Wendy Macphail Employment Law Services

Up until now, an employer has had a right to structure their business in any way they wish – and the Employment Relations Authority or Employment Court has not been entitled to enquire further into the business reasons behind a restructuring proposal.

This long-established view has been turned on its head by a recent decision from the Employment Court. In the case of Totara Hills Farm v Davidson, chief judge Colgan has confirmed that the authority or court can assess the business decision behind a redundancy to determine whether the decision, and how the decision was reached, were what a fair and reasonable employer could have done in all the relevant circumstances.
The result of this case for employers is that employers can no longer say that a decision to restructure is substantively justified simply because it is a genuine decision – as opposed to a sham to hide a dismissal for other reasons.
The authority or court is now able to scrutinise the merits of the decision.
In Totara Hills Farm v Davidson, the court found the employer's decision to make Mr Davidson redundant was not a sham. However, the court then went further, and examined the business case behind the redundancy decision.
How does this case impact for employers?
The authority or court will look more closely into an employer's reasons for a restructuring decision.
For this reason, when drafting a restructuring proposal, and considering whether to implement a restructure, employers will need to: provide valid reasons for the restructuring proposal; clearly communicate this to affected employees; provide detailed information to support the reasons for the restructuring proposal; be able to explain further the reasons for the restructure, if required; carefully consider any alternatives suggested by potentially affected employees; have clear and justifiable reasons for not adopting any alternatives suggested by potentially affected employees; and consider whether the decision they are proposing to make is one which a reasonable employer could reach in the circumstances.
Employers will be required to provide documented evidence to support the restructuring proposal, alternatives considered, and cost-saving measures.
This case is a warning to employers that they will increasingly be called to account for decisions they make, where those decisions affect the on-going employment of their staff
If you have any employment or HR queries that you would like assistance with, please email Wendy directly at: wendy@accordservices.co.nz

This article is intended as a point of reference and should not be relied on as a substitute for professional advice. Specialist advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this article.