Restructuring is sometimes a necessary business decision, but getting the process wrong can be costly.
Whether your business is facing financial pressure, changes in customer demand, operational challenges, or simply needs to work differently, restructuring can be an important step towards ensuring its future sustainability.
However, in New Zealand, employers cannot simply decide to make a position redundant and inform the affected employee. There is a legal process that must be followed, and even where there are genuine business reasons for change, failing to follow a fair and reasonable process can expose an employer to a personal grievance.
At proHR, we regularly support businesses through restructuring and redundancy processes. One of the most common issues we see is employers making decisions too early, without fully understanding their consultation obligations.
Restructuring and Redundancy – What's the Difference?
Although the terms are often used interchangeably, restructuring and redundancy are not the same thing.
Restructuring involves changing the way a business operates. This might include reorganising teams, combining roles, changing reporting lines, reducing staffing levels, or introducing new positions.
Redundancy occurs when an employee's position is no longer required by the business.
Importantly, a restructure does not necessarily result in redundancies. In some cases, employees may move into different roles, responsibilities may change, or alternative arrangements may be agreed upon.
The key consideration is that any proposed changes must be based on genuine business reasons and managed through a fair process.
Five Common Mistakes Employers Make When Restructuring
1. Making the Decision Before Consulting Employees
This is one of the biggest risks. Employers sometimes identify a position they believe is no longer required and immediately tell the employee their role is being disestablished.
The problem? The decision has effectively already been made.
Under New Zealand employment law, affected employees must have a genuine opportunity to provide feedback before a final decision is reached.
This means presenting the proposed changes, explaining the reasons behind them, providing relevant supporting information, and genuinely considering employee feedback.
Consultation must be meaningful, not simply a box-ticking exercise.
2. Not Providing Enough Information
Employees need sufficient information to understand why changes are being proposed and to provide informed feedback.
For example, if financial pressures are driving the proposed restructure, employers should provide relevant financial information to support the proposal, subject to any lawful grounds for withholding particular information.
Simply stating that the business needs to reduce costs may not be enough.
Employers should be prepared to explain the business rationale and demonstrate why the proposed changes are being considered.
3. Confusing Performance Issues With Redundancy
Redundancy is about the position, not the person.
If the underlying concern is an employee's performance, attitude, or conduct, a restructure is not an appropriate substitute for managing those issues.
Using redundancy to remove an employee because of performance concerns can create significant legal risk.
Employers need to be clear about the genuine business reasons for any proposed change.
4. Failing to Consider Alternatives
Before confirming a redundancy, employers should genuinely consider whether there are reasonable alternatives.
These might include:
Redeployment into another suitable position
Changes to duties or working arrangements
Voluntary redundancy
Reduced hours by agreement
Other suggestions raised during consultation
An employer is not necessarily required to adopt an alternative simply because an employee proposes it. However, reasonable alternatives must be properly considered before reaching a final decision.
5. Getting the Communication Wrong
Restructuring can be unsettling for employees, particularly when their employment may be at risk.
Poor communication, unclear timelines, or inconsistent messaging can quickly undermine trust and increase the likelihood of disputes.
Employers should ensure employees understand what is being proposed, why it is being proposed, how they can provide feedback, and when decisions are expected.
Employees should also be advised of their opportunity to seek advice and have a representative or support person involved.
What Does a Fair Restructuring Process Look Like?
While every business situation is different, a typical restructuring process involves:
Step 1 – Develop the proposal
Identify the genuine business reasons for change, consider potential options, and prepare a written proposal explaining what is being considered and why.
Step 2 – Consult affected employees
Provide the proposal and relevant information to affected employees. Allow reasonable time for them to consider the proposal, seek advice, and provide feedback.
Step 3 – Consider feedback
Genuinely review all feedback, questions, and alternative suggestions. Further consultation may be necessary if the proposal changes materially.
Step 4 – Make and communicate the decision
Once consultation has concluded and all feedback has been considered, make a decision and communicate the outcome, including the reasons for it.
Step 5 – Manage any resulting redundancies
Where positions are disestablished, consider redeployment opportunities and ensure notice periods, final pay, and any contractual redundancy entitlements are correctly addressed.
Importantly, redundancy compensation is not automatically payable under New Zealand law. Whether compensation is required will generally depend on the employee's employment agreement or other applicable contractual arrangements.
Can an Employer Restructure Simply to Reduce Costs?
Yes.
A business does not have to be in financial difficulty before it can restructure.
Employers are entitled to make genuine commercial decisions about how their businesses operate, including decisions aimed at improving efficiency, reducing costs, or preparing for future challenges.
However, having a legitimate business reason does not remove the obligation to follow a fair and reasonable process.
A genuine reason for restructuring and a fair consultation process are equally important.
Why Getting Professional Advice Early Can Save Money
One of the most expensive mistakes an employer can make is seeking HR advice only after something has gone wrong.
By that stage, an employee may already have been told their position is redundant, consultation may have been compromised, or a personal grievance may have been raised.
Getting advice before announcing a proposed restructure can help ensure the business has a sound rationale, appropriate documentation, a workable consultation process, and a clear understanding of its legal obligations.
It can also make a difficult process considerably easier for everyone involved.
Considering a Restructure? Talk to Us First.
At proHR, we provide practical, straightforward HR and employment relations advice to New Zealand businesses.
We can support you through the entire restructuring process, from developing the initial proposal and preparing consultation documents through to managing employee feedback, communicating final decisions, and implementing any resulting changes.
Our approach is focused on helping employers make sound business decisions while meeting their employment law obligations and treating employees fairly.
If you're considering changes to your business structure, get in touch before you begin.
Getting the process right from the outset can save time, money, and unnecessary stress.