10 Costly Mistakes Employers Make When Making A Role Redundant

For many small and medium business owners, redundancy is one of the hardest employment processes they will face.  You might be under financial pressure. Sales may have slowed down. You may need to restructure your business to survive. Or technology and changing customer demand may mean a role simply no longer fits your operation.  But here’s the problem.  In New Zealand, redundancy is not just a business decision. It is a legal process.

Even when an employer has genuine commercial reasons for restructuring, the wrong process can quickly turn into a personal grievance, costly settlement, damaged reputation, and months of stress. 

Here are the 10 biggest pitfalls to avoid when disestablishing a role and making an employee redundant in New Zealand.

1. Deciding the Outcome Before Consultation Starts

One of the biggest mistakes employers make is treating consultation as a box-ticking exercise.  Under New Zealand employment law, consultation must be genuine. That means the final decision cannot already be made before employees have had a real opportunity to give feedback.  Many employers accidentally undermine their own process by saying things like ‘We’ve decided to remove your role,’ ‘This is happening next week,’ or ‘Your position is redundant’ before consultation has even started.

Under the Employment Relations Act 2000, employers must act in good faith. This includes being open, communicative, and genuinely considering employee feedback.  If the employee can prove the decision was already made before consultation occurred, the entire process may be found unfair.  The potential ramifications of this may be personal grievance claims, lost wages compensation, hurt and humiliation payments, legal costs and damage to workplace trust.  

The Employment Relations Authority (ERA) regularly criticises employers who appear to have “predetermined” redundancy outcomes.

2. Failing to Show a Genuine Business Reason

A redundancy must relate to the role, not the person.  This is where many businesses get themselves into trouble.  If an employer is actually trying to remove an underperforming employee but labels it as a redundancy, the ERA may view the process as a sham redundancy.  A genuine redundancy usually involves business issues such as financial pressure, restructuring, reduced workload, technology changes, business sale or closure or efficiency improvements.  You need to be able to explain why the business change is necessary, why the role is no longer needed, and how the proposed structure will operate moving forward.  

The courts generally do not question whether your business decision is smart. However, they will examine whether it is genuine and made in good faith.  The potential ramifications of getting this wrong are that the redundancy may be ruled unjustified, the employee may need to be reinstated, or there may be financial penalties and significant settlement costs.  

3. Not Providing Enough Information During Consultation

Employees are entitled to understand the proposal affecting their job.  A common mistake is giving vague explanations like the business is restructuring, we need to cut costs, or things are tight.  That is not enough.  Employees should receive enough information to meaningfully respond to the proposal.  This might include:

• Proposed new structure,

• Financial or operational reasons,

• Which roles are affected,

• Proposed timelines, and

• Selection criteria if applicable.  

Employers do not necessarily need to hand over highly confidential information, but they do need to provide enough detail for employees to properly participate in consultation.  When employers withhold information, employees often assume the process is unfair or dishonest.

Failure to do so may result in a breach of good faith obligations, unjustified dismissal claims, delays and disputes, and increased risk of mediation or ERA proceedings.  

4. Rushing the Process

Small business owners are often under pressure to act quickly.  Unfortunately, redundancy processes that move too fast are one of the easiest ways to lose a personal grievance claim.  Employees need reasonable time to read the proposal, seek advice, ask questions, and provide feedback.  What is reasonable depends on the complexity of the restructure, but giving someone 24 hours to respond to losing their livelihood is rarely enough.  Consultation should feel fair and measured. The faster you rush, the slower and more expensive the aftermath can become.

Moving too quickly through consultation may mean that the process is ruled procedurally unfair, employees may be awarded compensation, there may be increased legal scrutiny on the business, and it may affect employee engagement and morale.  

5. Forgetting About Redeployment Options

Before making someone redundant, employers should consider whether there are alternative roles available within the business.  This is called redeployment.  Even if the role is different, lower-level, or requires some retraining, employers should still consider whether it is a reasonable option.  Many employers fail to assess alternative vacancies, discuss possible redeployment with affected employees, or consider reduced hours or adjusted duties.  

The ERA expects employers to actively turn their minds to alternatives before terminating employment.  For larger businesses or groups of companies, this obligation can become even more important.

