Redundancy is one of those business decisions no employer wants to make - but sometimes, it’s the only realistic option to keep the business viable.
If you’re considering a restructure, downsizing, or closing a role, the key thing to remember is this: in New Zealand, redundancy isn’t “just a business decision”. It’s a legal process that must be carried out fairly, in good faith, and in line with your employment agreements.
This guide is updated to reflect current expectations and best practice, so you can approach voluntary and forced redundancies with more confidence (and fewer surprises).
We’ll walk you through what redundancy really means, the difference between voluntary and forced redundancy, what a fair process looks like, and how to reduce legal risk while treating your team respectfully.
What Counts As A Genuine Redundancy In New Zealand?
Redundancy happens when a job is no longer needed for genuine business reasons. It’s about the role being disestablished or changed - not about the employee personally.
Common examples of genuine redundancy include:
- a restructure that removes duplicate roles
- a downturn in work requiring fewer staff in a particular function
- outsourcing or automation meaning certain tasks aren’t required internally
- a site closure or business shutdown
- a change in operating model (e.g. merging departments)
In New Zealand, redundancy processes are heavily influenced by the duty of good faith under the Employment Relations Act 2000. In practical terms, that means you generally need to:
- be transparent about the reasons for change
- consult genuinely before making a final decision
- consider feedback with an open mind
- run a fair selection process if more than one person may be impacted
If you’re unsure what the overall legal landscape looks like, it can help to start with a plain-English overview of redundancy and how it works in practice.
Important: A redundancy can still be challenged even if your business reasons are real, if the process is unfair (for example, if you pre-decide the outcome, fail to consult, or use redundancy to remove a “problem employee”).
Voluntary Vs Forced Redundancy: What’s The Difference?
Most employers use “redundancy” as a general label, but there are two common pathways:
- Voluntary redundancy: you invite employees to volunteer to leave (usually with a redundancy package or incentive).
- Forced redundancy: you identify roles that will be disestablished and employees are selected and exited through a formal process.
If you’re deciding between the two, it helps to understand the practical pros and cons in real workplaces - the difference is explained clearly in voluntary vs forced redundancy.
When Voluntary Redundancy Can Make Sense
Voluntary redundancy is often used when:
- you need to reduce headcount but want to minimise conflict and distress
- there are multiple roles that could potentially be removed
- you want to avoid a competitive selection process
- you anticipate people may already be considering leaving (e.g. retirement, relocation, career change)
That said, “voluntary” does not mean “informal”. You still need a structured and fair approach, including clear criteria for accepting volunteers (so you don’t accidentally lose the wrong skill sets).
When Forced Redundancy May Be Unavoidable
Forced redundancy is more likely where:
- a specific role is being removed entirely
- a team is being scaled down and you need to retain certain capabilities
- the business has clear operational needs that can’t be met by relying on volunteers
Forced redundancy carries more legal risk because it often involves:
- role disestablishment decisions that need to be well supported
- selection decisions (which can trigger claims of unfairness, discrimination, or personal grievance)
- heightened emotional impact on staff, which can escalate quickly if communication isn’t handled carefully
How Do You Run A Fair Redundancy Process (Step-By-Step)?
A fair redundancy process is usually less about “perfect paperwork” and more about doing the fundamentals consistently: transparency, consultation, and genuine consideration of alternatives.
Here’s a practical step-by-step approach many NZ employers follow.
1) Confirm The Business Rationale (And Document It)
Before you speak to employees, get clear on the commercial reasons for change. Ask yourself:
- What problem are we solving (financial, operational, strategic)?
- What evidence supports that (budgets, forecasts, workload data, contracts lost, cost reports)?
- What changes are proposed (disestablish role, merge roles, change duties, reduce hours)?
If your “change” is really about reduced workload rather than removing roles entirely, you may want to consider alternatives like reducing staff hours - but only where it’s legally available and done through proper consultation.
2) Check The Employment Agreements (Yes, Every Time)
Your employment agreements set the baseline rules for notice periods, consultation expectations (if specified), and redundancy compensation (if included).
This is also where you need to be careful about what the role actually is. Job titles don’t always match job content, and outdated job descriptions can cause confusion in a restructure.
If you’re hiring or updating documents as part of a restructure, it’s worth ensuring your Employment Contract terms are current and consistent with how your business actually operates.
3) Prepare A Proposal (Not A Final Decision)
One of the most common mistakes employers make is walking into the first meeting with a “decision” already locked in.
Instead, you usually want a written proposal that explains:
- the reasons for the proposed change
- what roles may be impacted
- what the new structure may look like
- the feedback period and how employees can respond
- what support is available (e.g. time to get advice, EAP if you have it)
Your proposal should be detailed enough that staff can give meaningful feedback - but you should still remain open to alternatives.
4) Consult In Good Faith
Consultation isn’t just telling employees what’s happening. It usually includes:
- giving employees information about the proposal
- giving them reasonable time to consider it (including time to get advice)
- meeting with them (and allowing a support person/representative)
- genuinely considering feedback before making a final decision
There isn’t one “correct” timeframe for consultation - what’s reasonable depends on the scale of the change, the number of staff impacted, and the complexity of the proposal.
