Restructuring Special The Bar for Employers is Lifted · Claire English DDI: 474 0768...

QUIGG PARTNERS Newsletter - AUGUST 2013 1

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The Bar for Employers is Lifted 1

Vodafone lawyer reinstated - Kreider 2-3

The Bar gets Higher - Brake 3-4

Selection Criteria under the Microscope 4-6

Employment Relations Amendment Bill 2013: 6-7Impact on Restructuring...

Part 6A: Amendments to Continuity 7of Employment

Overseas Snippets 8

AUGUST 2013

Claire EnglishDDI: 474 0768

[email protected]

Tim Sissonson Sabbatical

Simon [email protected]

Nick LoganDDI: 474 0765

[email protected]

Andrew BellDDI: 474 0752

[email protected]

Michael QuiggPartner

DDI: 474 [email protected]

Restructuring SpecialThe Bar for Employers is LiftedIntroductionLike any basis for dismissal, an employer’s reasons for and method of making an employee redundant will always be subject to close scrutiny. For many years, however, employers were offered significant leeway in terms of the reasons for which they might decide to restructure their business. The Employment Court’s decision in Rittson-Thomas t/a Totara Hills Farm Ltd v Davidson (“Totara”) suggests that that leeway may now be diminishing.

The decision of the Court of Appeal in GN Hale & Sons Ltd v Wellington Caretakers IUOW has been the leading decision on the Courts’ role when considering dismissals arising from redundancies. The Court in Hale found that it is not for the Court to say whether or not an employer’s decision to restructure their business is a good or bad one, rather it must ask whether the employer’s reason is genuine, and whether it was carried out fairly.

The recent decision in Totara does not (and could not) overrule the approach in Hale. What it appears to signal, however, is an increased scrutiny of whether employers’ decisions are (in the Court’s view) genuine. This will likely mean employers will have to consider more closely their current approach to restructuring. Totara has also been applied in two recent decisions, Kreider v Vodafone (“Kreider”) and Brake v Grace Team Accounting Ltd (“Brake”).

2 QUIGG PARTNERS Newsletter - AUGUST 2013

Totara Hills Farms

The Bar is raised- Totara Hills Farms The Employment Court decision in Totara involved a challenge by an employer (Michael Rittson-Thomas) from an Employment Relations Authority determination. The ERA held that Mr Rittson-Thomas had unjustifiably dismissed one of his farm employees. The employee, Mr Davidson, was a unit manager of one of the two units which made up the farm business. His relationship with Mr Davidson was less than perfect, punctuated by performance issues and allegations of work-place bullying.

Mr Rittson-Thomas sought legal advice about how he might go about ending the employment of one or more of his staff on the grounds of redundancy. Mr Rittson-Thomas then made Mr Davidson redundant after a series of meetings in late 2010. The essence of Mr Rittson-Thomas’ proposal was to disestablish Mr Davidson’s role and create a junior shepherd’s role that was paid $6,000 less and to transfer responsibility for Mr Davidson’s unit to the farm’s other unit manager.

Mr Davidson raised a personal grievance against his former employer, alleging that the decision to make him redundant was really a means to get rid of him because the two men were having difficulty working together.

The Employment Court held, by a fine margin, that the redundancy was not a sham. The Court still found that Mr Davidson had been unjustifiably dismissed on the basis that Mr Rittson-Thomas had failed to act as a fair and reasonable employer would have or could have, in reaching his decision to make Mr Davidson redundant. In reaching this conclusion the Court expressly noted that:

“It will be insufficient under s 103A [the test of justification], where an employer is challenged to justify a dismissal or disadvantage in employment, for the employer simply to say that this was a genuine business decision and the Court (or the Authority) is not entitled to inquire into the merits of it. The Court (or the Authority) will need to do so to determine whether the decision, and how it was reached, were what a fair and reasonable employer would/could have done in all the relevant circumstances.”

The conclusion reached by the Court envisages a much more proactive role when reviewing an employer’s business decision. Though the Court found that Mr Davidson had failed to show that Mr Rittson-Thomas’ decision to make him redundant was a sham (in the sense that it was a cover for other reasons he might have

had to dismiss Mr Davidson, such as his alleged poor performance), it still found Mr Davidson had been unjustifiably dismissed because the business decision Mr Rittson-Thomas had made in restructuring the roles on the farm was not one a fair and reasonable employer would have made. Mr Rittson-Thomas had told staff that he needed to make a 10% saving on farm expenditure, and that making Mr Davidson redundant and establishing a new lesser-paid role would achieve the necessary savings of $10,000. The Court did not think saving this amount of money justified making Mr Davidson redundant. The Court also noted that Mr Davidson’s redundancy actually in fact only saved $6,000.

