K3 Insights

Welcome to the K3 hub

3 min read - March 22, 2023

Navigating Redundancy During a Recession

There are no shortcuts in tough times. In an economic downturn, one of the difficult decisions that many employers will be forced to consider, is making employees redundant in order to remain financially viable. While restructuring and redundancy can be a daunting process, it can be managed effectively with the right approach. To help business owners navigate through these tough times, we’ve listed some key considerations to help employers navigate this process:

1. Explore Alternatives

Redundancy should always be a last resort. Employers are first required to consider alternative options for employees prior to making their roles redundant, such as reducing their hours or exploring redeployment opportunities.

2. Create a Paper Trail

Employers must have a genuine financial reason for making a position redundant. Employers should not make the decision to get rid of an employee to replace them with someone else. Remember, it is the role that is being made redundant, rather than the individual. If underperformance is an issue, it should be addressed via a performance management process instead.

Even if employers have genuine economic reasons to make a position redundant (which is likely during a recession), we recommend that employers ensure that this information is recorded and included in a detailed proposal that is provided to employees at the beginning of any redundancy process.

3. Good Faith

Under section 4 of the Employment Relations Act 2000, employers have an overarching obligation to act in good faith when dealing with any decision that could affect their employees. In a redundancy context, this obligation requires employers to:

  • be clear and transparent with affected employees as to the reason behind making a role redundant;
  • be clear about the potential impacts for affected employees from the outset;
  • meaningfully consult with employees at every step of the process, and genuinely consider any feedback received before making any decisions; and
  • where there is a reduction in similar roles, ensure the selection process for redundancy is based on clear, objective criteria, such as skills, experience, and performance.

 4. Compensation

While redundancy compensation is not a legal requirement in New Zealand, employers should be mindful of any compensation clauses in their employee’s contract and ensure these are properly calculated and provided in the employee’s final pay.

5. External Support

Employers, particularly smaller businesses without an experienced in-house HR team, may want to consider obtaining the services of an experienced HR consultant or employment lawyer to assist in navigating this process to help ensure the process is run in accordance with employment law and any potential risks are minimised.

It’s important not to make rash decisions which could limit growth potential when circumstances change. Remember to balance the financial needs of today, with having the capability to seize opportunities to drive out of a recession.

Back to Articles

Contact us