5) Consider Redeployment And Alternatives
Before confirming redundancy, you should generally consider whether affected employees can be redeployed into:
- vacant roles in the business
- new roles created in the restructure
- other suitable positions (even if some training is required)
Alternatives can also include:
- freeze on recruitment
- reduced overtime
- reducing contractors
- temporary cost-saving measures
- voluntary redundancy first (where appropriate)
Whether you must offer redeployment will depend on the circumstances and the employment agreement, but it’s commonly expected as part of a fair process.
6) If Selection Is Needed, Use Clear And Objective Criteria
If you have multiple employees doing similar work and only some roles will remain, you’ll likely need a selection process.
Selection criteria should be:
- relevant to the future needs of the business
- objective where possible (skills, qualifications, performance data)
- consistent across employees
- documented so you can explain how you reached your outcome
Be careful with criteria that can be indirectly discriminatory (for example, selecting based on “flexibility” without defining what that means in the job can raise issues under the Human Rights Act 1993).
7) Confirm The Outcome And Communicate It Properly
Once you’ve genuinely consulted and considered feedback, you can confirm the outcome in writing. Your letter will usually cover:
- the decision and reasons
- the employee’s last day of work
- notice period (and whether they’ll work it)
- final pay items (holiday pay, any redundancy compensation, etc.)
- any support available (references, time for interviews, EAP)
This is also where employers often ask about payment in lieu of notice - which can be possible, but it depends on the employment agreement and the circumstances. It’s a detail worth getting right, because mistakes here can quickly create disputes.
What Are Your Pay And Notice Obligations In A Redundancy?
Redundancy pay and notice can be confusing, especially because New Zealand doesn’t have a universal statutory redundancy payout like some other countries.
In general, you should look at:
Notice Periods
The notice period is usually set out in the employment agreement. If the agreement is silent, reasonable notice may apply, but “reasonable” is fact-specific and can become a dispute point - so it’s best to have clear contractual notice provisions.
Redundancy Compensation (If Any)
In NZ, redundancy compensation is only payable if it’s:
- set out in the employment agreement; or
- agreed as part of the redundancy process (for example, to encourage voluntary redundancy or resolve a dispute); or
- part of an established policy/practice that may create expectations.
Even where there’s no redundancy compensation clause, you still must follow a fair process and provide notice.
Final Pay (Holidays And Other Entitlements)
Final pay typically includes:
- salary/wages up to the termination date
- any outstanding annual holiday pay (under the Holidays Act 2003)
- any alternative holidays, if applicable
- any contractual redundancy compensation (if applicable)
As an employer, you’ll also want to be mindful of the Wages Protection Act 1983 (for example, around what deductions can be made from wages and when).
Because final pay calculations can get technical, it’s a good idea to coordinate with your payroll provider/accountant and get legal advice if you’re offering a tailored redundancy package.
Common Redundancy Risks (And How To Avoid Them)
Even employers with good intentions can run into trouble during redundancies - usually because things moved quickly, communication got messy, or the business tried to “simplify” the process.
Here are some common risk areas to keep on your radar.
Predetermining The Outcome
If you’ve already decided who is going, consultation can become a box-ticking exercise - and that’s exactly what creates personal grievance risk.
Tip: Treat your proposal as genuinely open to change. If feedback won’t change anything, you should reconsider whether you’re consulting in good faith.
If the real issue is performance, redundancy is the wrong tool. You’ll usually need a proper performance management process instead.
Mixing redundancy and performance concerns is a common reason redundancies get challenged.
Inconsistent Or Unclear Selection Criteria
If employees don’t understand how selection worked - or you can’t clearly explain it later - you’re more exposed to disputes.
Tip: Use criteria linked to future role requirements, and keep written notes of how decisions were made.
Poor Communication And Workplace Culture Fallout
Redundancies don’t only impact the people leaving. They also affect the people staying, and mishandling the process can damage trust and productivity for months.
Tip: Plan your comms carefully, keep messaging consistent, and consider what you’ll say to the wider team after decisions are made (without breaching privacy).
Not Having The Right Documents
Redundancy often needs more than one letter. You may need:
- a restructure proposal letter
- meeting invitation letters
- selection outcome letters (where relevant)
- final redundancy confirmation letters
- updated role descriptions and organisation charts
Having the right suite of documents can make the process clearer and much easier to manage consistently. In more complex situations, employers often use an Employee Termination Documents Suite so the process doesn’t rely on ad-hoc drafting under pressure.
Key Takeaways
- A redundancy must be based on a genuine business reason, and you still need to follow a fair process even if the business case is strong.
- Voluntary redundancy can reduce conflict, but you should still set clear rules and document your process so it’s genuinely fair and consistent.
- Forced redundancy usually requires more structure, especially where selection is involved - objective criteria and good documentation matter.
- Consultation in good faith is not optional: you generally need to provide information, allow feedback, and genuinely consider alternatives before confirming outcomes.
- Redundancy pay isn’t automatically required in NZ unless the employment agreement (or an agreed package) provides for it - but notice and proper final pay still apply.
- Common pitfalls include predetermining outcomes, mixing redundancy with performance issues, and rushing communication without the right documents.
If you’d like help planning or running a redundancy process (including voluntary redundancy offers, selection criteria, letters, and risk management), our team can help. You can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.
