Cost cutting options for employers

Rob Towner, Partner and Anna Clark, Senior Solicitor | Tuesday 10 February 2009

In the current economic climate businesses are looking for ways to reduce costs, including employment-related costs. The obvious answer is often redundancy, but this can be a bitter pill for employers to swallow, particularly where time and money have been invested into recruiting, training and up-skilling employees. Reducing employee entitlements could provide an alternative, making the wage bill more affordable and redundancies unnecessary.

Reducing employee entitlements

An employer is not able to unilaterally vary an employee's terms and conditions of employment. If an employer wants to reduce an employee's salary, remove overtime entitlements, cut holiday entitlements back to the statutory minimum, or change any other terms and conditions of employment, it needs the employee's consent.

When seeking this consent, the employer should explain why the change is proposed, what the proposed changes are, when they will take effect, and what will happen when the economy rallies (for example, whether salaries will be lifted back to current levels).

Without being heavy handed, it is also important to advise employees of the possibility of redundancies should the proposed variations be unacceptable to them.

An employee's consent to a variation to their terms and conditions of employment should be recorded in writing (this can be in a letter which the employee signs). Employees should also be given the opportunity to seek independent advice about the proposed changes.

Plan B - redundancy

Where a reduction in employee benefits is not in itself enough to address the financial issues facing an employer or where employees do not agree to the proposed changes, redundancies may need to be considered. New Zealand employment law requires that a redundancy be justified both procedurally and substantively.

There must be a genuine business reason for a redundancy and an employer must consult with the affected employee prior to making any decision.

Specifically, the statutory duty of good faith requires employers to consult with employees prior to making a final decision and implementing a "proposal" that may adversely affect them. This consultation process involves the employer advising the affected employee of the proposal, giving the employee time to consider it and then provide feedback. An employer must consider this feedback before making a final decision.

With the current financial crisis a global one, many New Zealand businesses are being directed by their offshore parent companies to implement redundancies, often as part of a global restructure. Where a decision has already been made to restructure, an employer should not "go through the motions" of consulting about a proposal when in reality there is no room to move. This is because the statutory duty of good faith requires an employer not to mislead or deceive its employees. Where a final decision has already been made about the restructure, and therefore consultation about a "proposal" would be a sham, an employer should consult with the affected employees about the implementation of the restructure. Matters that could be discussed include dates when positions will be disestablished, whether notice will be worked out or paid in lieu and what support will be provided to employees. Alternatively, it may be possible for the parent company to genuinely treat New Zealand differently, and accept that consultation on a "proposal" must occur before proceeding.

There is no statutory entitlement to redundancy compensation; an employee's entitlements are determined by their employment agreement. However, a government programme has been introduced to provide financial assistance to redundant employees. The programme is called ReStart and it is administered by Work and Income New Zealand. Employers may want to bring this government scheme to the attention of employees who are being made redundant.

The support package is aimed at low to moderate income families with children, and to those with high living costs. The package contains three parts:

• ReCover – to help families with children that are no longer eligible for the in-work tax credit.

• RePlace – to help with accommodation costs, and which provides up to $100 per week depending on circumstances.

• ReConnect – to help those made redundant to find new employment.

ReStart can be paid up to a maximum of 16 weeks, or until the person re-enters full time work, whichever occurs first. To qualify for ReStart the employee must have been in fulltime work for at least six months and meet a cash assets test. An applicant may be eligible for all, or only certain parts of the ReStart package.

Those being made redundant have 20 days from the day they are laid off to apply for the programme. Not all employees will be eligible for ReStart, but for those employees who do qualify, it will provide assistance while they are looking for work. For more information on the ReStart programme, call 0800 559 000 or visit www.workandincome.govt.nz

 

For further information, please contact your usual Bell Gully adviser or:

Auckland

Rob Towner
Partner

Liz Coats
Solicitor

Wellington

Susannah Leslie
Solicitor