Downsizing decisions

As the impact of the Covid-19 crisis bites deeper and wider, Jo Douglas shares the options for addressing reductions in staffing levels and/or costs.

The New Zealand and global economy has been heavily disrupted over the past six months resulting in most businesses needing to review their operations, including their workforce needs. 

Many businesses have been considering ways they can respond to dramatic changes to the demand for their services. This has been most heavily felt in the tourism sector, however other industries are concerned about the flow-on effects to the economy and to their businesses. 

There are a number of options employers can look at if faced with having insufficient work available to keep their workforce engaged, particularly if the situation is temporary.   

Businesses are encouraged to consider temporary measures to avoid the need for redundancies where possible. Planning for a short-term, medium- and long-term response to the economic environment is advisable. These plans may need to change and be updated according to changing circumstances as they evolve.    

Business continuity plans may also involve increased and greater reliance on technology and remote working solutions. Some businesses will also be experiencing increased demand and there may be options where staff can be redeployed to where they are needed.    

If reductions in staffing levels or costs are needed, the following options can be considered:

Asking employees to use up their leave balances

Asking employees to use their annual leave may be an option where they have substantial leave balances. In normal circumstances, employees and employers must agree about when an employee can take annual leave. However, if you can’t agree then as a last resort an employer can require employees to take annual holidays, as long as 14 days’ notice is given.

Reduced work hours or leave without pay

In some cases, employees could be asked to reduce their hours either for a short time or permanently. Employers, however, cannot require employees to work shorter hours or stand down, unless there is a contractual provision dealing with this, or through a restructuring.   

It may be possible to reach an agreement with staff to vary their hours, particularly as an alternative to more drastic measures.  

Where agreement is reached, employers should confirm the relevant changes in writing. This should state the exact hours to be worked, the start and end date of any proposed changes and details of how pay will be affected. If the change is only temporary, then at the end of the period the employee will return to their previous working hours.

Employers can ask for expressions of interest from employees for taking leave without pay, but again it would need their agreement and also be well documented.

Pay cuts or reduction in employee benefits

Faced with the possibility of redundancy, some employees may be willing to accept a pay cut or a reduction in their remuneration packages. This is possible provided the pay is still above minimum wage and the employer has secured the employee’s consent. Employee pay cuts can be temporary or permanent. Again, have any agreement well documented. 

Restructuring

If restructuring and/or potential redundancies are on the table, then the employer has an obligation under the Employment Relations Act to consult with employees throughout the process. Employers should be prepared to provide relevant information about why such a proposal is necessary in all the circumstances. Companies should be prepared to explain and justify their business decision.

Once a restructure proposal has been prepared, it is important to consult with affected employees. This can be done in writing, by phone or video conference, or in person depending on what is practical and workable for both parties.  

Employers should invite the employees to provide feedback and give them a realistic opportunity to provide their ideas, suggestions, alternatives or questions. Employers should then genuinely consider any employee feedback. This may include an employee taking paid leave or leave without pay. 

Employers should then consider all options before making any final decisions about the new structure going forward. 

If an employee is to be made redundant, they will be entitled to a notice period under their employment agreements. Whilst there is no statutory entitlement to redundancy pay, there may be a contractual right to redundancy compensation provided in an employment agreement which needs to complied with. 

It is important that businesses do a risk assessment considering both short-term and long-term business plans and the realistic options for addressing any short-to-medium-term disruption. 

Jo Douglas is a partner at Douglas Erickson, employment lawyers.
Email: jo@douglaserickson.co.nz 

This article is written for the purposes of providing general information only and is not intended to be legal advice.