Courts increasing scrutiny on redundancies

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Disputed redundancies will face greater scrutiny should they come before the courts warn lawyers in light of a Court of Appeal decision.

The Court of Appeal has upheld a 2013 Employment Court ruling that a redundancy did not meet the test of justification under section 103A Employment Relations Act.

In the case Grace Team Accounting v Brake Brake joined Grace Team Accounting on the understanding her appointment as senior accountant would be a long-term position. However six months into the role she was informed the business was in crisis and redundancies were required.

However it was found that the decision to make Brake redundant was based on incorrect information. The calculation for the turnover of the business for the 2009/2010 financial year was discovered to be $120,000 higher than that originally calculated and Brake had been added to the restructuring proposal despite her having sufficient work to do.

Brake claimed her dismissal was unjustified and the Employment Court agreed. It found while Brake's redundancy was "genuine” and not a mask for an ulterior motive due to the incorrect information given to Brake in relation to the proposed restructuring, the redundancy was not what a fair and reasonable employer would have done, therefore the dismissal was unjustified.

Brake was awarded $65,000 for lost earnings and $20,000 for humiliation and injury to her feelings.

Grace Team Accounting appealed the decision arguing that the Authority and Courts should not be entitled to second-guess an employer's business decision where it has been held to be a genuine restructuring.

However, the Court of Appeal ruled the law on redundancy has changed with section 103A and employers are now required to adhere to the “explicit requirements for disclosure of information and consultation that now apply in redundancy situations”.

“Whatever may have been the case in the pre-s 103A environment, the clear words of s 103A now require the Employment Court to determine on an objective basis whether the employer’s actions and how it acted were what a reasonable employer would have done,” the findings state.

The ruling has resulted in employment lawyers issuing warnings that for redundancy decisions to be justified they must be based on accurate factual information as well as genuine reasons.

Simpson Grierson senior associate Rebecca Rendle explained that employer decisions in relation to redundancies could now potentially be subject to even greater scrutiny from the Authority and Court.

“What this means for employers is that there may now be increased compliance costs in redundancy processes. The need to have a genuine reason for a redundancy has not changed, but the level of disclosure and consultation required to justify a dismissal on the grounds of redundancy, appears to have just got significantly higher,” she said.

However employers should take note that the Court of Appeal did state in its findings that “if an employer can show the redundancy is genuine and that the notice and consultation requirements of s 4 of the Act [regarding good faith] have been duly complied with, that could be expected to go a long way towards satisfying the s103A test.”

Related articles:

Spotlight on redundancy law

An insider's guide to managing redundancies

When is a genuine business decision not a fair and reasonable decision?

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