COVID-19 has taken a significant toll on businesses with its effects being felt in almost every single industry. As a result, its consequences will naturally have a flow-on effect to employers and employees. Many businesses may have to look at restructuring and reducing its number of employees in order to survive the next few months, which means employment laws must be complied with.
The legal test for establishing a legal termination of employment is to ask: would a fair and reasonable employer have done the same under the same circumstances? If so, then the employer’s actions would be justified under the Employment Relations Act 2000. As this requires a case-by-case evaluation, the circumstances of each particular case are of crucial importance. One minor factual difference between two otherwise identical disputes could result in two completely different results in terms of legality for the employer.
Broadly speaking, there are four criteria which need to be met for a dismissal to be legal:
- The redundancy must be genuine
This means the business must genuinely be in a position where its current structure needs alteration, which involves the disestablishment of some of its current positions. Reasons such as a significant downturn in sales and revenue, a loss of customers/suppliers, and/or a shift in market requirements will generally constitute a genuine reason for dismissal, provided the employer can prove this with supporting documentation and evidence.
- The employer must deal with the employee in good faith
Clear channels of communication need to be established during the consultation period. Employers must provide the relevant employee/s reasons surrounding their decision, and give them an opportunity to respond to the contents of the information before the final decision is made. The decision to dismiss cannot be pre-determined before consulting with the employee, otherwise this would constitute negotiations in bad faith.
- The employer must follow a fair and reasonable procedure
A fair and reasonable process includes:
- Complying with the terms of the employment contract/agreement and any internal policies (NOTE: the first step is always to consult the specific wording of each individual employment agreement, as procedures and policies surrounding redundancies and restructuring may already be specified)
- Ensuring clear lines of communication are established
- Documenting the employer’s business case, reasons and proposals as evidence
- Giving employees access to all relevant information
- Providing employees with a reasonable opportunity to consider and respond to any proposals
- The employer must consider all other practical alternatives before turning to redundancy as a last resort
Employers must genuinely consider all other practical options reasonably available to them before making the decision to dismiss. This is because an employer must explain and justify its decision to the employee during the consultation process. Other options could include reduced work hours, use of annual leave or leave without pay, or reaching some other mutual agreement with the employee to vary the terms of their employment.
In light of COVD-19, business (which have not already done so) may want to consider applying for the government wage subsidy scheme a first port of call. This support package was designed specifically to assist employers and employees following the financial disruptions of COVID-19. Employers are encouraged to make use of this package in order to keep their current staff employed. If an employer has made the decision to dismiss an employee/s before applying for the wage subsidy, then it is unlikely that a Court will find that the employer has considered all other practical options reasonably available to it prior to suggesting redundancy. For more information on the wage subsidy, please see our article titled ‘COVD-19 Employment issues: Wage subsidy’.
In a stressful and turbulent time for all, empathy and transparency goes a long way. However, if your business is forced to make someone redundant, as an employer you must ensure that the decision is substantively justified and procedurally fair. As with all employment matters, not getting the process right can be costly and draining for you and your business. If you would like some guidance throughout the entire process, whether you are an employer or employee, we are happy to assist.