Redundancy Basics: What employers need to know
Ending someone’s employment is never easy, but sometimes redundancies are a necessary part of business change. If you’re faced with offering employees redundancy, it’s essential to be across your legal obligations and to handle the process with care and empathy, so you can support employees while protecting your business from risk.
What is redundancy? How is redundancy different from other types of dismissal?
A redundancy is when an employment contract is ended because the role is no longer needed. This differs from other reasons for employment termination, such as poor performance or misconduct, because redundancy is about the role itself, not the individual, says Jaenine Badenhorst, Director at Empower Law.
Some common reasons for redundancy are:
An economic or business downturn that requires cutting back on staff
Business restructuring where roles are amended or not needed anymore
Adoption of new technology that automates a role
Business closure or relocation
It’s important to ensure the decision to make roles redundant is fair and lawful.
According to the Employment Relations Act 2000, employers must act in good faith throughout the redundancy process, meaning they must be honest and open about the business reasons behind the decision. Redundancy cannot be used as a cover for dismissing someone for discriminatory or unlawful reasons such as age, pregnancy, or because they have raised a complaint.
Legal and compliance requirements for redundancy in New Zealand
In New Zealand, redundancies are governed by the Employment Relations Act 2000 and employers must follow a fair and proper process before an employee can be made redundant.
The key steps to lawful redundancy are:
Consultation. Employers must provide employees with sufficient information about the proposal to restructure and genuinely consider employees’ feedback. This includes explaining the business rationale clearly and allowing employees time to respond. Communication should be timely to avoid employees being surprised by the outcome.
Notice of termination. Employers must give notice and pay for the notice period. This is usually outlined in the employee or collective agreement.
Redundancy pay. While there’s no obligation for employers to offer redundancy pay in New Zealand, they must pay compensation if it’s required in the employment agreement. Employers may also choose to offer additional compensation as a goodwill gesture, which can help maintain good workplace morale, protect the business’s reputation and reduce legal risk.
Final pay. This must include any outstanding wages, unused annual leave and any other entitlements mentioned in the employment agreement.
It’s important for employers to be able to show that a redundancy is based on genuine business reasons, advises Badenhorst. If not, there’s a risk of a personal grievance claim for unfair dismissal.
“Personal grievances are costly and time consuming to deal with. Employers also open themselves up to fines being imposed by the Employment Relations Authority if they haven’t met their obligations, including acting in good faith.”
Employers should also be aware that employees deemed as ‘vulnerable workers’ under the Employment Act have additional protections under the law. These protected workers include those working in cleaning, catering, care roles or security. In situations such as the sale or transfer of a business or a contract changing hands, these workers can have additional rights, including the right to transfer to a new employer on the same terms.
Employment NZ has more information on the legal requirements around redundancy. For specific advice, employers and managers should consult their HR department or seek legal advice. If you’re planning a large-scale restructure, employers may want to get external change management support.
Going beyond the legal requirements for redundancy
While there are minimum requirements businesses must meet, employers should also be mindful of the stress redundancies can put on employees and act compassionately towards both redundant employees and their remaining team members.
This includes telling employees about a business restructuring well in advance, sharing clear information about options and potential pay outs, and keeping an open dialogue, says Badenhorst.
“During the consultation period, employers must respond promptly and respectfully to employee questions and concerns, ensuring they feel heard,” says Badenhorst.
Adequate resources should be allocated to manage this process effectively, especially during large-scale restructures where external change-management support may be beneficial.
Employers can make all the difference in how redundancy is experienced, says Organisational Psychologist Dr Michelle Pizer. “Clear communication, respect and practical support – whether that’s giving someone time to wrap up, offering career transition services, or simply treating them with dignity – can help soften the impact and protect the long-term relationship, even when the working one ends.”
It’s important for employers to manage redundancies with empathy. Beyond the financial impact, redundancy often has an emotional toll, no matter the stage of a person’s career. Small actions can make a big difference, says Badenhorst, such as:
Offering extra support like counselling or EAP
Drafting a letter of recommendation
Giving time off to attend job interviews
Extending their notice period
Additional redundancy compensation
How to support your team through redundancies
Employers often overlook the effect a restructuring can have on the people who remain in the business. Retained employees may be upset about colleagues leaving or the stress everyone is put under during the consultation process, advises Badenhorst. Your team also sees how redundancies are handled by the business and whether redundant employees have been treated well.
“If not managed well, staff morale might be impacted too,” she says. Even those who aren’t made redundant may lose trust and confidence in their employer, which could affect productivity or their desire to stay on.
Also, think about the contributions a redundant employee might have made to projects or work-related tasks outside of their official role, and the employees who may now have to take on those tasks. Consider how to fill any incidental gaps that appear after a team member leaves, without putting pressure on the remaining employees.
Beyond the practical elements, employers should think about what they can do to maintain or boost team morale, such as organising team events, paying recognition or having extra check-ins.
Redundancies aren’t easy for employers or employees, which is why handling them with clarity and compassion makes such a difference. Aside from making sure your legal obligations are met, managing redundancies fairly and sensitively ensures employees feel supported, whether they’re leaving the business, being redeployed, or remaining in their roles.