Do I Need A Lawyer To Make Staff Redundant?

Sarah runs a small software company in Wellington. After losing a major client, she thinks she needs to remove one account manager role and spread the work across the wider team. On paper, it looks simple. In practice, she is worried about saying the wrong thing, choosing the wrong person, or creating a personal grievance risk.

Redundancy can feel like a business decision, but the process is where many employers get caught out. Under the Employment Relations Act 2000, you need a genuine commercial reason and a fair process before you end employment for redundancy.

You don't always need a lawyer for every restructure. But there are some decision points where getting legal help before you consult can save you a lot of stress later.

Do I Need A Lawyer To Make Staff Redundant?

It depends on the risk level of the restructure, but you should get legal help before consulting employees if the redundancy isn't straightforward.

A straightforward redundancy might be a genuine role disestablishment where:

• the business reason is clear and well documented
• only one role is affected
• there's no performance or conduct issue in the background
• the employment agreement has clear notice and redundancy terms
• there are no complicated selection issues
• you can genuinely consider feedback before making a final decision

Even then, it's worth having your draft redundancy proposal and consultation letters checked. Small wording choices can make a big difference.

You should be more careful where the restructure involves:

• choosing between employees doing the same or similar work
• changing hours, pay, reporting lines or duties
• removing a role shortly after performance concerns, sick leave, parental leave or a complaint
• making several people redundant at once
• moving work to contractors or offshore providers without a clear contractor agreement
• senior employees, commission agreements or incentive plans
• employees who are on a visa, where employment and immigration issues may overlap

In those cases, legal help is usually about planning the process before you speak to staff. Once you have told employees the outcome too early, it's much harder to fix the process.

When Does A Restructure Become A Legal-Risk Matter?

A restructure becomes a legal-risk matter when the decision could look predetermined, unfairly targeted or poorly supported by evidence.

New Zealand redundancy law isn't just about whether your business is under pressure. The key question is whether you acted as a fair and reasonable employer could have acted in all the circumstances.

The Business Reason Needs To Be Real

A genuine redundancy usually means the role is no longer needed, or the work is changing in a way that means the old role won't continue. Common reasons include:

• loss of revenue or funding
• reduced customer demand
• automation or new systems
• merging two roles into one
• removing duplicated functions
• outsourcing a function to another provider

You don't need to prove the business would fail without the restructure. However, you should be able to show the commercial reason with documents such as budgets, forecasts, organisation charts, board notes or management papers.

The Timing Can Raise Questions

If you start a redundancy process soon after an employee raises a complaint, takes leave, questions their pay, refuses a change, or is in a performance management process, the process may be scrutinised closely.

That doesn't mean you can't restructure. It does mean your records need to show that the redundancy reason is separate from those issues and that you haven't used redundancy as a shortcut.

Replacing Employees With Contractors Needs Care

If you're restructuring employees out and moving the work to contractors, think carefully about both redundancy risk and worker classification risk. Since 21 February 2026, the contractor gateway test can classify a worker as a contractor if all criteria are met. Those criteria include having a written agreement saying the person is an independent contractor or isn't an employee, the ability to work for another person, the ability to choose when to work or subcontract, the ability to decline additional work without the arrangement ending, and having had a reasonable chance to get independent advice before signing.

If the gateway test isn't met, the common law tests may still be relevant. Those tests can look at factors such as control versus independence, how integrated the person is into the business, who bears financial risk, and what the real nature of the relationship is in practice. Calling someone an independent contractor won't fix an unfair redundancy process or an incorrect worker classification.

If your plan is to make an employee redundant and have the same work done by contractors, you should be able to explain why that's a genuine operational change, not just a cheaper way to do the same job. You still need a genuine reason, fair consultation and clear records.

What Does A Fair Redundancy Process In New Zealand Look Like?

A fair redundancy process in New Zealand means you consult before making a final decision, give enough information for employees to respond, genuinely consider their feedback, and then communicate the outcome clearly.

The Employment Relations Act 2000 doesn't give a single universal redundancy script. Instead, it requires good faith and fair process. In practice, that usually means you should follow these steps.

1. Prepare a proposal: write down the business reason, the roles affected, the proposed new structure and the options you have considered.
2. Check employment agreements: review notice periods, redundancy compensation, consultation wording and any redeployment clauses.
3. Invite affected employees to a meeting: explain that no final decision has been made and they can bring a support person or representative.
4. Share relevant information: provide enough detail for the employee to understand the proposal and respond, while protecting confidential business information where needed.
5. Consult properly: listen to feedback, answer questions and allow a reasonable time for a response.
6. Consider alternatives: look at redeployment, reduced hours, voluntary redundancy, retraining or other cost-saving options if they're realistic.
7. Make and communicate the final decision: confirm the outcome in writing, including notice, final pay and support arrangements.

