Redundancies In New Zealand: Legal Obligations And Fair Process

Redundancies are one of the toughest parts of running a small business.

Even when you’ve built a great team and you’re doing your best, changing market conditions, reduced revenue, losing a major client, or a restructure can mean the business simply can’t sustain the same headcount.

The tricky part is that in New Zealand, you can’t treat redundancies as a quick “business decision” and move on. You need to follow a fair process and meet your legal obligations, or you could face a personal grievance (and the cost, disruption and stress that comes with it).

Below is a practical guide to managing redundancies in NZ from an employer perspective, including what “genuine redundancy” means, what a fair process looks like, and the common mistakes we see small businesses make.

What Counts As A Genuine Redundancy In New Zealand?

A redundancy usually happens when a role is no longer required for genuine business reasons. In other words, you’re not “getting rid of a person” - you’re making the position redundant.

Common examples of genuine business reasons include:

• Financial pressure (e.g. sustained losses, reduced revenue, increased costs)
• Loss of a contract or client
• Restructure (e.g. merging roles, changing reporting lines, shifting work between teams)
• Technological change (e.g. automation reduces the need for certain tasks)
• Business closure (full or partial)
• Outsourcing some functions

In practice, a redundancy is more likely to be considered “genuine” when:

• there’s a clear and documented business rationale, and
• the work/role is genuinely reduced, removed, or materially changed.

Important: Even if you have a genuine reason, you can still get into trouble if the process is unfair. In NZ, process matters.

If you’re unsure whether you’re looking at redundancy or a performance issue, it’s worth slowing down. Performance management (and termination for performance) is a different pathway entirely and has its own risks and process requirements.

What Legal Obligations Apply When You’re Making Redundancies?

As a business owner, your key obligations around redundancies typically come from:

• Employment Relations Act 2000 (including good faith obligations)
• The employment agreement (what the contract says about restructuring, consultation, notice, redundancy compensation, etc.)
• Holidays Act 2003 (final pay, annual leave, public holidays, etc.)
• Human Rights Act 1993 (avoid discrimination in selection and process)
• Health and Safety at Work Act 2015 (a general duty to provide a safe work environment, which can include managing stress and change in a reasonable way)

Most of the real-world risk comes down to two things:

• Good faith and consultation (you need to give employees a genuine opportunity to provide feedback before a final decision is made), and
• Following your contract (notice periods, consultation clauses, redeployment provisions, and any redundancy compensation terms).

This is why having a clear, up-to-date Employment Contract matters. If your agreements are outdated, inconsistent, or silent on key steps, redundancies can become much harder (and riskier) to implement.

What Does A Fair Redundancy Process Look Like (Step-By-Step)?

A fair process is not just “nice to have” - it’s a core legal requirement in NZ. Even if your business case is strong, a rushed or predetermined process can create liability.

While every workplace is different, a typical fair process often looks like this:

1. Identify The Business Case (And Document It)

Before you talk to employees, you should be clear internally on:

• what has changed in the business
• why the current structure isn’t sustainable
• what options you’ve considered (including alternatives to redundancy)
• what your proposed “new structure” looks like.

This doesn’t need to be a 40-page report, but it should be coherent and backed by real information (for example, budgets, forecasts, workload levels, or client changes).

2. Prepare A Proposal (Not A Final Decision)

This is where many employers slip up. You can have a strong view about what needs to happen - but legally, you still need to treat the restructure as a proposal until consultation is complete.

Your proposal might include:

• the proposed structural change
• which roles may be disestablished
• any new or changed roles
• the timeline for feedback and next steps
• the selection process if there are “more people than roles”.

3. Consult In Good Faith (And Actually Consider Feedback)

Consultation usually includes:

• providing employees with the proposal and supporting information (where appropriate)
• meeting with affected employees (and allowing them to bring a support person or representative)
• giving a reasonable timeframe to provide feedback
• genuinely considering feedback before making your final decision.

If an employee raises an alternative (for example, reduced hours, redeployment, or a staged approach), you don’t automatically have to accept it - but you do need to consider it with an open mind, and be able to explain why it does or doesn’t work for the business.

Sometimes, an alternative to redundancies might include temporarily Reducing Staff Hours - but be careful here. Changes to hours and pay usually require agreement, and you’ll still want to approach it as a consultation process, not a directive.

4. Use Fair And Objective Selection Criteria (If Needed)

If a role is being removed entirely (for example, a function is no longer needed), selection might be straightforward.

But if you’re reducing the number of people doing similar work (e.g. going from 3 administrators to 2), you’ll usually need a fair selection process.

Selection criteria should be:

• relevant to the role (skills, experience, performance history where appropriate)
• objective where possible (avoid vague or personal criteria)
• non-discriminatory (avoid criteria that indirectly discriminate against protected groups)
• applied consistently.

A common pitfall is using “attitude” or “culture fit” as a deciding factor. If those issues exist, it can start to look like a performance/relationship issue dressed up as redundancy.

5. Consider Redeployment (And Document What You Looked At)

In many restructures, you should consider whether affected employees could reasonably be placed into:

• another existing vacancy
• a new role created by the restructure
• a substantially similar role in another part of the business.

You don’t necessarily have to create a role for someone, but you should show you’ve turned your mind to reasonable redeployment options.

6. Communicate The Final Decision And Confirm Notice/Entitlements

Once you’ve completed consultation and made a final decision, you should confirm outcomes in writing, including:

• the decision and the reasons (in plain English)
• the notice period (as per the employment agreement)
• any redundancy compensation (if the agreement provides it)
• what happens during the notice period (work expectations, handover, access to support)
• final pay details (annual leave, any outstanding entitlements).