Missing redeployment opportunities may result in findings of unfair dismissal, claims that the employer acted unreasonably and increased compensation exposure.  

6. Using Poor Selection Criteria

Sometimes a business is reducing the number of similar roles rather than removing an entire function.  For example, reducing five sales roles down to three, reducing administration staff, or merging departments.  This is where selection criteria for remaining available roles become critical. Poor selection methods might include:

• Choosing people based on personality,

• Using subjective opinions,

• Targeting “difficult” employees, or

• Making decisions without evidence.  

Selection criteria should be objective, transparent, relevant to business needs, applied consistently and communicated effectively.  Examples include skills, qualifications, performance history, experience and attendance records.  Employers should also document how decisions were reached.

Getting this wrong might result in allegations of discrimination, personal grievance claims from affected employees, allegations of bias or retaliation, and, ultimately, increased legal costs.  

7. Ignoring Discrimination Risks

Redundancy decisions can create significant legal risk if protected characteristics appear to influence outcomes.  Under the Human Rights Act 1993, employers cannot discriminate based on factors such as age, gender, pregnancy, disability, race, family status or religious belief.  For example, employers can run into serious problems if:

• A pregnant employee is selected shortly after announcing maternity leave,

• Older workers are targeted because they are “close to retirement,” or

• Parents with flexible hours are chosen first.

Even if discrimination was not intentional, poor documentation and weak decision making can create the appearance of unfairness.

Missteps in this process can result in Human Rights Commission complaints, personal grievances, financial penalties, and, in some cases, serious reputational damage.  

8. Failing to Follow the Employment Agreement

Many employers forget to check the employee’s employment agreement before starting the process, particularly if contracts are not standard across all employees.  That is a major risk.  Some agreements may contain specific redundancy clauses, consultation requirements, notice periods, and redundancy compensation entitlements.  If your agreement promises redundancy compensation and you fail to pay it, you may breach contract obligations.  If your agreement outlines a process, you must follow it.

Failure to do so may result in breach of contract claims, wage arrears disputes, and penalties and compensation.  This is one reason we always recommend employers review agreements carefully before beginning any restructure process.

9. Communicating Poorly With the Team

Employers often focus entirely on the affected employee and forget the wider team.  But redundancy processes can create fear, gossip, and uncertainty across the whole workplace.  If communication is poor productivity may drop, staff morale suffers, good employees may leave, and workplace trust erodes.  You do not need to share confidential information, but you should communicate clearly and professionally with remaining staff.

People understand businesses sometimes need to restructure. What they struggle with is silence, confusion, and mixed messaging.  Strong leadership during difficult conversations matters.  At Employer Direct, we often remind clients that good HR is not just about legal compliance. It is also about protecting culture, morale, and long-term business stability.

10. Trying to DIY a High-Risk Process

Many small business owners try to manage redundancies themselves to save money.  We understand why.  When cash flow is tight, paying for professional HR advice can feel like an extra expense.  But redundancy mistakes are often far more expensive than getting advice early.  The average Employment Relations Authority settlement can be substantial, especially once legal fees, management time, stress, and lost productivity are added in.  

New Zealand employment law is heavily process-driven. Even if your business reason is valid, a flawed process can still lead to liability. Common costs of getting it wrong include mediation costs, legal representation, settlement payments, wage reimbursement, stress and distraction, and reputation damage.  Sometimes the cheapest option upfront becomes the most expensive outcome later.

Making a role redundant is never easy.  For many business owners, these decisions come during periods of financial pressure, uncertainty, and exhaustion. You are trying to protect the future of your business while also treating people fairly.  But in New Zealand, good intentions alone are not enough.  The Employment Relations Authority looks closely at whether the business reason was genuine, whether consultation was fair, and whether employees were treated reasonably and in good faith.  A poorly handled redundancy can quickly become a costly and stressful dispute.

The good news is that with the right advice, planning, and process, most redundancy risks can be managed properly.  At Employer Direct, we help businesses navigate difficult employment situations with practical advice, clear systems, and support that keeps things simple. Our goal is to reduce stress, minimise risk, and help businesses move forward with confidence. 

If you are considering restructuring your business or disestablishing a role, get in touch today for a free consultation, or visit our document shop for resources designed to help you manage this process effectively. Employer-Direct.co.nz | 0800 612 355

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