The Court awarded Mr Davidson the sum of $3,000 for lost remuneration together with the sum of $4,000 as compensation under s 123(1)(c)(i) of the Act.

The Court’s approach has already been expressly followed in two recent redundancy decisions.

Vodafone lawyer reinstated -KreiderThe case of Kreider v Vodafone involved an ERA determination ordering that a former senior member of the in-house legal counsel team at Vodafone New Zealand Ltd (“Vodafone”) be reinstated on an interim basis, after his existing role was restructured. Vodafone had acquired another telecommunications provider, Telstra Clear Limited (“TCL”) in October 2012. As a result of this Vodafone disestablished Mr Kreider’s role as “General Counsel” (the team leader of all in-house


The Bar gets Higher - Brake

counsel at Vodafone) and created a new role of Legal Director. Mr Kreider was required to participate in the selection process for this new position, and was advised in February 2013 that he was unsuccessful and likely to be made redundant as a consequence. Mr Kreider sought an interim order reinstating him as Legal Director on the basis that the proposed new role was the same as the original “General Counsel” role.

The case essentially turned on the similarity between the new roles. The ERA found the roles were not substantially different and given this fact there was no basis to assert Mr Kreider’s role no longer existed. Vodafone was required to confirm that the position was his. The Authority Member approved Totara in the decision, in the following passage:

“It is insufficient for an employer to assert this was a genuine business decision and the Authority is not entitled to inquire into the merits of it. The Authority may review the business decision to determine whether the decision, and how it was reached, were what a fair and reasonable employer could have done in all the relevant circumstances [emphasis added].”

The Bar gets Higher - Brake In the case of Brake v Grace Team Accounting Ltd, Judge Travis approved the approach of Chief Judge Colgan in Totara. Brake involved an appeal from an ERA determination holding that Ms Brake was justifiably dismissed from her role as a senior accountant. She was made redundant six months after being employed by Grace Team Accounting Ltd (“GTA”) after a review of the company’s financial records demonstrated (mistakenly as it turned out) that its current staffing needs exceeded work demand. Prior to her employment with GTA, Brake was an accountant employed at

KPMG in Tauranga. She saw an advertisement for the position with GTA, applied, and successfully obtained this role. This was based on an underlying assumption of both parties that, at the time she was employed, there would be sufficient work to justify her long-term employment with GTA. Otherwise Ms Brake would not have resigned from her secure employment with KPMG, where she had worked for eight years.

Prior to being informed about her redundancy, Ms Brake told her employer that she suffered from Leukaemia, and that she would need to take time off work for a routine check-up in Auckland. The timing was unfortunate, as three hours later she was called into a meeting and informed of the proposed restructuring of GTA and that this might lead to the disestablishment of her position. Judge Travis found there were three key problems with GTA’s approach, namely;

• Based on expert evidence GTA should not have employed another full-time long-term staff member because of its financial position (unknown to GTA at the time);

• There was insufficient evidence to show that after Ms Brake was employed, GTA’s financial position deteriorated sufficiently in the following six months to justify the disestablishment of her role; and

• There was a lack of evidence as to why she was chosen with two other employees for redundancy.

Unlike Kreider, Totara was applied to full effect in Brake. Judge Travis states that:

“I have quoted extensively from Rittson-Thomas and record my complete agreement with the way the Chief Judge has explained the requirements of s 103A in a redundancy setting.”

The most basic reason relied on by the Court was that GTA made a mistake in employing Ms Brake in the first place. It made a poor business decision in doing so according to its own expert witness. After employing Ms Brake GTA management had made a number of serious mistakes in calculating business turnover for the relevant period. This caused GTA to reach the erroneous decision that Ms Brake’s role needed to be disestablished to save the business money. Other reasons the dismissal was unjustified also included GTA’s failure to consult, and to provide detailed information concerning the reasons for the restructuring to Ms Brake. The Court also found that GTA was prevented from relying on the redundancy clause in Ms Brake’s employment agreement because it had led her to believe her new role would be a permanent and lengthy one.


Selection Criteria under the Microscope - Gilbert v Transfield Services

Poor Business Decisions The Court relied on the evidence of GTA’s expert witness to conclude GTA made a poor business decision in employing Ms Brake, without which there would be no case to debate.

The Court found that GTA did not establish it was justified in dismissing Ms Brake. It held that a fair and reasonable employer would never have employed her had it appreciated its true and correct financial position. The concern for employers regarding this decision may be that hiring decisions as a result of commercial mistakes (e.g. misreading the market) may render unjustifiable later decisions to dismiss excess staff in order to rectify such errors. One could say this risks placing too much weight on knowledge gained only in hindsight.

