Beware the fatal consequences of redundancy

The dotcom shakeout continues. But to all bosses set to wield the axe, be careful: not only are there legal matters to consider, but it can be fatal, both to you and your victims.

The dotcom shakeout continues. But to all bosses set to wield the axe, be careful: not only are there legal matters to consider, but it can be fatal, both to you and your victims.

A US survey, reported on the website last week (see Successful Termination - Is there such a Concept?, which also gives many tips how to fire), says studies have shown that managers run double the risk of a heart attack in the week they have sacked someone.

On the other hand, Candle Recruitment's Jan McKenzie heard a story of how one victim was told of his redundancy while in another town for the firm and driving back to the office had a heart attack, drove off the road and died.

He may have had a heart attack anyway, but McKenzie says the incident shows how firms must handle these situations properly.

In a month when many US dot-coms laid off staff and marketing firm Brave New World shed a few here, it's useful to ask how should a manager go about redundancy? And what about sacking people for under-performance?

Both McKenzie and Paul Stevenson of Morgan & Banks Technology say consultation with the would-be victim/s is essential, noting that rules here much tougher than in the US. For example, while advises employers to prepare severance information and related matters in writing, here Stevenson warns this could leave you liable for legal action.

The New Zealand Court of Appeal has ruled that firms can shed staff to make themselves more efficient, but there must be a genuine reason for redundancy.

“In other words the person’s job or role must have disappeared or be no longer required," says McKenzie. "Moreover, an employee does not have the right to employment if the business can be run more effectively without them."

But she says she has not met one boss who has enjoyed the process and adds many managers have had sleepless nights before discussing redundancy, often knowing full well they are next in line.

The Employment Relations Act makes the business trickier by stressing proper procedures. Its concept of "good faith" again means consultation is essential.

“Usually the employer cannot simply meet with the staff and inform them that they are to be made redundant or severed. Consultation, therefore, entails meeting with the affected staff either in a group or individually, explaining the situation/business issue, giving notice that redundancy could be an option but asking for the employees’ input/ideas.

“There is then usually an agreed period of time for both parties to think about the situation and if nothing results then the employer is entitled to carry on with the redundancy process. Any suggestions or remedies cannot be frivolous; they have to be viable for the business,” she says.

Candle stresses the employer cannot remove an employee from one role and shortly after employ another to do essentially the same job. And once a person’s role has disappeared, the employer has to consider what other roles in the company may be suitable for the person.

“If there is such a role, redeployment must be considered. The roles may be more senior or junior or at the same level. It does not mean the person must be offered the role over more qualified candidates, but if a role is available they must be included in the selection process for any suitable vacant role.

“This does not mean that the person is obliged to accept the role if offered. However, many employment contracts do state that redundancy compensation will not be payable if a suitable alternative position is available,” says McKenzie.

Sacking people for poor performance always presents problems. Again, there are proper procedures to follow, which may take several months, particularly as under the Employment Relations Act, mediation is emphasised as a problem-solving tool.

“As with redundancy, it is essential that the procedures be correct and fair. In many situations, when such a case has gone to arbitration, the employer has lost the case because of lax or incorrect procedures,” warns McKenzie.

Procedures to follow include discussions and warnings, both verbal and in writing. The worker must have an opportunity to put things right. There must be performance reviews. Further training, coaching or mentoring may be appropriate as the employer has to show it is trying to put things right. A neutral party could be called in, who may look at that person’s work style against the job demands and suggest changes or amendments. The firm may also offer medical or psychological help.

Candle says IT firms particularly try to get it right as they are in a fast changing industry with much restructuring. Its younger staff is also more aware of this constant change and familiar with redundancy as a fact of life.

And talking of life, there is some after redundancy, the subject of next week’s column.

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