authority and Employment Court had previously accepted that, provided an employer can establish there were genuine business reasons for a redundancy, no further inquiry into the reasonableness of that business decision would be made.

Well, times have changed and an employer can now expect to face a much higher level of scrutiny of any business decision to restructure and make an employee redundant.  The Court of Appeal decision, Grace Team Accounting Limited v Brake, which follows the same rationale as the 2013 Employment Court decision, Rittson-Thomas Totara Hills is evidence that the Courts and the Authority will be prepared to inquire into the reasonableness of the business information relied on by an employer in reaching its decision to dismiss an employee for redundancy.  This is a big shift from the previous position taken.

In Grace Team Accounting Limited v Brake,  Ms Brake’s role was declared redundant less than six months after she had left long-term employment with another accountancy business to take up employment with GTA. After reviewing projected financial losses, GTA made the decision to disestablish three roles, including Ms Brake’s.

The critical issue for GTA was that the financial information it relied on to justify Ms Brake’s redundancy was later found to be incorrect by about $120,000.  What made matters worse was that GTA had, in fact been in profit by about $60,000 at the time.  Therefore, the Employment Court found that had the calculations relied upon been correct, there would have been no immediate need to declare Ms Brake’s role redundant. 

The Court of Appeal upheld the Employment Court’s decision and found that despite GTA genuinely believing it was justified in declaring Ms Brake’s role redundant, the Court was not prevented from inquiring further to determine whether the actions taken by the employer, including dismissal for redundancy, were what a fair and reasonable employer could have done in the circumstances.

Ms Brake’s case was successful and she was awarded $65,000 for lost earnings and $20,000 for humiliation, loss of dignity and injury to feelings.  In other words, the error in the figures used was a very costly mistake for GTA (and presumably very damaging to the reputation of this accounting firm).

The implication for employers is that even redundancy dismissals which have been made based on genuine reasons are liable to be examined and may be found to be unjustifiable if it is subsequently discovered that the information relied on to inform the restructure decision was not factually accurate, or if the basis for the proposal does not stand up to scrutiny.

Employers will need to take extra care to ensure that the rationale for carrying out a restructure is robust and that any supporting information is accurate.  It is recommended that advice is sought regarding not only the process required for a restructure, but also whether the rationale for that decision is adequately supported.

Another important legal development which will impact on restructure situations is the upcoming changes to the Employment Relations Act 2000 (ERA), which come into force on 6 March 2015.

The disclosure of information required by the duty of good faith provisions will be amended to allow employers to withhold certain confidential information that the Employment Court previously held had to be disclosed.

This change has been triggered by the controversial Employment Court decision of Vice-Chancellor of Massey University v Wrigley. That decision applied an extremely wide construction to an employer’s good faith obligations under section 4(1A)(c) of the ERA regarding what information an employee is allowed to access during a restructure.  The decision instigated a number of privacy concerns for employers, as it confirmed that an employer must provide to its employees all the information from a selection process for redundancy, including information in the minds of the selection panel.

The ERA will now have a definition of what information may be deemed “confidential” and will not be required for disclosure.  This includes information that is:

  • about an identifiable person other than the affected employee;
  • evaluative or opinion material compiled for the purpose of making a decision that will, or is likely to, have an adverse effect on the continuation of employment of 1 or more employees;
  • about the identity of the person who supplied the evaluative or opinion material;
  • subject to a statutory requirement to maintain confidentiality;
  • necessary to maintain the confidentiality of the information for any other good reason. 

We expect that the final and wide point relating to “any other good reason” is likely to be a matter of interpretation by the Employment Court.  Therefore, once the changes take effect it is likely there will be further litigation on what information must be disclosed to an employee during a restructure or disciplinary process.  Despite this, it is still anticipated that the changes will provide some certainty for both employers and employees regarding the information disclosure obligations in both restructure and disciplinary processes.


Further information