New Zealand: NZ Employment Bulletin: Considering a Business Restructure – Points to Watch

Last Updated: 30 March 2006
Article by John Hannan and Rani Amaranathan

With economists predicting a downturn in the economy, it is timely to review employers’ obligations when restructuring. Any economic downturn is likely to lead to business sales, restructuring and other efficiency measures.

Before you start: check your employment agreements

Employment protection provisions

A business cannot be ‘restructured’ as defined in the Employment Relations Act 2000 (basically, restructuring includes sale, transfer or contracting out all or part of a business) unless the affected employees’ employment agreements contain ‘employment protection provisions’. So if your employees don’t currently have employment protection provisions in their employment agreements, you will need to insert these before you can restructure. Restructuring does not include sale of a business by a sale of shares, or while the employer is bankrupt or in receivership or liquidation.

Employment protection provisions for most employees are provisions providing a process the employer will follow to negotiate with a proposed new employer about affected employees.

Some categories of employees, such as cleaners and cafeteria staff, (‘vulnerable employees’) get a higher level of protection than other employees. Vulnerable employees have the right to choose to transfer to the new business on their existing terms and conditions of employment, if they are made redundant because of the restructuring. The new business must agree redundancy compensation for any transferring employees it wishes to make redundant, unless their previous employment agreement excluded compensation in that situation.

Union consultation clauses

Most CEAs require the employer to consult with the union whenever the employer is considering redundancies. Employers should ensure that they scrupulously follow any such requirement. Union consultation clauses often trigger consultation at a quite early stage, and it will never be acceptable to present the union with a ‘fait accompli’.

Other clauses to check

Employers considering restructuring should also check employment agreements for the following:

  • Clauses allowing them to direct employees to work at different sites or take on different responsibilities.
  • ‘Technical redundancy’ clauses. If your employees don’t have these in their employment agreements, you may need to pay redundancy compensation for a ‘technical redundancy’ (where your business is sold and employees are offered employment with the purchaser).

Redundancies: genuineness and fairness

Any redundancies must be genuine and follow a fair process.

Genuine commercial reason required

Employers have a management prerogative to make a business more efficient. But a genuine commercial need to reduce costs does not automatically create a genuine commercial need for redundancies. Employers need to show they have a genuine commercial reason for the specific redundancy decision they are making. They should take care to document all decisions and reasoning related to any restructuring that might result in redundancies.

Fair procedure: good faith paramount

The ERA specifically requires employers to consult in good faith before implementing any redundancy decisions (or any proposal which might impact on the employer’s employees – section 4(4)(d)).

Baguley v Coutts Cars Ltd [2000] 2 ERNZ 409 is the leading case under the ERA on fair procedure for redundancies. Findings to note from Baguley were:

  • Good faith obligations in the ERA are not significantly different to employers’ obligations pre-ERA.
  • Selection criteria should always be disclosed.
  • It is prudent to offer redeployment if possible.

Since Baguley, amendments have been introduced to the ERA in section 4(1A), providing that:

  • Good faith is wider than the implied obligation of trust and confidence and requires parties to the employment relationship to be ‘active and constructive’ and ‘responsive and communicative’.
  • An employer proposing to make a decision that is likely to have an adverse effect on the continuation of any employee’s employment must give the affected employees access to information relevant about the decision and an opportunity to comment on the information before the decision is made.

The ERA does not define what ‘active and constructive’ or ‘responsive and communicative ‘means and, as yet, there is no guidance on this from case law. But clearly, the courts are going to require more of employers when they are consulting their employees about restructuring proposals and there is now a specific statutory obligation to provide information and give opportunity for comment on it.

Carter Holt Harvey v National Distribution Union Inc [2002] 1 ERNZ 239 (CA) provides guidance on the meaning of good faith. The Court of Appeal noted that:

Good faith connotes honesty, openness and absence of ulterior motivation...whether a person has acted towards another in good faith will involve consideration of the knowledge with which the conduct is undertaken as disclosed in any direct evidence, and the circumstantial evidence of what occurred.

In Auckland City Council v NZ Public Service Assn Inc [2003] 2 ERNZ 386, the Court of Appeal held that it was impossible to make rules or protocols defining good faith. Its meaning would depend on the context.

Consultation: case law guidance

Guidelines to note from the case law on consultation are:

  • Make sure you consult during the proposal stage, before any final decisions are made. Employers should consult with an open mind.
  • Allow enough time for consultation – employers need to consult, not merely notify.
  • Give employees enough information and a reasonable opportunity to give their views.
  • Make genuine efforts to take on board employees’ views.
  • No consultation may be required in crisis situations – for example if the business is about the collapse.

Employees should be told the selection criteria and given an opportunity to comment on them. It seems an employer must consult even if consultation will make no difference – an employee is entitled to feel properly consulted.

Obligations to redundant employees

Once a redundancy decision has been made, the employer must give the redundant employees the notice required under their employment agreements. (Or ‘reasonable notice’ if their agreement says nothing about notice. This is unlikely to be much more than one month). Employees must be allowed to ‘leave with dignity’ and work out their notice, unless their agreement allows payment in lieu of notice. Redundancy compensation must be paid if:

  • The employment agreement or a binding internal policy requires it; or
  • The vulnerable worker provisions of the ERA require it.

Otherwise, no redundancy compensation need be paid.

The employer should also assist the employee e.g. by providing counselling, referring to income support, helping with finding a new job, providing time off for interviews and a job reference.

Potential pitfalls

Employers should also review their internal policies and agreements for any procedures they need to follow. Another issue to look out for is any employees on parental leave during restructuring. Employers have more onerous obligations to those employees than to employees actually at work.

Employers should carefully check the content of all communications to staff/unions about proposed restructuring. It is all too easy to send a loosely worded letter or memo that is later pointed to as evidence of pre-determination, or as misleading. Staff/union communications need careful management.

As we seem to head for the first downturn in the economy since the ERA was introduced, the law is not clear on employers’ obligations in redundancy situations. For example, as yet there is no guidance on what ‘active and communicative’ and ‘responsive and constructive’ means. But what is clear is that more is required, and statutory obligations are more specific, than pre-ERA. Employers considering restructuring should check their agreements and policies first, then proceed in good faith with an open mind and honest communication.

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.