Can an employee still be made redundant if another employee resigns during the restructure process?

A recent Employment Relations Authority determination highlights the importance of considering any changes in circumstances, such as employee resignations, during a restructure. It is also a reminder to avoid letting factors that haven’t been consulted on form part of the decision making.

Facts

Mr Penny was one of five employees in the software development team.

Frello Ltd was in a poor financial state, and decided to restructure to address the situation. Frello advised staff of the restructure proposal which involved reducing the team from five members to three. Two other positions were to be disestablished, and a new position would be created.

Because the team were all in the same situation of being in a pool of people who may have their position disestablished, a selection criteria process was to be followed. The selection criteria included factors such as length of service, attendance, whether there were any performance or disciplinary issues, attitude and work ethic.

Frello advised there were two possible outcomes:

• Contest for one of the 3 roles. If unsuccessful, you would likely be made redundant; or
• If you did not want to be considered for one of the 3 roles, there were unlikely to be any alternatives to redundancy, but Frello was open to discussing any suggestions.

Mr Penny gave feedback on the proposal, and expressed he wished to be considered for a role.

Frello acknowledged in evidence that Mr Penny had scored highly on the selection criteria, and was considered to be a very experienced member of the team. Nonetheless, he was informed that he had been unsuccessful in retaining his position and he was to be made redundant.

Mr Penny raised a personal grievance, alleging his dismissal was not justified. He sought compensation and lost wages.

Employment Relations Authority

Problematically for Frello, there was evidence that another employee in the software developer team had resigned (either before the proposal was announced, or during the process-the timing was disputed).

Mr Penny also gave evidence that the same day he was made redundant, a second employee in the software development team told him they had also resigned earlier in the week. Frello disputed this, stating the employee had indicated they were considering resigning, but had not actually resigned.

In any event, the Employment Relations Authority noted that the proposal was to reduce the number of software developers in the team from five to three. It transpired that one developer had already resigned, so the information consulted on was incorrect.

Further, if the second developer also resigned, there would only be three developers left in the team. That would have meant the proposal’s objectives could have been met without making any developers redundant.

The Authority understood Frello’s position that any reduction in salary was going to help with the financial position, however noted the obligation to consult and provide all information relevant to a redundancy decision was fundamental for an employer seeking to justify its actions.

The Authority stated “consulting on incorrect information and failing to consider a significant change in circumstances so close to the final decision being made in this case has a direct bearing on the genuineness of both the consultation about the restructure proposal and the decision making”.

A further problem arose for Frello when it admitted in evidence that it looked at salaries as part of the wider context. Salary was not listed in the selection criteria as a factor that was being considered. Frello gave evidence that the employee who had indicated an intention to resign was earning significantly less than Mr Penny, and it wanted the other employee to stay because of his experience. The Authority was critical of Frello for considering this information without consulting with Mr Penny on it.

Ultimately the Authority found the dismissal to be both substantively and procedurally unjustifiable. Mr Penny was awarded $20,000.00 compensation, and three weeks lost wages.

Key takeaway

If circumstances change during a restructure, it is important to pause and ensure the information you are consulting with employees on is still up to date and accurate. It may be that further information needs to be put to employees. It is also crucial to not let factors form part of the decision making which are not properly put to employees to comment on.

If you have any questions about this article, please contact our specialist Employment Team

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