Redundancies in harsh times: are they ever fair?

22 May 2019

Vodafone New Zealand was recently acquired for $3.4 billion by Infrantil and Canadian firm Brookfield Asset Management. The deal is subject to regulatory approvals but is expected to be completed by the end of August.

Vodafone NZ chief executive Jason Paris says: "The key things will stay the same" including Vodafone's management team and people.

However, Vodafone has reportedly been preparing to make 200 call centre workers redundant. Some workers are being offered contracts to work from Christchurch for Indian outsourcing firm Tech Mahindra, which will provide services to Vodafone.

Unite Union alleges that the contracts contain less entitlements for employees and breach employment law.

Generally, the underlying reason for redundancies is the belief that the business can be run more efficiently with less or different roles.

Often when the purchase of a business is being considered, the decision to purchase or not will be influenced by whether the buyer thinks they can make the business more efficient.

Wellington is dominated by government departments and agencies. Appointments of new chief executives seem to almost inevitably lead to restructures of leadership as the new chief executive stamps their mark on the organisation, believing that with different leadership roles they can improve the organisation.

Whatever the context, any restructure must logically make the organisation more efficient. In the leading restructuring case, Grace Team Accounting Ltd somewhat ironically relied on erroneous financial calculations as the basis for a restructure.

Judith Brake, an accountant, was lured from KPMG to work for Grace Team Accounting.

Within six months the directors proposed her redundancy as they believed they were running a $61,000 loss. To make matters worse, Brake's redundancy was raised only 2.5 hours after she told her employer she had leukaemia.

When the calculations were checked it was revealed the business was actually making a $59,568 profit. In addition, two other employees resigned, covering the loss the directors thought existed.

The Employment Court found the employer's information was factually incorrect and it had not acted as a fair and reasonable employer. Brake was awarded $85,000 in remedies.

The Court of Appeal then confirmed the Employment Court's decision. Previously the courts would not scrutinise an employer's reason for restructuring so long as it was genuine. Since Brake's case in 2014, the courts look at the logic behind restructures and check it adds up.

Foreign acquisitions of Kiwi businesses often cause alarm and the fear of roles moving overseas.

Most employees have limited protections if their company is acquired. Employment law only requires that employment agreements set out the process the employer will follow when negotiating to transfer the workers to a new employer.

The protections are minimal except for workers in specified sectors vulnerable to outsourcing, such as cleaning, catering, or laundry.

If a business is sold, such workers are entitled to transfer to the new employer. However, for the vast majority of workers retaining their job is dependent on the arrangements made by their employer during the sale.

Where a business is purchased, arrangements to transfer employment must be handled carefully.

For example, a subsidiary of Carter Holt Harvey IT acquired a management company and the Employment Court found that an employee was employed by the new owner even though there was no employment agreement.

The sale of the business included an agreement that the new employer offer each employee employment on the same or better terms than their current employment.

The employee in question, Adrienne Olsen, received an offer but not an employment agreement. She continued working until the handover date and believed her employment would transfer.

However, when she turned up to work after the handover she was told her employment would not transfer as she was not needed.

The Employment Court held that the transfer arrangement applied and Olsen had accepted the transfer by her conduct. Therefore, she was employed by the new employer and it could not dismiss her.

Often when a business is sold there is no agreement the purchaser will take on all employees.

The minimal protections for most workers are concerning in the age of international investment firms and 'corporate raiders'. Businesses are acquired with the intention of 'trimming the fat' by reducing the costs of the business, such as its labour, by outsourcing or restructuring.

It is notoriously difficult to achieve fairness in redundancies. A family who has worked for an old, local company their whole lives will find it galling if there is a takeover and the new owners make them redundant and they receive no compensation.

In most cases workers only receive compensation if it is in their individual or collective employment agreement or the sale and purchase agreement.

Placing limitations on when people can be made redundant would too greatly impede the need for businesses to operate efficiently.

In the past there has been a minimum code for redundancy compensation which provided some cushion for people who lost their jobs. Yet the cushion quickly evaporates and the former employees are still without work.

It is a problem with no easy answer.