As covid restrictions continue, many small and medium business owners will be at or near the limit of their reserves. It is not surprising that this situation can create a sense of panic and lead to rushed decision making.
Given that the biggest overhead for most businesses is salary and wages, it is inevitable that some employers will look to cut costs by making employees redundant. This happened after the 2020 national lockdown and it is happening again now. Unfortunately what we are also seeing is that some employers are not taking the care that they usually would when making changes which affect staff. Instead in some cases, good employment practices have been forgotten and employees made redundant with little or no consultation or exploration of alternatives.
I want to acknowledge how difficult it is for small and medium business owners at this time, many have mortgaged their homes and invested blood, sweat and tears into growing their businesses. It is understandable that the sense of panic that many must be feeling may lead to sub optimal employment practices.
However, running a proper process before deciding whether to make an employee redundant does not cost anything and will generally result in better decision making and reduce the sense of loss and unfairness felt by the staff concerned. It will also keep the employer out of the Courts and avoid potentially significant claims for compensation and lost wages.
Over the past 12 months the Employment Relations Authority has heard several cases relating to redundancies effected in the heat of the 2020 national lockdown. The overriding theme that has emerged from these cases is that even in the extreme circumstances of a lockdown an employer is still required to act in a fair and reasonable way and comply with usual employment laws.
In one such case, Gail Lees was made redundant from her position as an Ear Nurse with Sonova Audiological Care New Zealand Limited (trading as Triton Hearing). On 30 March 2020, less than one week after the lockdown started, Lees was advised by Triton that her role had been disestablished and that she was to be made redundant.
Managing Director of Triton, James Whittaker, said that when the country went into lockdown, his focus lay with protecting the business so that it could reopen and trade in the future. He said that in overseas countries affected by covid there had been a significant impact on business and he anticipated that the New Zealand clinics would be equally affected.
In seeking to reduce overheads the company made a decision to discontinue the wax removal service performed by its Ear Nurses as this was not a core business activity and was regarded as uneconomic.
This may well have been a legitmate business decision, but the company made it without consulting with Lees or any of the other affected staff, and without inviting their feedback. Literally the first that Lees knew about it was when she received a letter advising that her position was being disestablished.
During the hearing the company conceded that it had not followed the procedural requirements set out in the Employment Relations Act, which include giving affected employees access to all relevant information and an opportunity to provide feedback before decisions are made. However the company argued that the authority should view this in the context of the commencement of level 4 restrictions and the company’s genuine fears as to whether it could stay afloat.
Whittaker also said that it would be disingenuous to consult with staff when there was no prospect, at that time, of the ear wax service being continued.
The authority did not accept the company’s explanations and held even in the unusual circumstances of the lockdown, basic consultation obligations still applied. It said these obligations are mandatory and there was nothing preventing Triton from communicating with Lees (and other affected staff), even if it could not meet with her physically in person.
Further, the authoirty found that the lack of consultation meant that the company failed to consider alternatives to making Lees redundant, such as redeployment to other duties. For this reason the dismissal was found to be both procedurally and substantively unjustified, and Lees was awarded 3 months lost wages of $14 742, plus $17 000 as compensation for humiliation and distress.
This was an expensive lesson for Triton and should be a reminder to other employers to tread carefully. The bottom line is that an employer is entitled to make a decision to downsize its business and in some cases the need to cut costs may be urgent. However there is no excuse for not consulting with affected employees – this does not need to be a lengthly process but it does need to be a genuine one.
Once again the message to employers is clear, employment laws do not go out the window in covid times.