With the upcoming 2023 New Zealand October elections, and the potential for a change of government, businesses are navigating a rapidly evolving economic landscape. In such a dynamic environment, the notion of restructuring a business has become increasingly common.
Companies may consider restructuring to mitigate financial challenges or enhance operational efficiency, and these decisions can be significantly influenced by the political and economic climate. When contemplating a restructuring effort, both employers and employees need to consider the "why" and "how" of the process.
Here are some key considerations:
The Reason for Restructuring: When a business contemplates a restructuring, it must have a genuine and compelling reason for doing so. This reason must be communicated transparently to all affected employees. The term "genuine" is defined by the case of Brake v Grace Team Accounting [2013] NZEmpC 81 as whether "the fair and reasonable employer could have come to the decision in all of the circumstances."
A genuine reason for restructuring typically falls into one of these categories:
1. Financial Reasons: With economists signaling the possibility of New Zealand entering a recession in 2023, businesses may face cashflow challenges. Before proposing a restructuring for financial reasons, companies should consider the following:
Is there a demonstrable problem with the current and projected financial position of the company?
How reliable is the information being relied upon?
What changes can reasonably lead to the desired outcome? Multiple options should be considered.
Who are the parties affected by each option?
Can affected employees be redeployed within the organization?
2. Operational Reasons: If an employer seeks to streamline its operations through restructuring, they should address these questions before making a decision:
What aspects of the current organizational structure need improvement?
How can these aspects be enhanced?
What changes can reasonably achieve the desired outcome, and multiple options should be explored?
Who will be impacted by each option?
If new roles are created, can affected employees be redeployed?
The concept of restructuring to address surplus staff, as illustrated in the case of Caddy v Vice-Chancellor, University of Auckland[2021] NZEmpC 129, emphasizes that employers should focus on positions rather than individual performance when making operational decisions.
3. Sale or Transfer of Business: In the event of a sale, whether through shares or assets, employers must consider the implications for employees. For a share sale, existing employment relationships usually remain unaffected. In the case of an asset sale, where the legal entity employing staff changes, this triggers a technical restructure. Employers must act in good faith and consult with affected staff.
Consider these factors when contemplating an asset sale:
Are there vulnerable employees (e.g., cleaners, security guards) whose employment must be transferred?
Do you want to include conditions in the sale and purchase agreement regarding employment offers to affected staff?
Will staff members transferring retain their original commencement date and annual entitlements?
How will you communicate information to affected staff?
What will be your course of action if some employees choose not to transfer?
These considerations serve as guidelines to help employers determine whether they have a genuine reason to restructure their business and make certain roles redundant. Identifying a genuine reason is the critical first step in deciding whether a restructure is necessary. Employers should act in good faith and avoid using restructuring as a means to bypass disciplinary or performance management processes. Employers must also adhere to a fair and reasonable process, as required by section 103A of the Employment Relations Act 2000.
To be deemed a fair and reasonable employer, the following steps are recommended:
Explore all available options before pursuing a restructure.
Create a change of business proposal for all affected staff.
Conduct a meeting with affected staff to communicate the restructuring proposal.
Encourage affected staff to provide feedback within a reasonable timeframe.
Consider and respond to the feedback received.
Explore redeployment options and communicate them to affected employees.
Communicate the final decision to all affected staff.
Implement the decision, whether it involves redeployment or termination.
After the decision is communicated, a fair and reasonable employer may provide additional support to affected employees, such as written references, time off for job interviews, or counseling.
In summary, clear communication of the reason for the restructuring, compliance with good faith obligations, and a fair and reasonable process are essential for employers when considering a business restructuring, especially in a changing political and economic landscape.
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