The New Zealand Employment Court issued a recent decision in Johnston v The Fletcher Construction Company Limited [2019] NZEmpC 17 on what constitutes a redundancy in the context of a restructuring, and when contractual redundancy payments are triggered.

Facts of the case

This case involves a senior employee ("Johnston") who claimed a breach of contract against his employer, Fletcher Construction Company ("Fletcher"), on the basis that Fletcher failed to give him a notice of termination and to make a redundancy payment as set out in his contract, when his position had been made redundant following a restructuring. Johnston's employment contract contained a generous redundancy provision as follows:

"REDUNDANCY

Redundancy is where a position or employee has become superfluous to the needs of the company.

If we terminate this agreement due to redundancy ... then you WILL be entitled to redundancy compensation. The amount of compensation will depend on your length of service with the Company at the time of your redundancy and will be calculated as a number of weeks of your base salary as follows; 6 weeks for your first year of service, plus 2 weeks for each additional year of service (pro rated), up to a maximum of 20 years of service.

However, ... we would give you one month's written notice of termination."

Johnston was employed as a Financial Controller in Fletcher and was responsible for providing a financial overview across the company. Fletcher restructured its financial services by removing all senior accounting positions, including Johnston's position, and replacing them with seven new positions. Johnston had been invited to apply for the new positions created by the restructuring and was appointed to the Business Performance Manager role. Johnston was due to commence working in the new position on 3 October 2016.

However, the new draft employment agreement was not acceptable to Johnston as it did not provide the same redundancy compensation, and did not recognise his service as continuous for the purposes of long service leave. Johnston raised a personal grievance, alleging a failure by Fletcher to comply with the existing employment agreement as Fletcher did not terminate Johnston's employment for redundancy when the role of Financial Controller became redundant on 3 October 2016. Fletcher eventually resigned from his employment.

Was Johnston's position redundant?

The New Zealand Employment Court accepted that Fletcher's decision to restructure its financial services might lead to workforce surplusage. However, it did not automatically follow from a restructuring that employees must be surplus to requirements or that jobs have ceased to exist.

In this case, the Court was satisfied that the Financial Controller role had not "as a matter of fact, disappeared or sufficiently diminished, or been altered, to such a degree that it no longer existed" as the positions of Financial Controller and Business Performance Manager were sufficiently similar.

The factors considered were whether the old and new positions:

(a) involved the same pay and benefits;

(b) provided work to be performed in the same location;

(c) had the same hours of work;

(d) were equivalent roles within the organisation's structure;

(e) were of different status; and

(f) required similar managerial credentials and experience.

The Business Performance Manager's role was for work in the same location, reporting to the same manager, holding the same status in the company, requiring the same skills and experience and involving similar tasks.

Key takeaways

In a restructuring, employers need to assess whether there are contractual redundancy payment obligations applying to the employees affected which may be triggered in a restructuring. If so, employers should consider whether alternative positions within the new structure displace any such entitlements to a redundancy payment.