In
Totara Hills Farm v Davidson Chief Judge Colgan held that the Employment Court and the Employment Relations Authority (ERA) are required to examine the commercial justification behind a decision to make Employees redundant as well as the procedural requirements in carrying out the redundancy.
Previously, it has been assumed that neither the Court nor the ERA could probe into the commercial justification for making an Employee redundant, as long as the decision was genuine.
In
Totara, Mr Davidson commenced his employment as a unit manager on 11 August 2009. Other staff on the farm included a Senior Stock Manager (who was also responsible for another farm site) and a shepherd.
On 3 September 2010 the Employer met with staff, and informed them it needed to cut costs due to the current financial situation brought about by a combination of drought, poor prices, and that the future outlook looked generally bleak. The Employer asked if they had any ideas to cut down on costs. On 7 September 2010 they had another meeting where staff made suggestions.
On 1 November 2010, the Employer held another meeting, and informed staff that one of the managers’ positions would be made redundant. He then had another meeting with them on 8 November 2010 where staff were invited to provide input. Mr Davidson was told that he was made redundant on 9 November 2010.
In this case Chief Judge Colgan analysed the legislative requirements under section 103A of the Employment Relations Act 2000, which sets out the test for unjustified dismissals. The test is whether the Employer's actions, and how the Employer acted, were what a fair and reasonable Employer could have done in all the circumstances at the time the dismissal or action occurred.
The Chief Judge also discussed his earlier decision in
Simpsons Farms Ltd v Aberhart. His Honour held that the decision in Simpsons may have been interpreted to mean that Employers need only to “persuade the Authority or the Court that the decision to declare a position redundant” is a genuine business decision and not a charade. Thus, until now, Employers have argued that the Court or the ERA can only look at the procedure followed in implementing a decision. His Honour confirmed that this was not the case, but rather section 103A, enables and requires the Court or Authority to objectively assess the entire situation. He confirmed that;
- By applying the test in section 103A of the Employment Relations Act 2000, the Court or the ERA can assess whether what was done, and how it was done, were what a fair and reasonable Employer could have done in all the circumstances at the time;
- The principle from GN Hale & Sons Ltd v Wellington Caretakers IUOW, where it was held that the Court cannot substitute its own decision with that of the Employer, still applies
- Therefore, the ultimate test is what a fair and reasonable Employer could have done, and how, rather than the Court or the ERA's own assessment of the circumstances.
Comment:Section 103A provides that the test is whether the Employer's actions, and how the Employer acted, were what a fair and reasonable Employer could have done in all the circumstances at the time the dismissal or action occurred. The test is quite broad and appears to have the scope to allow the Court or the ERA to assess the merits of the Employers’ actions and determine whether it was what a fair and reasonable Employer could have done. It therefore, seems like the decision has clarified the Court’s position on the matter, and that perhaps the previous decision in
Simpsons may have been misconstrued.
For further information on redundancies please refer to our 'Downsizing and Redundancies' book online. This is available in the library section of our Employers Toolbox for our Employers Support Package members.