9.05.2018

Redundancy Wake Up: Court of Appeal Upholds Employment Court Decision

Redundancies have been a hot-button issue over the past 18 months, with no fewer than four Employment Court decisions dealing with them.  The Court of Appeal has now weighed in, and made findings that are important to employers and employees alike.

As we discussed in a previous update (Redundancy – Employer Judgement or Court Judgment?) in mid 2013 the Employment Court found that a number of redundancies were, in fact, unjustified dismissals.

In reaching these decisions, the Employment Court focused on the substantive reasons and the employers’ actions in the lead up to the redundancy.  To some, this represented a departure from established principles – previously, the Employment Court had not questioned an employer’s decision provided it was for genuine business reasons.

These cases have traversed the Government’s amendment to the Employment Relations Act on 1 April 2011 that changed the test for justification from “what a fair and reasonable employer would have done” to the far wider set of options “what a fair and reasonable employer could have done”.  This amendment followed criticism from employer groups that the “would” test allowed the Employment Court to step into the shoes of the employer, and replace an employer’s business judgment with its own.

One of the four cases, Grace Team Accounting Ltd v Brake, where the employer’s actions pre-dated the amendment, was heard by the Court of Appeal, which has just released its decision.  The Court of Appeal comprehensively upheld the Employment Court’s findings.

Background

Ms Brake was lured from KPMG to take up employment with Grace Team Accounting (GTA).  Within six months GTA proposed her redundancy.  The basis for the redundancy was a downturn in business.

GTA intended to put in place an action plan that was to involve a comprehensive review of the financial state of its business.  Mr Grace, who was one of the directors, subsequently carried out some calculations and thought that the business was in trouble (in fact, that it was making a loss of some $60,000).

After requests for information by Ms Brake, GTA provided Mr Grace’s summary showing its plight.  As it turned out, that information was neither detailed nor accurate and the losses it showed were actually a profit in the same amount.  That information was not deliberately misleading; the Employment Court found that Mr Grace, who had prepared it, genuinely believed the business was in trouble.

In addition, during the process, two other employees resigned, which would appear to have resulted in sufficient salary savings to cover the shortfall GTA thought existed.  GTA never explained why those savings were not sufficient and why it needed to continue to make Ms Brake’s position redundant.

The Employment Court held that GTA was acting genuinely (based on a mistake).  However, had it put into place its action plan (which it had considered) before it commenced the redundancy process, then it would have properly and accurately calculated its true position and the redundancy would not have been required.  In addition, if Ms Brake been provided with the relevant information about the state of the business (sufficiently detailed source information) and given the opportunity to comment on it, then the inaccuracy in Mr Grace’s calculations may have been discovered.  The Employment Court also considered that the redundancy could have been avoided if GTA had paused and properly considered the difference the two employees resigning would have made.

The Employment Court concluded: that “the material provided by the defendant… was factually incorrect and misled the plaintiff to conclude that her redundancy dismissal was inevitable”; and that a fair and reasonable employer would not have acted the way that GTA did.  Ms Brake was awarded over $85,000 in remedies.  GTA appealed the decision to the Court of Appeal.

The Court of Appeal

The Court of Appeal found that the Employment Court had applied the correct test under section 103A for justification of dismissal on grounds of redundancy.

As Ms Brake was made redundant before the change in terminology from ‘would’ to ‘could’ (referred to above), the Court of Appeal had to specifically consider the issue under the earlier test.  However, the principles the Court expressed are equally applicable to redundancies under the current ‘could’ test in section 103A.

To the Court of Appeal, the “clear words of section 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”.  In short, the test for justification applies to all dismissals, including redundancy, and it is not enough for an employer to simply say that the decision to dismiss was reasonable – as the Court of Appeal noted, the Employment Court cannot discharge its responsibility under section 103A by simply accepting the employer’s word.

Given the explicit requirements for disclosure of information and consultation in redundancy situations, the Employment Court will have in front of it the information provided to the employee to justify the redundancy.  This information will allow the Employment Court to assess whether, on an objective basis, the decision to dismiss due to redundancy was one that a fair and reasonable employer could have made.

