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Getting Redundancy Right

Published 17 Mar 2024

In the current challenging business climate, many businesses are facing the need to reassess their operations, margins, and overall viability. This often involves considerations of restructuring and, unfortunately, staff redundancies. For business owners, the decision to make staff redundant is among the most difficult they may encounter. Beyond the practical and procedural challenges, there are moral implications to consider when terminating someone's employment through no fault of their own.

Under the Companies Act, company directors are obligated to act in the best interests of the business. This may involve restructuring to adapt to changing circumstances. However, any termination of employment must be justified by a substantive reason, and it must follow a fair and due process.

In cases where redundancies are contested through formal channels, grievances typically focus on the procedural aspects rather than the justification for the redundancies alone. If faults are found in the process, the employer may be held accountable, leading to fines and compensation awards.

The Employment Relations Authority (ERA) recently had to decide in a case where Metropolitan Glass & Glazing Limited terminated a design engineer Yu Cheng for the reason of redundancy and got challenged by Cheng.

The case went against Metro Glass as it was decided that while Metro Glass had legitimate reasons for a redundancy it was procedurally unfair with their consultation and alluded to a potentially predetermined outcome.

Cheng was given an opportunity to provide feedback, which he did by October 26, 2022, but despite Cheng's questions and requests for further detail, Metro confirmed its decision to make Cheng's role redundant in a subsequent meeting on October 28, 2022.

The ERA said that “consultation during a restructure usually requires active ongoing communication between the employer and employee before any decision is made,” adding that “Metro did not meet this obligation.” The ERA continuing to add: “More time should have been afforded to Cheng to provide meaningful feedback. This was especially so given Cheng was only informed about the change proposal nine calendar days before Metro decided to make his role redundant.” It appeared the ERA had no problem with Metro's justification for being in a redundancy scenario saying “Metro had legitimate reasons for its change proposal and deciding to make Cheng’s role redundant. However, Metro did not provide him with sufficient opportunity to consider the proposal and provide meaningful feedback.”

Businesses undergoing restructuring or redundancies should aim for genuine consultation with affected employees throughout the decision-making process and with sufficient time. We strongly recommend having at least a week between consultation and decision making meetings. It's hard to demonstrate that you've genuinely considered staff's feedback and suggestions in less time. Merely going through the motions of consultation without considering employee input is insufficient.

Formal meetings should be conducted with adequate notice given to employees, who should also be offered support during the process. Documentation of each step, including minutes of meetings, is essential to ensure transparency and accountability. Ultimately, decisions regarding staffing rest with the employer, provided that fair processes are followed and any contractual obligations are met. Successfully challenging an employer's reasons for downsizing is difficult if these criteria are satisfied.

If you are facing or considering a restructure in some form we highly recommend consulting our 'Change Management' guide. It contains all our recommended letter templates including the important initial change proposal document. It's free to our members in the document library of the Employers Toolbox, non-members can purchase it here: