Redundancy - get the law right!

Sianatu Lotoaso, Associate at Dundas Street employment lawyers, outlines the crucial factors in approaching redundancy situations correctly.

Earlier this year, it was reported that Microsoft announced by a mass memo that 10,000 staff redundancies would occur,which is almost 5 per cent of its workforce. Microsoft is the latest big tech company to announce mass redundancies, after Amazon, Meta and Twitter. More recently, and locally, online investment platform Sharesies is reported to have proposed a restructuring with job cuts to be likely.

In times of a recession, more job cuts may well follow.

Employers who simply announce redundancies as a “done deal” without any form of consultation will expose their businesses to expensive legal claims for compensation and lost wages. The courts have made it clear that an employer’s inability to make payment will have no bearing on the remedies awarded to an employee who successfully establishes a personal grievance. This makes an already bad situation worse, considering the business’s financial struggles likely triggered the redundancy in the first place.

To thrive in a recession means getting the law right when it comes to redundancies. Proactive legal advice around your obligations as an employer, early on, will minimise the risks of your proposed changes becoming a liability. When it comes to redundancies, employers must:

• have a genuine business case forchange (substantive justification)

• follow fair process (proceduraljustification)

• consider alternatives to dismissal,including redeployment into asuitable role that the employee could do.

Genuine business case

Since 2013 the EmploymentRelations Authority and courts arenow able to investigate the merits ofan employer’s commercial rationale for a restructure decision. The leading decision on this is the Court of Appeal’s Grace Team Accounting v Brake.

In Brake, Brake was provided with a proposal to make her redundant after six months of employment that was based on financial data recording a loss of around $60,000 in the financial year. Brake showed that the decision to make her redundant was based on incorrect information (Brake was an accountant, after all), and Grace Team Accounting had actually made a profit of around $60,000. This error meant that the redundancy could not be substantively justified. But could the courts investigate an employer’s business rationale for a restructure? The Court of Appeal confirmed that the Authority and courts could pierce the corporate veil to test an employer’s reasons for making an employee redundant. This means employers must take care to ensure that they have a sound commercial rationale for a restructure that can withstand prying judicial eyes.

Fair process

As mentioned above, employers must also follow a fair process, which includes meeting their duty of good faith. The duty of good faith requires an employer who is considering a redundancy to provide the employee with information relevant to the decision and relevant to the continuation of the employee’s

employment, and provide the employee with an opportunity to comment on that information before any decision is made.

In Innovative Landscapes (2015) Limited v Popkin, the Court held that, although there were genuine reasons for the redundancy, the procedure was fatally flawed. These procedural failings included the company director:

• not consulting with Popkin about the possibility of redundancy before he made his decision; not considering if there were any alternatives to dismissals

• not providing Popkin with any information to enable her to understand and engage meaningfully in a consultation process

• not obtaining Popkin’s views and considering them with an open mind before he made his decision.

Alternatives to redundancy

This part of the process is often overlooked. Even if an employer has a genuine business case and follows the correct procedure, they may still fall at the final hurdle if they do not carefully consider alternatives to redundancy, including redeployment to other suitable roles. This includes considering and genuinely consulting with an employee about suitable roles that the employee could do, including vacancies within the business or new roles created by the restructure. It also includes, and is equally important, engaging with an employee about why you have decided these roles are not suitable either.

Employers who do not meet their employment law obligations could be held to account when all of it is over.

Sianatu Lotoaso is an Associate at Dundas Street Employment Lawyers. Sianatu provides advice on all aspects of employment law and the employment relationship. Sianatu regularly provides advice to a range of clients in the public and private sectors.