Best practices for redundancies

13 Feb 23

It started in the tech industry last year when globally an estimated 120,000 layoffs were made by some of the world’s largest tech companies.

Meta, Amazon, and Netflix all cut thousands of roles and Google continued the trend in the first month of 2023 announcing it was cutting 10,000 of its staff.

Three-quarters (73 percent) of businesses surveyed by the New Zealand Institute of Economic Research anticipate economic conditions to worsen in the coming months. It’s the weakest result since the survey began more than 50 years ago, and principal cconomist Christina Leung told NZCity the trend is clear across all sectors.

Inflation remains steady

But last week when Statistics New Zealand revealed that inflation remained steady at 7.2%, commentators started predicting a soft landing, not a significant recession.

“Inflation may have peaked, and if it has peaked then this is at below what the reserve bank expectations were,” said John Farrow, partner at the law firm Anderson Lloyd in Dunedin, and while there has been talk of redundancies, he’s seen very little evidence of that so far.

“Certainly, some businesses that maybe have recruited a lot of people to respond to demand, where the demand has backed off, they will find that they need to look at the numbers,” he said.

But employers should be careful, said Farrow.

“One lesson I’ve learned over the years is that businesses should avoid a knee-jerk reaction,” he said. “It has a significant effect on staff morale, even if they’re not potentially affected. Simply watching their colleagues go through that sort of anxiety and stress impacts them.”

In 2015, a New Zealand employer was ordered to pay “distress compensation” to a former employee whose redundancy was found to have affected his mental health.

Mass tech redundancies have little to do with the bottom line and are the result of copycat behaviour and “social contagion,” according to Stanford Graduate School of Business professor Jeffrey Pfeffer, as companies almost mindlessly copy what others are doing.

Best practices

Farrow said the first step is to do a really good business case analysis. That means asking: What you are seeking to achieve? Are there other areas in which you can save cost such as fixed overheads? And is this a long-term or short-term plan?

“I would look at other areas to save costs, and leave staff as the last resort,” said Farrow. “Is it a long-term projection that you’re responding to or is it short-term? Because if you lose really good, experienced staff and then you suddenly need them again, they’ve probably moved on to another business or even another career.”

And consulting with employees also makes good sense.

“A lot of businesses think that’s just a process we have to go through and it’s a lip service but if you do that process properly, you may find that they have some really good insight, and it may be that they come up with solutions that save their job,” said Farrow.

The primary legal obligation at this point is to set out what your proposal is, what the rationale for it is, and provide any supporting information backing that up.

“If it’s for financial reasons,” he said. “Then there’s some obligation on you to provide those financials so the staff member can look and understand before they give their feedback and when you receive the feedback, you need to consider it genuinely rather than brush it to one side.”

It’s also important to understand what’s meant by “redundancy.”

“People often say, ‘I’m going to make Joe redundant’, but that’s not actually legally correct,” said Farrow. “It’s the position that is made redundant. So, your focus should be on whether or not you need the position, those position responsibilities, and those tasks performed. That’s a full redundancy. If you need some of those tasks performed, but you don’t need all of them, then that’s what we call a technical redundancy.”

Despite taking the appropriate steps, employers still face the risk of personal grievances from employees.

“Even a well-done restructuring process, a genuine one where you’ve done it properly, runs the risk of receiving a personal grievance at the end of it,” said Farrow. “Certainly, from our experience, it’s not uncommon. When someone is backed into a corner, they often don’t have any alternative but to fight that decision.”


Want to know more?

If you have any questions about this article, please contact John Farrow or our specialists Employment Team.

PDF version: here.

This article appeared in HRD (Human Resources Director) NZ on 2 Feb 2023.

For more information contact:

John Farrow