Although GTA’s own expert said if he had been consulted at the time Ms Brake was employed, he would have advised them against employing additional staff, he wasn’t consulted and like everyone else employers make mistakes. The question is should it be a role of the Court to identify such mistakes and declare them unjustified dismissals rather than justified dismissals and hiring based on honest errors.

Ms Brake was awarded $65,000 for lost remuneration representing a year’s lost salary and $20,000 compensation for hurt and humiliation under s123(1)(c)(i) of the Employment Relations Act 2000.

Conclusion: In Totara, the employer’s key errors were in failing to provide satisfactory evidence that cost savings of $6,000 justified Mr Davidson’s redundancy, failing to provide financial evidence sufficient to withstand scrutiny and in proposing changes which would not have yielded the 10% savings they were said to have been able to generate.

Putting the lessons of Totara into practice, the best way for employers to avoid successful personal grievances is to ensure (prior to embarking on a restructuring exercise) that the evidence justifying their proposal is sound, rational, and defendable if challenged. If they have any questions as to whether their conclusions or analysis is correct, they may need to consider obtaining independent assistance.

In Brake, the employer (an accounting firm, no less) failed to understand its true financial position before deciding to make the employee redundant. Again, one might question whether the Employment Court should have a role in reviewing these business judgments (whether right or wrong) and providing relief to the employees who suffer as a result.

In both the Brake and Totara cases, the employer failed to provide the employee with proper and fully developed reasoning concerning the proposal to restructure. Such an exercise might possibly have avoided the errors made in both matters, and the employers’ resulting defeats.

Totara indicates that employer’s decisions in the redundancy context will be scrutinised even more closely than before. Even more care will therefore be necessary when planning and implementing any proposed restructuring.

It is understood the decision of Brake has been appealed to the Court of Appeal so it is likely that there may be further developments in this area in the near future.

Selection Criteria under the Microscope - Gilbert v Transfield ServicesThis decision of the Employment Court is a timely reminder that the Court can and will scrutinise selection criteria used to select between employees to be made redundant where a workforce is downsizing. It is also an important reminder of the necessity of carefully formulating proposals for a restructure with reference to collective and individual employment agreements.

Facts Mr Gilbert’s role was that of an Indoor Plant Technician, being a technical role related to the service of telecommunication utilities amongst other duties. Taking account of the changing nature of the role and business ownership, Mr Gilbert had worked his career of 40 years in the same role. His employment commenced in 1970 with the New Zealand Post Office and ended with Transfield in 2009.


Gilbert v Transfield Services (continued)

As a result of a reduction of work supplied to Transfield by Chorus, Transfield embarked on an extensive restructure.

The restructure categorised employees into three groups or families of employees. Mr Gilbert’s role fell into the category of “field staff”. This group was comprised of technical employees with duties in the field. There were two processes that selected for redundancy from amongst a pool of “field staff”. The first was an online psychometric test and the second was an interview phase with senior managers. The selection criteria notified to employees consisted of: adaptability, planning, organising, establishing relationships with others, and Transfield service values.

During the process the Union and Mr Gilbert requested information and challenged the selection criteria. The challenge to selection criteria concerned the absence of an assessment of technical capability amongst the factors that were to be considered. The requests for information and comments concerning selection criteria effectively went unanswered.

When Mr Gilbert was selected for redundancy he brought a personal grievance on the basis of two arguments. The first was that he had been discriminated against on the basis of his Union activities; this ground was unsuccessful. The second was that the process adopted and the selection criteria used caused his redundancy to be an unjustified dismissal.

The DecisionThe Court noted that the collective agreement provided that an employee was redundant where their position was superfluous to the employer’s needs. This is an unremarkable clause and appears in many collective and individual agreements. The Court found that Transfield was not entitled to compare all “field staff” for the purposes of selecting for redundancy and that it was bound to consider whether each individual’s position, on the basis of its duties and responsibilities, was superfluous to the employer’s needs. The Court’s view was that the pooling of “field staff” was fundamentally unsound and not permissible in terms of the collective agreement.

The Court criticised the selection process and criteria heavily. The Court asserted that a fair and reasonable employer takes account of relevant factors and excludes from its consideration irrelevant factors when forming selection criteria. The Court found that Transfield had used irrelevant criteria in preference to criteria that clearly were relevant including its own performance appraisal material. The Court considered the psychometric testing to be irrelevant. The interview phase was also criticised and in particular the Court noted stereotypes had been applied relating to the willingness of Mr Gilbert to upskill and acquaint himself with new technology.

Notably there was criticism of the subjectivity of the selection criteria. The comment of the Court was that:

“The defendant’s case certainly gives the impression that Transfield embarked on devising and putting in place radically different and largely subjective criteria and


Employment Relations Amendment Bill 2013: Impact on Restructuring...

selection processes that were difficult to verify objectively, although which appeared impressive in the promotion of flexibility and client focus.”

