How To Make An Employee Redundant In NZ Legally

Making an employee redundant is one of those small business decisions that can feel unavoidable - but also stressful. You might be restructuring to cut costs, losing a major client, closing a site, or changing how work is done.

Whatever the reason, “redundancy” in New Zealand isn’t just about what’s best for the business. There’s a legally required process you need to follow, and it’s all tied to acting in good faith and running a fair, genuine consultation.

In this guide, we’ll walk you through how to make someone redundant in New Zealand in a legally compliant way, what a defensible redundancy process looks like, and the common mistakes that can lead to costly personal grievances.

What Does “Redundancy” Mean In NZ (And When Is It Legitimate)?

In simple terms, a redundancy happens when a role is no longer needed for genuine business reasons - not because the employee has done something wrong.

A redundancy is usually legitimate where:

• your business no longer requires that position (for example, you’re downsizing or closing a location);
• you’re restructuring and the work is being redistributed or automated;
• you’re changing the way you deliver services and the role no longer fits the new model; or
• there’s a downturn in work and your staffing needs have permanently changed.

In NZ, redundancy is closely linked to your duty of good faith under the Employment Relations Act 2000. That means you need to be open, communicative, and genuinely consider the employee’s feedback before you make final decisions that affect their employment.

Important: A “redundancy” can become legally risky if it’s used to deal with performance or conduct issues. If the real issue is underperformance, you usually need a performance management pathway instead of a redundancy. If you’re unsure which bucket you’re in, it’s worth getting advice early - it can save you a lot of pain later.

Before You Start: Are You Sure Redundancy Is The Right Option?

Before you begin the redundancy process, it’s smart to pause and sanity-check whether redundancy is actually the correct approach.

Ask yourself:

• Is the role genuinely no longer required? (Not just “I’d prefer someone else” or “they’re not the right fit”.)
• Is the need permanent or temporary? (If it’s temporary, other options may be more appropriate.)
• Have you explored alternatives? (Reducing hours, redeployment, or reassigning duties can sometimes avoid redundancy.)
• Is there a restructure proposal you can clearly explain? (You need to be able to articulate the business reasons, in writing, in a way that makes sense.)

For example, if you’re mainly trying to cut wage costs but the work still exists, you may be able to explore changes like reducing staff hours - but that also needs a lawful process and agreement (you generally can’t just reduce hours unilaterally).

Also check the employee’s Employment Contract for:

• notice requirements;
• any redundancy compensation terms;
• consultation or restructure clauses (if any); and
• what it says about redeployment or alternative duties.

If your documents are inconsistent or outdated, that can complicate the process - so it’s often better to confirm your position before you start talking to staff.

How To Make Someone Redundant: A Step-By-Step Redundancy Process (NZ Employers)

If you’re looking for how to make someone redundant in NZ, the most important thing to understand is this: redundancy in New Zealand is all about process. Even if your business reasons are genuine, a poor process can expose you to claims.

Below is a practical, legally-focused roadmap most small businesses can follow. (Your exact steps may vary depending on your workplace, contracts, and the nature of the restructure.)

1) Build A Genuine Business Case

Start by documenting the “why”. This should be more than a vague statement like “the business is struggling”. You want a clear, factual business case that you can share during consultation.

This might include:

• financial information (at an appropriate level);
• changes in customer demand;
• loss of contracts;
• duplication of roles;
• efficiency or technology changes; and
• an organisational chart showing “current” vs “proposed” roles.

You don’t necessarily have to share everything, but you generally need to provide enough information for affected employees to understand the proposal and respond meaningfully.

2) Prepare A Restructure Proposal (Before Any Final Decisions)

A common mistake is deciding the outcome first and treating consultation as a “tick the box” step. In NZ, the consultation must be real.

Your proposal should explain:

• what is changing (roles, reporting lines, duties, number of positions);
• which roles are potentially affected;
• why the change is being proposed;
• the proposed timeframe and consultation period; and
• what feedback you’re inviting.

If more than one employee could be affected, include how you’ll determine who remains (for example, a selection process with fair criteria).

3) Start Consultation In Good Faith

Consultation usually involves providing the written proposal, then meeting with the employee(s) to talk it through and answer questions.

Key process points:

• give the employee a reasonable opportunity and time to consider the proposal;
• let them bring a support person or representative if they wish;
• be open to questions and alternative suggestions;
• avoid language that suggests the decision is already made; and
• keep careful notes of meetings and communications.

Even if you think you “already know” redundancy is necessary, you still need to consider feedback with an open mind. Sometimes employees propose workable alternatives (for example, a change in duties, a trial period, reduced hours, or moving into another role).

4) Consider Redeployment And Alternatives (And Document It)

Part of a fair redundancy process is looking at whether the employee can reasonably be placed into another role - especially if there are vacancies, or if their skills could suit another position with some training.

This might include:

• redeployment into an existing vacancy;
• offering a new or revised role created by the restructure;
• considering job sharing or reduced hours (if agreed);
• retraining (where reasonable); or
• delaying changes to allow a transition.

You don’t have to create a role that doesn’t exist, and you’re not required to keep an unsustainable position. But you should be able to show you considered realistic alternatives.

5) If You Need A Selection Process, Make It Fair

Sometimes your business still needs some roles, but fewer than before (for example, 3 admin roles become 2). In that case, you’ll need a selection process.