The Court of Appeal noted that:

“If the decision to make an employee redundant is shown not to be genuine (where genuine means the decision is based on business requirements and not used as a pretext for dismissing a disliked employee), it is hard to see how it could be found to be what a fair and reasonable employer would or could do. The converse does not necessarily apply. But, if an employer can show the redundancy is genuine and that the notice and consultation requirements of s 4 of the Act have been duly complied with, that could be expected to go a long way towards satisfying the s103A test.”

In other words, the Court (or the Authority) will still need to consider the genuineness of the employer’s business decision, and the focus will need to be on the objective standard of a fair and reasonable employer.  As the Court of Appeal put it:  “…the subjective findings about what the particular employer has done in any case still have to be measured against the Employment Court’s assessment of what a fair and reasonable employer would (or, now, could) have done in the circumstances.”

What does this mean for you?

Employers making a well-considered, well-researched, genuine decision to restructure, and following a fair process of providing information and consulting with potentially affected employees, will have nothing to fear from the Court of Appeal’s decision.

On the other hand, employers making non-genuine, rash, or rushed decisions to make employees redundant can expect to have their decision very closely scrutinised.  The Authority or Court will not substitute its business decision for that of the employer, but it will use the objective test to make sure that a “fair and reasonable employer” could have reached that decision, and could have behaved in that manner.  This means that the reasons for the decision and the information that is relevant to that decision must add up objectively.

If you are in any doubt about your obligations or are proposing a restructure, please give us a call.

Do you need expert legal advice?
Contact the expert team at Hesketh Henry.
Kerry_100x100 1
Media contact - Kerry Browne
Please contact Kerry with any media enquiries and with any questions related to marketing or sponsorships on +64 9 375 8747 or via email.

Related Articles / Insights & Opinion

Bereavement Leave Confirmed for Miscarriages and Stillbirths 
New Zealand has become the second country in the world to pass legislation that provides bereavement leave for mothers and their partners after a miscarriage or stillbirth.
26.03.2021 Posted in Business Advice & Employment Law
Court of Appeal Overturns Employment Court’s Decision in Tourism Holdings
Tourism Holdings Limited v A Labour Inspector of the Ministry of Business, Innovation and Employment (Tourism Holdings) is the first decision in which the Employment Court considered section 8(2) of the Holidays Act 2003 (Act). The Court of Appeal has recently overturned this decision.
26.03.2021 Posted in Business Advice & Employment Law
Guarantees must be in writing and signed to be enforceable
For a guarantee to be enforceable, the requirements set out in section 27 of the Property Law Act 2007 (Act) must be strictly complied with.  This is what the NZSC held in Brougham v Regan. The key i...
19.03.2021 Posted in Business Advice
UK Supreme Court Delivers Decision on Uber Driver Employment Status
The distinction between employee and independent contractor can be complex, particularly where the nature of the business model blurs the lines of standard employment practices.
16.03.2021 Posted in Business Advice & Employment Law
Holidays Act Overhaul – Taskforce Recommendations
There have been calls for an amendment of the Holidays Act 2003 (Act) for some time.
16.03.2021 Posted in Business Advice & Employment Law
Unwanted Land Covenants and Easements: Seeking a Court Order
The Supreme Court recently considered an application by Synlait Milk to modify a land covenant restricting the burdened land use to farming, grazing and forestry operation to protect the ability of the benefited land owner to develop a quarry.  This article looks at the circumstances in which the courts might give relief to parties in an application to extinguish or modify a covenant or easement.
15.03.2021 Posted in Property Law
New ICC Arbitration Rules 2021 come into force
The revised International Chamber of Commerce (ICC) Arbitration Rules for 2021 (2021 Rules) have now come into force and apply to all ICC arbitrations begun after 1 January 2021.  While the new Rules...
10.03.2021 Posted in Litigation & Dispute Resolution
Send us an enquiry
For expert legal advice, please complete the form below or call us on (09) 375 8700.
  • This field is for validation purposes and should be left unchanged.
-->