REDUNDANCY – A GENUINE BUSINESS REASON REQUIRED

When a redundancy is challenged, there must be in inquiry into the employer’s business reasoning.  The Employment Court has made it clear that an employer cannot simply state that the reason for a redundancy was a genuine business requirement and not expect an enquiry into whether what the employer has done was what a fair and reasonable employer could have done in all the circumstances.

In the recent case of Totara Hills Farm v Davidson, the farm manager Mr Davidson was made redundant after the employer decided to reduce costs due to deteriorating economic conditions.  The legal position about the Court’s role in considering a justification for a dismissal due to redundancy was held to include that the Court:

• is required to enquire into a business decision to declare an employee's position redundant.
• must determine whether what was done, and how it was done, was what a fair and reasonable employer could have done it all the circumstances at the time.
• to require an employer to present evidence to justify the redundancy since it will not be enough for an employer to simply assert that a redundancy was a genuine business decision.

In Totara Hills, the employer provided very little evidence of the substantive justification of the claimed 'cost savings' for Mr Davidson's dismissal.  Based on the evidence presented to the Court, the Court did its own calculations and concluded that making Mr Davidson redundant would not result in a reduction of expenditure to the extent the employer claimed.   As a result, the Court held that the justification of the decision to make Mr Davidson's role redundant was not genuine, and therefore the decision to dismiss unjustified.

The Court also determined that it was not sufficient for the employer to simply offer Mr Davidson the opportunity to apply for the new lower position of a junior shepherd but it should have offered the position to him because Mr Davidson’s skills and experience were more than adequate for it.

The case sends a clear message that employers are required to justify a decision to dismiss due to redundancy to the extent that a fair and reasonable employer could have made in all circumstances.  The Court is likely to enquire more carefully about the merits of business decisions in restructuring situations and assess whether genuine redeployment options have been explored.   Accordingly, it will be important to provide substantive reasons for making organisational changes, and if the decision is challenged, to provide detailed evidence of the reasons to the Court.

If you are an employer considering a restructure that may result in a redundancy, give me a call to discuss how to best manage the process. If you are an employee who is facing a redundancy, I am happy to discuss how I can help you engage in the process or whether you may be able to challenge a redundancy decision.