Most Read Contributor in New Zealand, September 2016
Judges are not entitled to substitute their decision for yours
in terms of how your business should be run or restructured, but
– if you make someone redundant – you will need to
demonstrate that the redundancy was justifiable and reasonable.
This is the effect of the Employment Court's ruling in
Totara Hills Farm v Davidson.1
There had been suggestion last year (in relation to a dispute
between 2Degrees and founder Tex Edwards) that the changes to
section 103A of the Employment Relations Act may require the Court
to review the decisions taken by the business and form its own view
of what should have been done. However, the question was never
tested in that case because the dispute was settled out of
But the Court has found its opportunity in Totara to clarify
that, while it is not for the Court to substitute its decision for
that of the employer, the Court must determine whether what was
done, and how it was done, were what a fair and reasonable employer
could have done in all the circumstances at the time.
This necessarily requires an examination of the reasons and
justification behind the restructure. And if those reasons are
found wanting then the Court may determine the employer has acted
unjustifiably, irrespective of whether the employee has managed to
establish that the employer was motivated by ulterior factors.
The case itself provides a useful illustration of what this
means for employers.
Totara Hills Farm
Mr Davidson was employed as a manager at Totara Hills Farm. In
2010 the owner of the farm, Mr Rittson-Thomas, talked to staff
about ways of reducing cost. The discussion arose as a result of
several years of drought and poor prices.
After a number of meetings with staff, Mr Rittson-Thomas decided
to make one of the two managers redundant as a means to save cost.
That manager was Mr Davidson, whom Mr Rittson-Thomas proposed to
replace with a junior shepherd.
Mr Davidson claimed that his redundancy was unjustified because
the real reasons behind it were performance concerns and his poor
relationship with Mr Rittson-Thomas.
Both the Authority and the Court (albeit by a narrow margin)
concluded that Mr Rittson-Thomas was not motivated by those other
factors and that the redundancy was not a "charade".
However, the Court went on to state that it needed to examine the
reasons behind the redundancy itself before it could conclude that
the redundancy was justified.
Mr Rittson-Thomas needed to satisfy the Court that Mr
Davidson's dismissal was what a fair and reasonable employer
would (or now, could) have done in all the circumstances. In this
particular case the employer's evidence to justify the
redundancy was "scant".
The employer asserted that the decision was made for cost saving
reasons, however the Court found that there was no evidence to
support the alleged savings of 10%. On that basis, it determined
that the decision was not one that a fair and reasonable employer
would have made, and accordingly, it was unjustified.
Chapman Tripp comment
An employer has always needed to justify changes to staff
requirements. And so we do not consider that this decision
represents a shift in approach.
However, there has perhaps been a tendency to focus on the
employee's ability to demonstrate an ulterior motive on the
part of the employer as a means of demonstrating the genuineness
(or otherwise) of the decision. This case is a helpful reminder
that the employer bears the burden of independently establishing a
proper foundation for the decision it has made.
Our thanks to Gemma Peachey for writing this Brief
1Totara Hills Farm v Davidson 
NZ Emp C 39
The information in this article is for informative purposes
only and should not be relied on as legal advice. Please contact
Chapman Tripp for advice tailored to your situation.
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