Restructuring or Redundancy – pay attention to the technicalities!

There is no clearly defined step-by-step guide to conducting a fair restructure or redundancy process. Instead, employers have to think about fairness, reasonableness and the duty to act in good-faith. Yet, what is fair or reasonable to one employer, may not be the same to another.

So, how is an employer supposed to know where to start?

Well, aside from my all-important ‘6 x golden rules’ which are:

  1. To provide those affected with all relevant information;
  2. Allow those affected sufficient time to give feedback;
  3. Permit those affected with the right to seek advice;
  4. Make sure there is a genuine business reason;
  5. Consider alternatives such as redeployment; and
  6. Abide by the duty of good faith.

It is vital that an employer pays attention to the technicalities (no matter how small or trivial they may seem).

By following my golden rules, you can be safe in the knowledge that you are ticking all of the appropriate procedural boxes. Yet, the rules alone are not enough. Proper implementation of those rules is key to defending an unjustified dismissal claim – reinforced in the recent case of Donegan & Woods v G2 Ventures Limited (2019).

Here, two senior managers working for G2 (a venture capital business) were held to have been unjustifiably dismissed and awarded significant monetary awards (compensation for hurt and humiliation, lost wages, special damages plus costs), based on a technically flawed internal restructure.

Even though G2 claimed to follow the golden rules, it did not pay attention to the technicalities and here’s why:

·        Yes, G2 did provide the managers with information on the proposed restructure. But, it failed to provide information that was sufficient to justify a lack of business income, or the financial strain their combined salaries were having on overheads. Simply presenting an affected employee with a letter setting out the proposal is not enough. The law requires that evidence of financial strain or lack of income should be disclosed. G2’s argument that it should not have to provide confidential information concerning its financial position, was not a reasonable approach to take.

·        Yes, G2 did give the managers time to give feedback. But, it failed to give them sufficient time to do so. Presenting the managers with the proposal on Thursday morning and expecting feedback by the following Monday afternoon was not long enough. Also, G2 should have accepted the manager’s request for an extension to the feedback timeline.

·        Yes, G2 did permit the managers to seek advice. In fact, the managers sought legal advice of their own volition from the outset. However, G2’s refusal to communicate with the lawyers directly was not reasonable. If an affected employee seeks representation during a process, then the employer is expected to communicate with that representative as if communicating directly with the employee.

·        Yes, G2 appeared to have genuine business reasons for making both managers redundant. It argued that the roles were no longer part of the commercial “vision” and that disestablishment of those roles would “alleviate a huge financial burden”. On the surface, these are two sound reasons for making redundancies. Yet, in truth, those reasons were for presentation purposes only. On giving evidence it became clear that they had been selected for misconduct and inadequate performance – one had posted derogatory comments about the employer on Facebook; the other had performed sub-standard work. The dismissal was not based on genuine redundancy reasons.

·        Yes, G2 claimed that it had considered alternatives to redundancy and spent “quarter of an hour” (i.e. 15 minutes) in consultation discussing whether to engage the managers as independent contractors. In simple terms, this is just not long enough. To properly consult and really take on-board any feedback, it is reasonable to assume that an employer would take a matter of days rather than make a hasty decision within minutes.

·        Yes, G2 argued that by ticking all of the procedural boxes (i.e. the golden rules), it was able to demonstrate it acted in good-faith. Not so, held the ERA. By conducting a restructure based on false pretences could not (under any circumstances) be deemed “genuine”. Also, imposing a tight time-frame for consultation / feedback, together with a refusal to acknowledge representation during the process, simply evidenced a “pre-determined” outcome. This undermined the need for procedural fairness and could not possibly resemble a process conducted in good-faith.

Trying to implement a restructure/redundancy process is far from easy and I would strongly recommend that you seek specialist advice before even thinking about this course of action. You may think you have everything covered and know exactly what steps to follow but, make sure you focus on the technicalities at all cost. Otherwise, the money you intend to save by implementing a restructure or redundancy proposal, will only be spent on heavy damages, legal costs and even ERA levied-fines. Pay attention to the small detail – the technicalities!

By Emma Monsellier