13.08.2020

COVID-19 Redundancies: Cutting Corners Courts Censure

The Employment Relations Authority (Authority) has recently issued a determination that considers redundancies implemented due to the Government’s COVID-19 restrictions:  De Wys and Jenney v Solly’s Freight (1978) Ltd. 

The short point for employers is that redundancies made due to COVID-19 still require the employer to show that it acted in good faith, that it had substantive justification and it followed a fair procedure before dismissing on the basis of redundancy: that is, the orthodox employment law approach prevails. 

The Facts

Solly’s Freight (1978) Limited (SFL) provides transport, construction and earthmoving services. It has depots across Te Wai Pounamu (the South Island).  It employed Mr de Wys and Mr Jenney at its Ōtautahi Christchurch branch as a truck driver and yardman, respectively.

On 31 March 2020, SFL’s managing director wrote to all of its employees to explain the impact that the Alert Level 4 restrictions were having on the company’s operations.  In the letter, SFL explained that it had applied for the wage subsidy, but it had not received a response from the Ministry of Social Development (MSD) at that time.  The managing director noted that “[i]f the subsidy is received well and good, if not changes to our operations will be come absolutely necessary”. 

While SFL’s communications did not exclude the possibility of restructuring, it did not advise its employees that restructuring was in fact under consideration.  That day, at the direction of the managing director, SFL’s Christchurch branch manager had completed a list of Christchurch based employees who would be made redundant.  The list was based on factors including work ethics, absenteeism, equipment damage, attitude to the job and family situation.

The Authority found that by 2 April, SFL “knew or ought to have realised that it would soon receive the [G]overnment wage subsidy”.  Despite this, on that day Mr de Wys, Mr Jenney and 5 others were notified by SFL that they were being made redundant.  SFL gave Mr de Wys and Mr Jenney notice of two weeks, despite the employment agreements requiring four weeks.  SFL also contacted MSD and advised that 7 employees were “no longer with the company” and needed to be removed from its wage subsidy application.

Redundancy: the fundamentals 

For a dismissal to be justified – including in the case of a ‘no fault’ dismissal for redundancy – the employer must show that its actions, and how it acted, were what a fair and reasonable employer could have done in all the circumstances at the time of the dismissal: s103A(2) of the Employment Relations Act 2000 (Act).

In doing so, it must follow the criteria in s 103(3) of the Act, which the Authority described as “the statutory obligations to raise concerns, allow a reasonable opportunity to respond and genuinely consider any response before a dismissal is part of assessing whether SFL’s actions were those of a fair and reasonable employer”.  It must also provide access to all information that is relevant to its decision, and consult: s 4 of the Act. 

At its most basic, justification requires both a genuine, substantive reason, and procedural fairness.  As the Authority noted in this case, a business decision to reduce employee numbers is not sufficient on its own for an employer to meet the statutory test for justification of a dismissal.   

The statutory duty of good faith that underpins the Act requires an employer who is proposing to make a decision that is likely to have an adverse effect on the continuation of an employee’s employment to provide the employee with access to relevant information and an opportunity to comment on the information before the decision is made.

Mr de Wys

The Authority accepted SFL’s evidence that its business was affected by the COVID-19 restrictions for the foreseeable future, that there had been a reduction in business activity, and that, without more activity, this might have reasonably resulted in a business decision that SFL had more employees than needed.  

However, the Authority found that SFL did not comply with its statutory obligations.  In summary:

  • SFL failed to raise the fact that it wished to reduce Christchurch staffing with any of its employees. This was likely to have an impact on its employees’ ongoing employment, and so SFL was required to give access to the information relevant to the decision, and to then allow an opportunity for the affected employees to provide any comments on the information.
  • When an employer is intending to reduce headcount of employees in the same role, it is necessary to follow a fair process as to who will be selected from the pool of employees for redundancy. SFL did not advise its employees of the selection criteria it intended to apply, and proceeded to make a decision on the selection criteria without any input.  
  • SFL did not provide Mr de Wys with access to any information on these matters, including its negative view of his workplace behaviour that caused him to be included on the list for redundancy. He had no opportunity to comment.
  • The Authority noted that in SFL’s wage subsidy application (which initially included both Mr de Wys and Mr Jenney), it declared that it would use its best endeavors to retain the named employees in employment on at least 80% of their regular income for the period of the wage subsidy.  However, SFL took no endeavors to retain Mr de Wys and, instead, it excluded him from the wage subsidy application.
  • Despite SFL being a relatively large private sector employer with access to human resources expertise, legal and other advice, it failed to raise concerns, allow a reasonable opportunity to respond and genuinely consider any response before a dismissal. SFL failed to meet the s 103(3) requirements.

In summary, the Authority found that SFL failed to comply with the access to information or consultation requirements under s 4 of the Act: “the failure to comply with these good faith obligations makes the decision to dismiss Mr de Wys unjustifiable”. 

Mr Jenney 

The Authority found that SFL’s non-compliance with its good faith obligations was the overwhelming factor in Mr Jenney’s situation.  This included the fact that SFL did not provide Mr Jenney with any information about the circumstances which caused it to come to the view that it could no longer wait for the wage subsidy payment but needed to move to make Mr Jenney redundant.  

The Authority concluded that the section 103A(3) factors that applied to Mr Jenney’s dismissal were less significant than with Mr de Wys because SFL had a more positive view of Mr Jenney’s assessment against the selection criteria for redundancy.

Remedies

Mr de Wys and Mr Jenney were awarded of $10,000 and $15,000 as compensation for humiliation, loss of dignity, and injury to the feelings, and $18,907 and$14,132 in lost remuneration respectively. 

The awards for “hurt and humiliation” compensation were both shy of what the Employment Court has recently labelled as a “moderate” award.  The Authority assessed the effects suffered by Mr Jenney as more significant than Mr de Wys due to the comparatively more serious financial and relationship effects on Mr Jenney.  While the personal effects suffered by Mr de Wys, such as lack of sleep and motivation, were of some significance, they were assessed as relatively short lived on the facts before the Authority.

Although the Authority found SFL breached its good faith obligations by providing misleading information about job security and a lack of consultation, the breach was not sustained so as to result in a penalty. This was because the breach lasted little more than a week.  In the case of Mr Jenney, the Authority saw SFL’s breach of good faith as a single breach because all of its egregious actions in relation to Mr Jenney arose directly from his dismissal.  As such, the high threshold for imposing a penalty against SFL was not met.

Comment

 While the Authority recognised that SFL’s obligation to communicate in an open and honest manner may be affected by a global crisis, SFL was still able to make a wage subsidy application, communicate with its employees, and develop a redundancy selection criteria. 

It was reasonable to expect that SFL would have alerted employees to, and asked for their comment on, its consideration of a workforce reduction, its intention to adopt and apply redundancy selection criteria and exclude employees from the wage subsidy.  

No matter how good an employer’s reasoning may be, if it cuts procedural corners – even during a pandemic – it could be making its financial position worse when the dust settles.

If you have any questions about the subject matter of the article, please get in touch with our employment team or your usual contact at Hesketh Henry.

 

Disclaimer:  The information contained in this article is current at the date of publishing and is of a general nature.  It should be used as a guide only and not as a substitute for obtaining legal advice.  Specific legal advice should be sought where required.

 

 

 

 

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