Your rights: Downsizing dos and don'ts

By JOHN HANNAN of Phillips Fox

Q. Last month a director of the business announced a restructuring because of a loss of a large contract. There were three positions that had to go and the 10 employees who were affected by this had to re-apply for their positions.

When asked if the employees could offer themselves for redundancy the reply was "no".

When asked that the company should base their primary selection criteria accordingly to skill, the reply was "no".

The employees were told that they must re-apply for those positions and the company would reserve the right to decide who goes and who stays after considering their application.

Does the company have the right to make employees re-apply for their positions when the company has already caused enough anguish by announcing the redundancy and then having the audacity to put them through the application process?

There was no compromise, it was basically "take it or leave it", which left many employees distraught and unhappy.

A. An employer that has to make staff redundant has a range of approaches it can take. But, whatever approach it takes, it should treat staff with dignity and respect and act in good faith. If it does not do that, it can open itself up to a claim.

Your question does not say why 10 employees were affected where three positions had to go.

I assume that this was because the 10 employees all occupied similar positions, and the three positions that had to go were positions of that type, or in that group in the business.

Where an employer needs to reduce the number of employees in a particular section of the business, carrying out a particular function, the employer must select those who will be made redundant.

An employer is entitled to adopt any selection criteria it chooses, subject to those criteria being fair and rational, and also subject to what the applicable employment agreements require.

The first point to check should be your employment agreements, and any company policies and procedures which deal with redundancy. Some employment agreements specify redundancy procedure.

They may also specify the selection criteria when a number of employees from a larger group are to be made redundant.

Unless there is something specific in the employment agreements, or in the company's policies and procedures, the company is entitled to choose any selection criteria it wishes, or any mix of selection criteria. They must not be discriminatory or so irrational that a dismissal based on them cannot be justified.

So a company can select for redundancy according to skill, according to 'attitude' or 'work ethic', according to experience, or according to length of service. The employer could not, however, select only female staff, or only unmarried staff, or only staff without dependants. That would infringe the anti-discriminatory provisions of the Human Rights Act and the Employment Relations Act.

Some employers ask all staff to re-apply for their positions, and then select for redundancy those who seem, overall, the least suitable. Such a process should be conducted with care and sensitivity. It is much more disruptive to cause all 10 employees to re-apply than it is to select three staff from among the 10 and advise that they are to be made redundant.

The employer should tell staff what the selection criteria are, even though it is not obliged to agree the selection criteria with staff. The selection criteria have to be formulated and applied 'according to the standard of a reasonable employer acting fairly and in good faith towards the employee'.

Employers must consult with staff about redundancies, unless the situation is one of business crisis in which there is no time for consultation. Normally, staff who may be affected should be told there is a proposal to make their position redundant and given an opportunity to comment before the decision is taken.

Employers considering redundancy must try to minimise the impact on staff. That means the way in which the redundancy is carried out must be fair and sensitive. If the process is carried out 'in such a way as to bruise the employee' rather than reasonably minimising the impact, the employee potentially has a claim for a 'disadvantage' grievance.

Damages can be awarded for hurt and humiliation resulting from the way in which the redundancy dismissal has been handled.

A typical level of award for a significantly hurtful and humiliating procedure is around $5000. But all redundancies are distressing, and damages will not be awarded for a 'normal' level of distress.

Employment Relations Service

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