Making an employee redundant is one of the toughest calls you’ll make as a small business owner.
Even when the business decision is genuinely necessary, redundancy in New Zealand isn’t something you can “just do” quickly. It’s a legal process that needs to be handled fairly, transparently, and with proper consultation.
This guide is updated for current expectations and practices, so you can approach redundancy decisions with clarity and confidence (and avoid turning a hard situation into a costly dispute).
What Does “Redundancy” Actually Mean In New Zealand?
In simple terms, a redundancy happens when a job is no longer required by the business.
The key point is that redundancy is about the role, not the person. You’re not making someone redundant because of performance or conduct. You’re saying the position itself is no longer needed (or the business needs fewer people doing that work).
Common Examples Of Genuine Redundancy
- Restructure: you’re changing how the work is done and certain roles disappear.
- Downturn or loss of key client: there isn’t enough work to justify a role.
- Automation or new systems: software or machinery replaces a task-heavy role.
- Business closure: the business (or a site/branch) is shutting down.
- Outsourcing: you’re moving work to an external supplier and internal roles reduce.
If the real issue is performance, lateness, misconduct, or capability, redundancy is usually the wrong process. Those situations need a proper performance management or disciplinary pathway, not a “redundancy label” to speed things up.
If you’re unsure which bucket your situation falls into, it’s worth getting advice early. A misstep here can trigger a personal grievance claim, even if you had good intentions.
Can You Make Someone Redundant? The Legal Tests You Need To Meet
In New Zealand, redundancy must be both:
- Substantively justified (there’s a real business reason for disestablishing the role), and
- Procedurally fair (you follow a fair process, including consultation).
You generally need to show that the redundancy is a legitimate business decision, and that you treated the employee fairly in how you got there.
Substantive Justification: Is The Business Reason Real?
Ask yourself:
- Is there a clear commercial/operational reason for the change?
- Do we have evidence (e.g. reduced revenue, cost pressures, duplicated functions, operational redesign)?
- Does the proposed new structure actually remove the role (or materially change it)?
It doesn’t mean the business must be failing. You can restructure for efficiency or sustainability. But you do need to be able to explain your “why” clearly and honestly.
Procedural Fairness: Did You Consult Properly?
Even if your business reason is solid, the process matters. In practice, “procedural fairness” usually means:
- Giving the employee genuine notice that redundancy is being proposed
- Providing enough information so they can understand and respond
- Giving them a real opportunity to provide feedback and propose alternatives
- Keeping an open mind and considering their feedback before deciding
This is where many small businesses get caught out. It’s tempting to jump straight to a decision, especially if cash flow is tight. But skipping consultation (or treating it like a tick-box step) is risky.
What Is A Fair Redundancy Process? A Step-By-Step Guide
A redundancy process doesn’t need to be complicated, but it does need to be structured and well-documented.
Here’s a practical step-by-step approach that fits most small business scenarios.
1. Prepare The Business Case And Proposed Changes
Before speaking to the employee, get clear internally on:
- What is changing (structure, reporting lines, tasks, hours, locations)?
- Why it’s changing (financial pressure, operational efficiency, client changes)?
- Which roles may be impacted and how
- Whether there are any alternatives (reduced hours, redeployment, natural attrition)
This is also a good time to check the employee’s Employment Contract for clauses on notice, consultation, redundancy compensation (if any), and redeployment.
2. Give A Proposal Letter And Invite Feedback
Next, provide the employee with a written proposal. This usually includes:
- The proposed changes and the reasons
- The impact on their role (e.g. disestablishment, changed duties, new role available)
- Any selection criteria (if more than one employee could be affected)
- An invitation to a meeting and a clear timeframe for feedback
- Their right to bring a support person or representative
Make sure the proposal reads like a proposal, not a pre-made decision. The tone matters.
3. Hold A Consultation Meeting (And Actually Consult)
In the meeting, you should:
- Walk through the proposal calmly
- Encourage questions
- Invite alternatives (for example, reduced hours, different duties, cost-saving ideas)
- Confirm next steps and how/when they can provide feedback
It can help to take notes and confirm them in writing afterwards, so there’s no confusion later.
4. Consider Feedback With An Open Mind
This step is easy to underestimate. You need to genuinely consider what the employee says.
That doesn’t mean you must accept their proposed solution. But you should be able to show you:
- read it,
- assessed it, and
- made a decision based on business realities.
5. Make A Decision And Communicate It In Writing
Once you’ve considered feedback, you can confirm your decision in writing.
If the outcome is redundancy, this letter typically covers:
- confirmation the role is disestablished
- the termination date (taking account of notice)
- the notice period (worked or paid out)
- final pay details (including annual leave)
- any redeployment options considered
- return of company property and offboarding steps
Where a termination date is approaching fast, business owners sometimes ask about paying out notice instead of having the employee work it. This needs to be handled carefully and in line with the contract and legal requirements, including how payment in lieu of notice works.
Key Risk Areas For Small Business Owners (And How To Avoid Them)
Redundancy disputes often aren’t about whether the business needed to change. They’re about how the process was handled.
Here are the big risk areas we see in small business redundancies.
1. Predetermining The Outcome
If the employee can tell you’d already decided, that can undermine the entire process.
Practical tip: use “proposed” language until a final decision is made, and allow enough time for feedback to be meaningful.
You don’t necessarily need to hand over every spreadsheet, but you do need to provide enough information for the employee to understand the reasons and respond.
