Restructuring and Redundancies

An employer has always had the right to restructure a business for good commercial or business reasons - for example cost savings when times are tight and profits are squeezed.

The standing principle was that if an employee was made redundant as a result of the restructure and the employer acted genuinely, historically doing  what a fair and reasonable employer would (now, “could”) have done in all the circumstances, the Employment Authority (or Employment Court) would not have sought further reasons as to the restructure, in a situation where that decision were challenged by an employee by way of a personal grievance.
A recent Employment Court decision (Totara Hills Farms v Davidson) has moved the boundaries.  The Court held that if a redundancy case is challenged, the employer cannot simply justify the decision as being for genuine business reasons.  The Court will now analyse the employer’s business reasons for terminating the employee’s employment due to redundancy.

In the Totara Hills case, the employer advised staff that disestablishing Mr Davidson’s position and creating a more junior role in its place would reduce the wage bill by 10%.  Whilst the Court found that the redundancy in this case was not a sham, it also concluded that the employer provided little evidence that it would meet the cost saving it sought.  The Court did its own calculation and concluded that the redundancy would only result in a 6% reduction in costs - and therefore held that the genuineness of the redundancy and substantive justification for it was thrown into doubt. 

Essentially, if an employer puts forward a cost savings figure as a reason for justification of a redundancy proposal, then it has to be able to prove that taking that action will also deliver those results.

Of note also is that when Mr Davidson’s position was made redundant and replaced by a new junior role, Mr Davidson was invited to apply for this role.  The Court held that because of Mr Davidson’s skills and experience, he should have been offered the new junior role as part of redeployment obligations.

This case emphasizes new boundaries and suggests scrutiny that redundancy situations may have to withstand if challenged.  Business owners will still be able to set the structure of their businesses; however where redundancy may be an outcome, employers will need to provide clear reasons and benefits and substantiate particular cost savings through documents and data to the Authority or Court.
Paddy Battersby, Battersby HR Consulting, Phone 09 838 6338 

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