Every day there is news of another employer closing its doors or making large numbers of people redundant. This has led to unions crying foul over what they perceive to be cynical attempts by employers to cut costs.
A recent example is The Postal Workers Union’s challenge to the decision of NZ Post to make its 750 posties redundant and engage contract couriers to perform this work. The union says that passing the buck to contractors is about money making rather than providing the best service.
They also argue that this may be in breach of the State Owned Enterprises Act which requires NZ Post to be “a good employer” and obliges it to operate “a personnel policy containing provisions generally accepted as necessary for the fair and proper treatment of employees in all aspects of their employment” as well as to exhibit “a sense of social responsibility”.
Further, the union claims that the contract couriers will effectively be operating as employees given that they will not have the flexibility that genuine independent contractors have, including around hours of work. This, they say, denies these workers basic employment rights but also undermines the rationale for the restructuring.
This raises questions as to what level of scrutiny should be given to an employer’s justification for restructuring. In particular, when an employer is claiming financial hardship, how much proof are they required to produce, and can they just disestablish roles to save money?
Historically the Courts have been relatively hands off in terms of second guessing an employer’s business decisions. In the context of restructuring the Court of Appeal said as far back as 1991 that employers can manage their businesses as they see fit. If a business can be run more efficiently without an employee, and that decision is arrived at genuinely, then that is a decision that an employer can legitimately make.
In terms of proving justification, the Court further said that it is not necessary for an employer to prove that the company would “go to the wall” without disestablishing roles, simply that the business would be more cost effective and/or efficient without them.
This seems like a low bar, but over recent years the Courts have demonstrated greater willingness to look into an employer’s decision making and justification for redundancies. This has included requiring employers to produce statements of their financial position and to demonstrate how and why restructuring certain roles will result in cost savings and to what extent. The Courts have also shown that they will scrutinise whether an employer’s commercial decisions are objectively sound.
Whilst the Courts have not gone as far as to overturn the fundamental principle that employers are entitled to make their own business decisions, they have pierced the veil and required proof that decisions have been made fairly, reasonably and based on sound financial information.
Employees facing a restructure should ask questions and seek information about the underlying rationale, if this has not been made clear. They should take the opportunity to critically analyse the employer’s commercial justification and check that the numbers make sense and add up.
Employers have traditionally been reluctant to open their books but if they are relying on their financial position to justify redundancies, they will need to be prepared to do so.
Coming back to the question, can my employer make my position redundant just to cut costs, the short answer is yes they can, but the decision needs to be a fair and reasonable one.
This article was originally published in The Post
