It can be tempting for employers to deal with difficult or poor performing employees via a restructuring / redundancy process instead of using the (sometimes) more challenging disciplinary or performance management processes. However this is an area the Employment Relations Authority is now looking at far more closely. As an Invercargill employer recently found out, dismissing an employee for redundancy where that is not genuine can have costly consequences.
The employer, Rayner Ltd, received a formal complaint from an employee, Clearwater. Clearwater complained that another employee, Thompson, had made comments to other employees about her profile picture on Tinder. Clearwater said those comments were untrue and offensive.
Rayner investigated and concluded that there was insufficient evidence to substantiate Clearwater’s complaint. Clearwater was unsatisfied with the way the investigation was carried out, and the outcome. She raised a personal grievance against Rayner Ltd for unjustified disadvantage.
Before responding to Clearwater’s grievance claim, Rayner Ltd met with her and told her it was considering a restructure and that her job could be disestablished. Following a consultation process with Clearwater, Rayner disestablished her job. Clearwater claimed unjustified dismissal.
Shortly after terminating Clearwater’s employment Rayner hired a new employee to do many of the tasks her role had involved.
Unsurprisingly, the Authority found the redundancy was not genuine. There may have been genuine and reasonable grounds for the restructure, but the surrounding circumstances led the Authority to conclude it had been carried out for the ulterior motive of removing Clearwater from employment.
The Authority awarded Clearwater $30,000 compensation, and three months lost wages. The lost wages claim was capped at three months, because Rayner Ltd later ceased trading and the Authority accepted that Clearwater would have been made redundant eventually.
Lessons
Employers considering terminating an employee for redundancy must take care that they have genuine, reasonable grounds for doing so, and those grounds will stand up to scrutiny if challenged. Don’t just focus on whether there is a good business case for the redundancy (although that is very important). Ask whether the restructuring process could be viewed as a way of removing the employee easily, for different reasons. If it is, you will want to have a rethink. Have you got the timing right? Do you need to deal with the other situation first (for example, in this case Rayner Ltd should have at least responded to Clearwater’s grievance, before doing anything else)? Should you be using a redundancy process at all?
Any suggestion a redundancy is not genuine risks a finding the dismissal is unjustified and therefore could result in significant awards of compensation and lost wages.
Does this mean I can’t commence a genuine redundancy process if I have raised performance concerns?
We wouldn’t go that far, although starting a redundancy where there are performance concerns does make things a little harder, and potentially more challengeable, so you want to be careful.
Every situation depends on its facts, but we normally advise clients to deal with genuine issues as they arise, through the proper process. If there are performance concerns that need to be raised – don’t hold back. Deal with them (either formally, or informally, as they deserve), even if you know that a redundancy process may be just a few weeks around the corner.
Similarly, if you have been performance managing someone and then a need to restructure arises, go ahead – don’t hold back simply because of the performance process. However an employee in this situation is going to smell a rat, even if there is no rat (wouldn’t you?). Therefore you will want to handle the restructuring process more carefully.
What does that mean?
First, expect to do a bit more work explaining to the employee why you think a change is needed, and why you think now is the time to make that proposed change. Have the paper work to back that up.
Consult genuinely, and meaningfully – don’t try and just ram the proposal through. Be seen to be open minded (the best way to be seen to be open minded is, of course, to actually be open minded).
Be transparent and straight forward – for example, it’s often best to name the elephant in the room, rather than ignoring it (“we have raised issues about your work quality, as you know, but this restructuring process has come about because there’s a wider business need to make changes to….”).
Be sensible about timing. Starting a restructuring process soon after receiving a grievance probably is never a good idea (unless you can show you were all set to start prior to receiving the grievance). Similarly, and despite what we said above, there is a place to hold off – a performance meeting on Monday followed by the first notice of a restructuring process on Wednesday probably isn’t great, so perhaps that’s a situation where you can just put the performance concerns on ice, and see what happens with the redundancy process.
Lastly there are many restructuring situations where performance is relevant, because (if the change goes ahead) you will be picking who stays based on who is the best performer. In that sort of situation you again want to be transparent, but also sensitive - in these situations the strict legal approach often does a fair bit of damage, so a more subtle (but still legal) way of dealing with the employee can work better for everyone. Ideally you’ll also have some sort of background you can point to when justifying why Bill isn’t as good as Sally or Steve (“we’ve had to talk to you on three occasions over the last six months about the quality of your reports”). Again though, that isn’t absolutely essential – a lack of performance reviews and meetings won’t normally prevent an employer from making a fair and reasonable assessment about who out of the potential employees is the person or persons best suited to the available roles in the new structure.
These issues are often difficult, and nuanced. If you are an employer considering a redundancy process, or are an employee who is facing a restructuring / redundancy proposal, please contact our employment law team for assistance.
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