How to avoid costly mistakes in restructuring staff – Ruthi Bommoju

Restructuring staff can be a difficult process.

THREE KEY FACTS

• Unemployment is on the rise.
• Many employers are making staff redundant.
• Failing to undertake the right process can result in a personal grievance case.

There’s a right way and a wrong way to restructure a business.

As New Zealand’s largest employment relations specialist, this year the Employers and Manufacturers Association (EMA) has received a higher than average number of inquiries from members about restructuring and redundancies, reflecting the tough economic environment.

Restructuring is never pleasant; it can be complicated and time-consuming to manage. But if you fail to follow your obligations, you can end up with a personal grievance and, worse, a visit to the Employment Relations Authority (ERA).

While you’re entitled to make changes to the business, these must be genuine, supported with evidence, and implemented through a formal consultation process. That’s important, as employees can raise a personal grievance during the process or, more commonly, afterwards, when their employment is terminated for redundancy.

According to Thomson Reuters Westlaw New Zealand, recent statistics show that 65% of personal grievances were found in favour of employees. This includes personal grievances for unjustified dismissal determined by the ERA. The best way to avoid being on the wrong side of these statistics is to not end up in front of the authority at all.

To minimise that risk, it’s important that restructuring and redundancies are capable of being substantively and procedurally justified.

The authority typically will not second-guess your decision to restructure. Instead, it will look at whether there’s good evidence for what you’re doing. So, justifying the substantive reasons for your decision generally shouldn’t be an issue.to set out, upfront, to the affected employee all the areas of concern in a detailed proposal document, supported by relevant information.

The authority typically will not second-guess your decision to restructure. Instead, it will look at whether there’s good evidence for what you’re doing. So, justifying the substantive reasons for your decision generally shouldn’t be an issue.

However, some common mistakes include pursuing an ulterior or hidden motive, such as a restructure instead of performance management. This includes actions such as hastily preparing the supporting business case and rationale, or not verifying the data you’re relying on as the basis of your proposal, such as sales figures and revenue loss. Other mistakes include not ensuring an adequate selection process, or not consulting on the selection criteria used to inform the decision-making process where multiple roles are being disestablished.

Procedural justification is the “how” – it means showing how you went about implementing the proposed change and the steps you followed. Once you’ve given staff the proposal with supporting information, you need to allow them a reasonable opportunity to consider and comment on it. Let them know they can seek independent advice and have a support person during the process. Any feedback should be considered with an open mind, and any opportunities for redeployment should be identified, explored and considered before confirming the outcome.

Most issues tend to come up during the procedural aspect of restructures and redundancies because it’s the most time-consuming and requires multiple steps, which can trip you up.

A common mistake when dealing with procedural justification is predetermining the outcome, such as going through the motions of a “sham” consultation process, or wording the proposal in a way that indicates it was predetermined. Other errors include not consulting on the selection criteria and not explaining the weighting of the proposed criteria.

Failures in communication can also create problems for the employer, such as withholding or drip-feeding relevant information to support the business case, being unprepared or not anticipating obvious or contentious questions, and not being responsive and communicative in respect of those queries. In addition, not genuinely considering redeployment opportunities and rushing through the process may imply an ulterior motive.

It’s also worth noting that the average overall cost to an employer, in relation to an employee’s successful claim in the authority, is significant. Accordingly, it is important to ensure you are meeting your obligations.

Restructuring and redundancy processes can clearly become a contentious area of employment relations and should not be undertaken without careful planning and professional advice. This is particularly important for those who are not familiar with this area of employment law.

Accordingly, it’s a very good idea for employers to seek independent legal advice before embarking on a restructure.