Sometimes employers want to end employment immediately and pay out the notice period. This may be possible in some situations, but it needs to be handled carefully and in line with the employment agreement and NZ employment law. If you’re considering this approach, Payment In Lieu Of Notice is a key issue to get right.

What Payments And Entitlements Do You Need To Handle?

When redundancies happen, money becomes sensitive quickly. Clear calculations and communication can prevent misunderstandings (and claims) later.

Your obligations will depend on the employment agreement and the employee’s entitlements, but commonly include:

Notice Period

Employees are usually entitled to the notice stated in their employment agreement (unless you and the employee agree otherwise).

If there’s no clear notice period in the contract, you may still need to provide “reasonable notice” - which can be disputed and fact-specific. This is one reason it’s worth having properly drafted agreements in place from day one.

Annual Leave And Final Pay

Final pay commonly includes:

• payment for any unused annual holidays
• any alternative holidays owing
• any other contractual entitlements (commission, bonuses, allowances) depending on how they’re structured.

Employers sometimes ask whether they can require an employee to take annual leave during a restructure or notice period. The answer depends on the circumstances and the legal requirements around notice and agreement, so it’s important not to assume. If this is on your mind, Annual Leave rules can be a key piece of the puzzle.

Redundancy Compensation

Unlike some jurisdictions, redundancy compensation in NZ is not automatically payable in all cases. Whether you owe redundancy compensation depends largely on:

• what the employment agreement says, and
• any relevant workplace policies or established practices.

Even where compensation isn’t legally required, some businesses choose to offer an ex gratia payment to support employees and reduce the risk of disputes. If you do this, the terms should be documented carefully - and it’s worth getting accounting or tax advice on how any payment should be treated.

Restraints, Confidentiality, And Return Of Company Property

If your employee had access to sensitive information or customers, you’ll also want to manage the offboarding properly (devices, passwords, customer lists, keys, etc.). Where restraints of trade or confidentiality obligations apply, they should already be set out clearly in the employment agreement or related documentation.

Common Redundancy Mistakes Small Businesses Should Avoid

In our experience, redundancies go wrong less because of “bad intentions” and more because business owners are busy, stressed, and trying to keep the business afloat.

Here are some of the most common mistakes to watch for:

Deciding First, Consulting Later

If you treat consultation as a box-ticking exercise (or only “inform” employees after you’ve already locked in the decision), you’re taking on real risk.

You can have a preferred option - but the process still needs to be genuinely open to feedback.

Using Redundancy To Deal With Performance Issues

If the true driver is performance, conduct, or a strained relationship, redundancy is usually the wrong tool.

That’s because redundancy is about the role no longer being needed, not the employee not meeting expectations. If you’re mixing the two, you can end up with claims that the redundancy was not genuine.

Not Providing Enough Information

Employees typically need enough information to understand what’s being proposed and why, so they can give meaningful feedback. That doesn’t mean you need to disclose every detail of your finances, but you do need to share what’s reasonably necessary.

Unclear Or Inconsistent Selection Criteria

If you need to select between employees, make sure your criteria are role-related and applied consistently. If different managers “score” differently or rely on informal impressions, it can create arguments that the outcome was unfair.

Ignoring Alternatives (Or Not Explaining Why They Don’t Work)

Employees may propose alternatives like reduced hours, job-sharing, or moving to another role. You don’t always have to adopt them - but you should be able to explain why they’re not workable for your business.

If you want a broader picture of what’s involved (and what can trip you up), the overview in Redundancy planning is a useful reference point when you’re mapping out your next steps.

How To Protect Your Business While Treating People Fairly

When redundancies are handled well, they can protect the future of your business and preserve relationships and reputation.

A few practical tips that can make a big difference:

• Start early: if you think redundancies may be needed, get advice before the first conversation. Early planning is usually cheaper (and less stressful) than fixing mistakes later.
• Keep records: file notes of meetings, copies of proposals, feedback received, and the reasons for decisions.
• Be consistent: make sure managers are aligned on messaging and process so employees aren’t hearing different things.
• Think human: restructures are stressful. Clear communication, reasonable timelines, and respectful meetings reduce risk and help people move forward.
• Check your documents: your employment agreements, policies, and any restructure clauses should align with how you intend to manage change.

If you’re making changes across your team, it’s also worth sanity-checking the legal paperwork you’re relying on. For example, if your business has grown quickly and you’ve been hiring on the run, your Employment Contract terms might not match your current structure, notice provisions, or restructure process.

And if you’d like hands-on support through the process (including drafting the proposal letters and consultation documents), Redundancy Advice can help you move quickly while keeping the process compliant and fair.

Key Takeaways

• Redundancies in New Zealand need both a genuine business reason and a fair process - getting one without the other can still create legal risk.
• A fair redundancy process usually includes a documented business case, a proposal (not a predetermined decision), genuine consultation, and clear written outcomes.
• If you need to reduce headcount within a group, use objective, role-related selection criteria and apply them consistently.
• Always check the employment agreement for notice, consultation clauses, and any redundancy compensation terms, and handle final pay and leave entitlements carefully.
• Common pitfalls include treating consultation as a formality, using redundancy to solve performance issues, and not considering (or documenting) alternatives like reduced hours or redeployment.
• Getting legal help early can save you significant time, cost and stress - especially when emotions are high and timelines are tight.

If you’d like help managing redundancies or planning a restructure in a way that protects your business and treats your team fairly, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.