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Restructure Advice

Any business aims to maximise efficiency and reduce costs. Sometimes this will require a restructure.

However, employers need to plan their actions very carefully when restructuring.

Riley v Wholesale Cars Direct[1]

The recent case between Peter Riley and Wholesale Cars Direct is an example of an employer really dropping the ball. The size of the cost order shows that the ERA condemns employers who fail to follow correct processes.

Wholesale Cars conducted a round of performance reviews after which an email was sent to all staff with statements such as “I can make anyone redundant very easy” and “I’ll replace the weak, I’m tired of being pulled down”.

After receiving this email Riley returned to work and had a meeting with Wholesale Cars’ director Gargz Young which quickly turned hostile.

Riley was suspended without pay. When he returned to work three days later he was given a letter informing him that a restructure had taken place that week and his job was now surplus to requirements.

In the meantime, an email had been sent out to all staff mentioning Riley’s suspension and describing the review process as “the most disappointing I have ever experienced but the largest let down ever ... being Pete”.

Wholesale Cars were unable to provide evidence showing a genuine basis for redundancy. Instead the Authority concluded that Riley’s redundancy was the result of ill feelings between him and the director of Wholesale Cars.

The ERA awarded 11 weeks of lost wages because of the unjustifiable dismissal as well as $12,000 in hurt and humiliation because of Wholesale Cars’ failure to adhere to procedural fairness requirements in the Employment Relations Act 2000.

Restructure Guidelines

To avoid employment disputes a restructuring decision needs to be justifiable both in terms of grounds and process.

The Authority emphasised the need to establish substantive grounds on which the company genuinely declare a position redundant. Showing financial records or accounts demonstrating need for a cost-saving restructure, and/or recent correspondence explicitly referring to a future restructure will help and employer here.

In a redundancy situation, the Act also requires employers to provide affected employees with information about the proposed decision and give them an opportunity to comment before the decision is made.[2]

Employers need to be conscious of how they communicate with staff through a restructuring process. Wholesale Cars’ group email was the cause of significant embarrassment to Riley which escalated the hurt and humiliation awarded.

The message from Riley is not to rush in to any restructure or redundancy. Seeking advice from an employment law firm means you can rest assured your process is defensible.

1 June 2017

[1] Riley v Wholesale Cars Direct (4 x 4) limited [2017] NZERA Wellington 35 3000062

[2] Section 4(1A)(c).

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