How to Handle Redundancy Fairly in New Zealand

If you’re running a small business, redundancy is one of those topics you hope you won’t need to deal with - until cashflow tightens, a major client leaves, or your business model needs to change.

Redundancy can be a legitimate business decision in New Zealand. But it’s also an area where employers often face allegations of unfair redundancy, usually because the process wasn’t handled correctly (even if the underlying reason was genuine).

In this guide, we’ll break down what “unfair redundancy” generally looks like in NZ, the legal obligations you need to be mindful of, and the practical steps you can take to reduce legal risk while still making the changes your business needs.

What Is “Unfair Redundancy” In NZ (From An Employer Perspective)?

In simple terms, an employee may allege unfair redundancy when they believe:

• the redundancy wasn’t genuine, or
• the redundancy process wasn’t fair and reasonable, or
• the employer predetermined the outcome (i.e. decided to dismiss first and consult later).

In NZ, redundancies sit within broader obligations under the Employment Relations Act 2000, including the duty of good faith. In practice, that means you need to be transparent, provide relevant information, consult meaningfully, and genuinely consider alternatives - not just “tick a box”.

It’s also important to remember that an “unfair redundancy” allegation is often raised as a personal grievance (for unjustified dismissal). That can lead to legal costs, management time, reputational damage, and potentially compensation and/or reinstatement outcomes depending on the situation.

If you’re weighing up restructure options, getting Redundancy Advice early can be a smart risk-management move, especially if you’re trying to move quickly while still doing things properly.

When Is A Redundancy Considered Genuine?

A redundancy is generally considered “genuine” when the employee’s role is no longer required for legitimate business reasons. Common examples include:

• Downturn in work or revenue, requiring a reduction in labour costs
• Loss of a client or contract
• Restructure to improve efficiency (e.g. merging roles, changing reporting lines)
• Outsourcing a function (e.g. bookkeeping, marketing, IT support)
• Introducing new technology that changes how work is done
• Closing a location or ceasing a product/service line

But here’s the catch: even if your business reason is legitimate, the redundancy can still be challenged as unfair if the process is mishandled.

Also, if you remove a role and then shortly after hire someone else into a very similar position (or re-create the same job under a different title), that can raise red flags about whether the redundancy was truly necessary.

It’s often worth doing a careful “before and after” comparison of duties and responsibilities - not just job titles - and documenting your rationale as you go.

Redundancy Vs Reducing Hours

Sometimes the business need is not to remove a role entirely, but to reduce staffing costs. In those cases, a redundancy may not be the right tool. You might instead be considering changes like reduced hours or different shifts.

Be careful: reducing someone’s hours is typically a change to their employment terms, and it’s not something you can do unilaterally just because the business is under pressure. If this is what you’re looking at, it’s worth reading about Reducing Staff Hours and getting tailored advice for your situation.

What Makes A Redundancy “Unfair”: The Most Common Employer Missteps

In our experience, small businesses often get caught out by the process rather than the business rationale.

Here are some of the most common issues that can lead to an unfair redundancy allegation:

1. You Decided The Outcome Before Consulting

If you effectively decide “this person is gone” and then run a consultation meeting as a formality, that’s a big risk area.

Consultation should be genuine. You can have a proposal and a preferred direction, but you need to keep an open mind and be willing to adjust based on feedback where reasonable.

2. You Didn’t Provide Enough Information

To consult meaningfully, employees usually need enough information to understand the proposal and respond to it.

That doesn’t necessarily mean handing over every financial document you have. But it often means sharing relevant information such as:

• what business change is proposed (and why)
• which roles may be impacted
• what alternatives you considered (and why they may not work)
• the proposed timeline and decision-making process

3. Your Selection Process Was Unclear Or Inconsistent

If more than one person could be affected (for example, you have multiple employees in similar roles), you need a fair selection process.

Employers can use selection criteria, but it should be:

• relevant to the future needs of the business
• objective where possible
• applied consistently
• explained to the affected employees

Selection criteria that are vague (or that appear to target one person) can quickly become a legal risk.

4. You Didn’t Seriously Consider Redeployment

Redeployment isn’t always possible in a small business - but you should still turn your mind to it.

That can include looking at:

• vacant roles (even if different from the employee’s current role)
• roles that may become vacant soon
• reasonable training or upskilling (if practical)
• part-time or modified duties arrangements (where workable)

If you don’t consider redeployment at all, it can make the dismissal look more like a predetermined termination than a genuine restructure.

5. You Treated It Like A Performance Issue

Redundancy is about the role no longer being required - it should not be used as a shortcut for performance management or interpersonal issues.

If an employee suspects redundancy is being used to “get rid of them”, they’re much more likely to bring an unfair redundancy claim.

A Practical Step-By-Step Process To Reduce Unfair Redundancy Risk

Every workplace is different, but a fair redundancy process often follows a clear structure. Here’s a practical roadmap you can adapt to your business.

Step 1: Clarify The Business Case (And Document It)

Start by writing down, in plain language:

• what has changed in the business
• why the current staffing structure isn’t sustainable
• what options you considered (and why you’re proposing redundancy)

This becomes the backbone of your proposal and helps you stay consistent throughout the process.