To reduce legal risk, your selection criteria should be:

• relevant to the role (skills, experience, performance evidence, qualifications);
• applied consistently to everyone in the selection pool; and
• supported by evidence (not gut feel or personal preference).

Be very cautious about criteria that could be discriminatory (for example, assumptions about age, family responsibilities, or health). If you’re unsure about your criteria, it’s worth checking with an Employment Lawyer before you run the process.

6) Make A Final Decision (Only After Consultation)

After you’ve genuinely considered feedback, you can make a final decision.

It’s best practice to provide the decision in writing, including:

• what decision was made and why;
• what feedback was considered (and your response to it);
• the employee’s end date (or next steps if redeployed); and
• notice, final pay, and any redundancy compensation details.

If the role is disestablished but you’re offering an alternative role, clearly set out:

• the new title and responsibilities;
• any changes in hours, pay, location, or reporting lines;
• when the new role starts; and
• how acceptance works (and by when).

7) Give Proper Notice (Or Agree On Payment In Lieu)

Notice requirements usually come from the employment agreement. If the agreement doesn’t specify a notice period, what’s required can depend on the circumstances and what’s considered reasonable - and it’s worth getting advice on the right approach for your situation.

Some employers prefer to pay out notice rather than have the employee work through it. That may be possible where the employment agreement allows it, or where you and the employee agree to it as part of the exit arrangement. If you’re considering this, it’s worth reviewing payment in lieu of notice obligations first so you don’t accidentally underpay or trigger a dispute.

8) Calculate Final Pay Correctly (Holidays, Entitlements, Deductions)

Final pay issues cause a lot of avoidable conflict - especially around annual leave and public holidays.

Final pay often includes:

• wages up to the termination date;
• payment for any untaken annual leave (and possibly alternative holidays, depending on the situation);
• any redundancy compensation if it’s in the contract or agreed; and
• any other contractual entitlements (commissions, bonuses - depending on the agreement terms).

Be cautious with deductions. In many cases, you can’t simply deduct money (for example, for unreturned property) unless there is lawful authority and the employee has agreed.

Common Redundancy Mistakes Small Businesses Make (And How To Avoid Them)

Even when a redundancy is genuinely necessary, these are the patterns that tend to cause legal blow-ups.

Deciding First, Consulting Later

If the employee can show the outcome was pre-determined, the process may not meet good faith obligations. Your proposal must be a proposal - not a disguised final decision.

Using Redundancy To Address Performance Issues

If the underlying issue is performance, redundancy is often the wrong tool. A redundancy should be about the job disappearing, not dissatisfaction with the person doing it.

If you’re in a grey area, you may need a separate performance management pathway. (This is also where good documentation and consistent processes matter.) You can sanity-check your approach against a performance management process so you don’t accidentally run the wrong process for the situation.

Unclear Or Unfair Selection Criteria

If you’re selecting between employees, you need criteria that are role-related and applied consistently. “Culture fit” and “attitude” can be very risky unless you can define them objectively and evidence them.

Not Considering Redeployment

Redeployment doesn’t always have to happen - but it generally has to be considered. If you’re hiring for another role while making someone redundant, that can be a red flag unless you can clearly explain why the redundant employee couldn’t reasonably fill that role.

Paperwork That Doesn’t Match Reality

Small businesses often move fast, and sometimes the paperwork lags behind. If your employment agreement, policies, or restructure communications are inconsistent, it creates confusion and increases dispute risk.

If you’re going through redundancies, it can also be a good time to review your broader employment documents, or put a proper termination pathway in place. Where needed, a redundancy document suite can help keep the process consistent and defensible.

Do You Have To Pay Redundancy Compensation In NZ?

This is one of the first questions employers ask - and the answer is: it depends.

In NZ, there isn’t a universal legal entitlement to redundancy compensation for all employees. Whether you need to pay redundancy compensation usually comes down to:

• what the employee’s agreement says (many agreements include redundancy compensation clauses);
• any collective agreement that applies;
• what you’ve customarily done in the past (in some cases, past practice can create expectations); and
• any negotiated settlement you agree to as part of ending employment.

Even if you don’t have to pay redundancy compensation, you still need to provide:

• proper notice (or payment in lieu, if appropriate); and
• all final pay entitlements under the Holidays Act 2003.

Because redundancy compensation can be a high-cost item, it’s worth checking the contract wording carefully before you start the process - especially if you’re making multiple roles redundant or doing a broader restructure.

Key Takeaways

• In NZ, redundancy must be based on genuine business reasons and handled in good faith under the Employment Relations Act 2000.
• If you’re asking how to make someone redundant in NZ, the answer is largely about process: you need a clear proposal, meaningful consultation, and genuine consideration of feedback before any final decision.
• Where more than one employee could be affected, you should use fair, role-related selection criteria and apply them consistently.
• You should consider redeployment and alternatives (like revised duties or agreed changes to hours) and keep a written record of what you considered and why.
• Redundancy compensation is not automatically required in NZ - it depends on the employment agreement or other applicable terms - but final pay and notice obligations still apply.
• Getting your documents and communications right can significantly reduce the risk of disputes, so it’s often worth getting support early, especially for small businesses doing redundancies for the first time.

Note: This article is general information only and isn’t legal advice. If you’d like help running a legally compliant redundancy process (or you want someone to review your restructure proposal and communications before you send them), we can help. Reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.