For example, if the reason is financial pressure, give a clear explanation of the cost issue and the change being made to address it.
3. “Restructuring” But Rehiring The Same Role
If you remove a role and then shortly after advertise essentially the same job, the redundancy can look like a cover for another reason.
Sometimes you can legitimately create a new role that’s meaningfully different. But if you’re doing this, it’s important to document the differences clearly (duties, level, skills, reporting lines, hours, etc.).
4. Selection Mistakes (When More Than One Person Is Affected)
If you have multiple employees in similar roles and you only need to reduce headcount, you’ll often need a fair way to decide who is impacted.
This is where selection criteria comes in (for example, skills, experience relevant to the new structure, qualifications, performance history where appropriate).
The key is that criteria should be:
- relevant to the business’s future needs
- applied consistently
- explained to the employee as part of consultation
5. Forgetting About Redeployment Obligations
Redeployment means considering whether there are other suitable roles the employee could move into (even if that role is different from their current one).
You should consider:
- vacant roles now (or roles that are reasonably likely to become available)
- whether training would make the employee suitable within a reasonable timeframe
- the employee’s skills and experience
Redeployment doesn’t mean you must create a role that doesn’t exist. But you do need to genuinely consider options before terminating employment.
What Are Your Pay And Entitlement Obligations When Someone Is Made Redundant?
Redundancy almost always involves questions about what you need to pay out, and what the employee is entitled to on termination.
This will depend on the employment agreement and the employee’s accrued entitlements, but these are the common items to work through.
Notice Periods
Most employees have a notice period stated in their employment agreement (for example, 2 weeks or 4 weeks). If you want them to finish immediately, you may need to pay out notice rather than requiring them to work it (unless the contract allows otherwise and you apply it fairly).
Be cautious about “sending them home” without clarity. If you want them not to attend work during notice, you should document whether that’s paid notice, a mutual agreement, or another arrangement.
Annual Leave (Accrued And Owing)
Annual leave entitlements can get technical quickly, especially around anniversaries, pay calculations, and whether leave has been taken in advance.
As a general principle, employees must receive their final holiday pay correctly calculated, including any annual leave owed and (where applicable) holiday pay on any untaken portion.
Also be careful about trying to direct employees to take annual leave during the consultation period or notice period without understanding the rules. If this is something you’re considering, it helps to understand whether forced annual leave is allowed in your situation.
Redundancy Compensation
Unlike some jurisdictions, New Zealand does not have a universal statutory redundancy compensation scheme. That means redundancy compensation is typically only payable if:
- it’s provided for in the employee’s employment agreement, or
- there’s a workplace policy/custom and practice that creates an expectation.
Even if no redundancy compensation is payable, you still need to pay notice and all final entitlements.
Time Off To Look For Work
Some employment agreements provide time off for job searching during notice. Even if your agreement is silent, it can be a fair, practical step depending on the circumstances.
If an employee asks for flexibility, it’s often worth considering, especially if it reduces tension and supports a smoother exit.
How To Reduce The Chances Of A Personal Grievance (And Protect Your Business)
When redundancies go wrong, they often end up as a personal grievance claim. The good news is that many disputes are preventable with the right groundwork.
Have The Right Employment Documents In Place From Day One
Before you ever get to redundancy, your employment documents matter. A well-drafted employment agreement can:
- set expectations about duties and flexibility
- clarify notice requirements
- reduce ambiguity around policies and processes
It’s also worth ensuring your broader workplace policies are consistent with how you run your business. If you’ve grown quickly and your documents haven’t caught up, a Staff Handbook can help bring everything into line (especially around restructuring, consultation expectations, and leave management).
Consider Alternatives Before Redundancy (And Document Them)
Sometimes redundancy is unavoidable. But it’s still smart to consider alternatives, like:
- reducing hours by agreement (not unilaterally)
- temporary salary adjustments (with consent)
- redeployment into a different role
- pausing recruitment or using natural attrition
If you’re looking at changes to hours, be careful. Changing hours without agreement can create risk, so it helps to understand the rules around reducing staff hours before you take action.
Be Consistent And Calm In Communication
It sounds obvious, but communication style can make or break a redundancy process.
Stick to the facts, avoid blame language, and keep messaging consistent across meetings, emails, and letters. If there are multiple decision-makers, align internally first so the employee isn’t getting mixed messages.
Get Advice Early (Not After The Relationship Has Broken Down)
If you wait until the employee has already raised a complaint, your options can become limited.
Getting advice early can help you:
- structure consultation correctly
- draft clear, compliant letters
- handle redeployment and selection issues
- calculate termination dates and entitlements properly
If you’re already in a tricky situation, it may be worth speaking with an Employment Lawyer so you can make the next step the right one.
Key Takeaways
- Redundancy is about the role no longer being needed, not about the employee’s performance or conduct.
- A lawful redundancy requires both a genuine business reason and a fair process, including real consultation and consideration of feedback.
- A practical redundancy process usually involves a proposal, consultation meeting(s), a chance for the employee to respond, and a written decision with clear termination details.
- Common risk areas include predetermining the outcome, failing to provide enough information, unfair selection between employees, and not properly considering redeployment.
- On termination, you’ll usually need to address notice, final holiday pay, and any contractual redundancy compensation (if your agreement provides for it).
- Having clear employment documents and consistent workplace policies from day one makes restructures and redundancies far easier to manage fairly.
If you’d like help running a redundancy process the right way (or you’re not sure whether redundancy is the right option), you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.