Step 2: Prepare A Restructure Proposal

Your proposal might include:

• the current structure and proposed structure
• roles potentially disestablished or changed
• new roles (if any) and how people can be considered for them
• selection criteria (if multiple employees are in scope)
• a proposed consultation timeframe

If you already have clear employment documentation, it’s easier to navigate notice periods, consultation expectations, and any redundancy-related clauses. If you’re tightening up your HR foundations, having a solid Employment Contract in place for each employee can reduce uncertainty when changes arise.

Step 3: Start Consultation Early (And Keep It Genuine)

Consultation should happen before decisions are final.

Practically, that often looks like:

• a meeting to explain the proposal
• providing the proposal in writing
• giving the employee reasonable time to respond
• considering their feedback with an open mind

It’s also a good idea to encourage employees to bring a support person to meetings, and to keep careful notes of what was discussed.

Step 4: Consider Alternatives And Redeployment

During and after consultation, pressure-test the proposal:

• Can costs be reduced another way?
• Is there work that can be reshaped or redistributed without removing the role?
• Is there another position the employee could move into?

You don’t have to accept every suggestion (and you can still make hard commercial calls), but you should be able to show you genuinely considered options.

Step 5: Make A Decision And Communicate It Clearly

Once consultation is complete, confirm the outcome in writing. If the role is being disestablished, your letter should clearly cover:

• the decision and the reasons for it
• what consultation occurred and what feedback was considered
• the final date of employment (taking notice into account)
• any entitlements payable (e.g. annual leave owing)

If you’re unsure about what’s standard in NZ redundancies (and what can create legal risk), it can help to cross-check the basics in Redundancy What You Need To Know.

Step 6: Handle Notice And Final Payments Correctly

Notice periods are usually set by the employment agreement. In some cases, you may consider paying out notice instead of having the employee work it - but this needs to be handled carefully and in line with the agreement and a fair process.

If you’re considering this option, it’s worth understanding the risks around Payment In Lieu Of Notice before you take action.

Final payments commonly include:

• salary/wages up to the termination date
• payment for any untaken annual leave (if applicable)
• other contractual entitlements (if any)

Redundancy compensation is not automatically required by law in NZ - it usually depends on what the employment agreement says and what you’ve agreed through the process.

Special Situations: Restructures, “Forced” Redundancy, And Settlement Options

Redundancy doesn’t always look like a straightforward “role removed, person leaves”. Here are a few scenarios that commonly create confusion (and risk) for small business employers.

When It Feels Like “Forced Redundancy”

Sometimes an employee will say they’re being “forced” out - for example, if the employer presents only one option or applies pressure to resign.

From an employer perspective, the key is this: if the role is genuinely no longer required, you can propose disestablishing it - but you still need a fair process and genuine consultation.

It can help to understand the difference between consultation outcomes and “take it or leave it” situations, which we talk about in Voluntary Vs Forced Redundancy.

When You’re Offering A Settlement

In some cases, you may want to offer a settlement to bring the employment relationship to an agreed end, especially if:

• there’s heightened conflict or mistrust
• you’re concerned a personal grievance may be raised
• both sides want certainty and a clean break

Any settlement should be documented properly to reduce the chance of future disputes. In NZ, a “full and final” settlement is usually done through a settlement agreement under the Employment Relations Act (including the section 149 process), which typically involves the employee getting independent advice and a signed certificate. This is where a Deed Of Settlement can be relevant, particularly where confidentiality and full-and-final terms are important.

Because settlements can create their own legal risks if handled poorly, it’s worth getting advice on the right structure and wording for your situation.

When Your Business Is Changing Hands

If you’re selling your business, taking on a partner, or changing your company ownership structure, redundancy risks can also pop up during the transition.

For example, incoming owners may want to restructure early, or employees may be uncertain about their future. If this is your context, it’s worth being careful about timing, communication, and consultation, especially if the restructure is linked to the transaction.

It’s also important to be aware that some employees have special statutory protections on a sale or transfer of a business (including under Part 6A of the Employment Relations Act for certain “vulnerable workers”). These rules can affect what options are available, the consultation required, and whether employees must be offered transfer to the new employer on existing terms.

Key Takeaways

• Unfair redundancy allegations in NZ often arise because the process wasn’t fair or genuine consultation didn’t occur - even if the business reason was real.
• A redundancy should be based on a genuine business need (the role is no longer required), not used to manage performance or relationship issues.
• To reduce legal risk, you should document the business case, provide relevant information, consult early, and genuinely consider feedback and alternatives.
• If multiple employees are affected, you’ll usually need a fair and consistent selection process based on criteria that reflect the future needs of the business.
• Pay close attention to notice, final pay, and leave entitlements, and be cautious about payment in lieu of notice or any “quick exit” approach.
• If you’re considering a full and final settlement, it’s important to document it properly (and usually follow the Employment Relations Act settlement process, including independent advice) so you can confidently move forward.

If you’d like help running a redundancy process properly (or reviewing a restructure proposal before you take it to your team), you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.