What counts as a reasonable consultation period depends on the situation. A small restructure affecting one role may move faster than a large restructure affecting several teams. The key is that the employee has a real opportunity to influence the decision before it's made.

A common mistake is saying, "we have decided to make your role redundant" in the first meeting or letter. That wording suggests the outcome is already fixed. It's safer to frame the restructure as a proposal and explain that you'll consider the employee's feedback before making a final decision.

Another common mistake is only consulting about the employee's last day, rather than the redundancy itself. Consultation should cover the business reason, the proposed changes, the impact on the employee and any practical alternatives.

Do I Need To Offer Redeployment Or Redundancy Pay?

You should consider redeployment before confirming a redundancy, but whether you must offer a particular alternative role depends on the circumstances and the terms of the employment agreement.

As part of a fair process, you should look at whether there are suitable vacant roles in the business. This might include roles at the same level, roles with some retraining, reduced-hours roles, or roles in another team. If there's a potential option, discuss it with the employee rather than assuming they won't want it.

Be careful if you're asking an employee to apply for their own job, or for a very similar role, as part of the restructure. That may be appropriate in some selection processes, but you should have clear reasons and fair criteria.

New Zealand law doesn't require every employer to pay redundancy compensation. Redundancy compensation is usually required if it's set out in the employment agreement, a workplace policy, a collective agreement or another binding commitment. You'll still need to pay notice, any final wages, accrued holiday pay and other amounts owed under the agreement or law.

If the employment agreement is silent on redundancy compensation, don't assume the process is low risk. The employee may still be able to raise a personal grievance if the redundancy reason wasn't genuine or the process was unfair.

What Documents Should I Prepare Before Consulting?

Before you start consultation, it's helpful to prepare the documents you would want to see if the process was later questioned. This doesn't need to be a huge bundle, but it should be clear and consistent.

For many small businesses, the key documents include:

• a short restructure proposal explaining the commercial reason and the proposed new structure
• current and proposed organisation charts
• financial or operational information that supports the business reason, where relevant
• draft consultation letters and meeting notes
• a list of affected roles and possible redeployment options
• selection criteria, if more than one person is doing the same or similar role
• a final outcome letter covering notice, final pay, leave, equipment return and any support offered

If you need to select between employees, the criteria should be objective, relevant to the future needs of the business and applied consistently. For example, relevant skills, experience, qualifications and performance records may be appropriate. Avoid criteria that could disadvantage someone because of protected characteristics, leave, illness, family responsibilities or other irrelevant factors.

Good documents don't just protect you. They also make the process less stressful for employees because they can see what is being proposed and why.

When Should I Get Legal Help?

You should get legal help before you begin consultation if you're unsure about the business reason, the wording of the proposal, how to select employees, or whether the process could look connected to another workplace issue.

Legal support can be especially useful for:

• reviewing whether the restructure is genuinely about the role, not the person
• checking that consultation letters don't accidentally predetermine the outcome
• drafting fair selection criteria
• working through redeployment and final pay obligations
• responding to an employee's feedback or request for information
• managing overlap with performance, illness, parental leave, complaints or visa issues
• checking contractor arrangements if work is being outsourced after the restructure

It's usually better to ask for help early, even if you only need a document review or a quick strategy call. Once an employee has received a final decision letter, your options are narrower.

If an employee raises a personal grievance or says the redundancy isn't genuine, get advice before responding in detail. A careful, calm response can help narrow the issues and avoid making the dispute worse.

Key Takeaways

• You don't need a lawyer for every redundancy, but high-risk restructures should be checked before consultation starts.
• A lawful redundancy needs a genuine commercial reason and a fair process, including real consultation before any final decision.
• Be especially careful where timing could suggest the redundancy is linked to performance issues, complaints, leave or another workplace dispute.
• If you're moving work to contractors, separate the redundancy process from worker classification and check the 2026 contractor gateway test requirements.
• Redundancy compensation isn't automatic in New Zealand, but you must follow the employment agreement and pay all final entitlements.
• Strong proposal letters, selection criteria and outcome letters can reduce confusion and personal grievance risk.

If you'd like help with redundancy advice, consultation letters, employment agreements or contractor arrangements, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.