Legal landscape on redundancy changing

The Dominion Post - Wednesday, 10 July 2013

Readers may be aware that big changes are afoot at New Zealand Post.

The state-owned postal service is discontinuing 500 part-time and full-time roles. Although 380 new roles will be created, that still leaves a net loss of 120 positions.

NZ Post is blaming the cuts on a decline in mail volume which is a result of an increased use of digital communications.

Wellington is a city that is affected more than most by restructuring. Many readers will have been affected by public sector restructuring either as employees whose jobs were affected or as managers overseeing the process.

However, a flurry of redundancy cases heard by the Employment Court recently may have an impact on New Zealand Post's proposals and will certainly affect restructuring in general.

The most recent is a case involving Judith Brake and Tauranga-based accounting firm Grace Accounting.

Brake had been recruited by Grace Accounting from KPMG to work as a senior accountant. However, the employer - shortly after hiring Brake - came to the view that it could not sustain its current staffing levels. Consequently, just six months into her employment, Brake's position was disestablished.

The employer claimed that it made the decision due to its financial position deteriorating significantly after Brake began her employment as a result of both the recession and a loss of clientele.

Brake challenged her redundancy in the Employment Court, which found that it was not justified. In his decision, Judge Travis said he could find no convincing evidence that the company's position had deteriorated significantly over the six months Brake was employed.

After examining evidence, the judge also found that the company had miscalculated its financial position, which it had relied upon when reaching its decision, by more than $120,000. It also hadn't provided

Brake with concrete proposals for avoiding redundancy. So redeployment or other options should be explored. Another area of risk for employers.

Brake was awarded $65,000 for lost wages and $20,000 compensation for hurt and humiliation - overall a high award for a redundancy case.

These recent cases appear to alter a relatively settled area of employment law. Courts previously have been able to inquire into the genuineness of a redundancy. However, so long as restructuring was not used to service ulterior motives, the merits of an employer's commercial decision would be left alone by the courts.

This principle was established in a 1991 case brought against G N Hale & Sons by the Wellington Caretakers Union.

The case concerned a Mr Shrubstall, who was employed as a cleaner. After looking at its figures, his employer came to the view that its financial situation could no longer justify Shrubstall's continued employment.

The employment was accordingly terminated and a cleaning contractor was engaged at a lesser cost.

The Caretakers Union brought a claim against G N Hale on behalf of Shrubstall.

Initially, the then Labour Court found in favour of the union. Chief Judge Goddard said that unless the employer's business was up against the wall financially, it could not restructure.

The Labour Court's decision was challenged in the Court of Appeal, which decided that it was not for the court to substitute its business judgment for that of the employer. If the employer genuinely considered the employee to be superfluous, then a redundancy decision would be justified.

As a result of the Grace Accounting decision, employers will now need to have a genuine business case that can stand up to judicial scrutiny if they wish to make employees redundant.

The Employment Court decided that the statutory test of justification, introduced in 2004, has changed the legal landscape to necessitate a shift from the Hale decision. The result is that it has given a measure of protection to workers in an area where previously an employer's decision would be hard to challenge.

Given the significant sums of money involved in restructuring, it is only a matter of time before our appeal courts are again asked to look at the issue.

NZ Post appears to have a strong economic argument to justify its decision.

However, its case may still be subject to careful scrutiny.