The Court also drew on a contractual provision in the collective to assert Mr Gilbert had a legitimate expectation his technical skills would be relevant to the selection criteria.

Having found the dismissal unjustified, the Court awarded reinstatement to Mr Gilbert together with reimbursement for his loss of income. As the proceedings were delayed by the Canterbury earthquake, approximately three ½ years had elapsed since Mr Gilbert’s dismissal.

CommentThe decision highlights the need in restructure situations to formulate relevant criteria and the greater desirability of objectively quantifiable measures in determining the selection of employees for redundancy. The employer should not be quick to dismiss the importance and relevance of existing performance appraisal material.

Although somewhat of an “ABC”, the decision is also a valuable reminder to carefully consider contractual obligations as the first and most important step in a restructure.

Employment Relations Amendment Bill 2013: Impact on Restructuring… Overview On the 26 April 2013 the Employment Relations Amendment Bill 2013 (the “Bill”) was introduced to the House. The impetus for the amendments to the Employment Relations Act 2000 (“ERA”) in the Bill came from the National Government campaign platform for the 2011 election. The Bill therefore implements many of these election promises, with the overall aim being to avoid a complete overhaul of existing employment law. The impacts of the proposed reforms in the restructuring context are likely to be two-fold.

Wrigley and Provision of InformationThe proposed reforms will impact on the law as articulated in the Employment Court decision in Vice-Chancellor of Massey University v Wrigley. In that case it was held that employers have an obligation under

s 4(1A)(c) of the ERA 2000 to provide all “relevant” information when making a decision that will, or is likely, to adversely affect the continuation of one or more employees’ continued employment. The Court held the scope of such an obligation is wide, requiring the provision of all “relevant information”, rather than just the information which adequately informs the employee of the proposed decision and allows them to respond meaningfully. The obligation under s 4(1A)(c) included not only the requirement to provide written documentation “…but also information in the minds of people”. The privacy of others involved in the selection process was not considered to be “good cause” to refuse the disclosure of such information (the case involved a selection panel in deciding which lecturers would be made redundant at Massey University). Although the Court noted such concerns were serious factors to be weighed, they were outweighed by the good faith requirements that employees not be dismissed based on adverse information they had not had the opportunity to see.

The parliamentary response to this decision has been to limit the obligations of employers to provide information under s 4(1A)(c). In particular employers will no longer be required to provide information, which is:

• About an identifiable individual other than the affected employee.

• Evaluative or opinion material complied for the purpose of making a decision that may affect an employee’s continued employment.

• About the identity of the person who supplied the evaluative or opinion material.

• Subject to a statutory requirement to maintain confidentiality.

Therefore the proposed reforms will significantly limit the obligations of employers under s 4(1A)(c). However the reforms expressly acknowledge that employers still


Part 6A: Amendments to Continuity of Employment

have obligations to provide personal information to individuals under the Privacy Act 1993 and information under the Official Information Act 1982. There is also provision for employers to provide redacted information or summaries which will avoid them breaching their confidentiality obligations to various parties.

Part 6A: Amendments to Continuity of Employment The second aspect of the Bill which will impact on restructuring are proposed amendments to Part 6A of the ERA 2000. Part 6A currently provides additional statutory protections to employees (listed in Schedule 1A of the ERA 2000) involved in industries where the employees are particularly vulnerable in any restructuring situation (such as food preparation and catering). Some of the protections include a presumption of continuing employment (giving employees an opportunity to elect to transfer to a new employer where restructuring results in their loss of employment) and maintaining their existing employment terms and conditions. The reforms proposed by the Bill are as follows;

• Employees must notify their outgoing employer within five working days that they elect to transfer their employment to the new employer;

• The requirement that the outgoing employer provide the incoming employer with detailed information on individual transferring employees;

• Apportionment of liabilities for service related entitlements between employers. The reforms would allow employers to negotiate the way accrued entitlements including annual leave entitlements

would be apportioned, and in lieu of consensus a default formula would apply. Employers could obtain mediation under the ERA 2000 and seek the determination of the ERA if no consensus is possible;

• Changes to the categories of protected employees listed in Schedule 1A would only be possible through legislative amendment (currently this can be amended through an Order in Council);

• New amendments to provide an implied warranty by the outgoing employer to the incoming employer that they have not changed the arrangements of the work, or the terms and conditions of the employees performing that work, for the purpose of adversely affecting the business of the incoming employer;

• Allowing subcontractors to make employee transfer cost information requests (currently only contractors may make such requests). Such requests are used by employers when deciding whether to tender for a contract, so that they can decide how many employees they might be required to take on under their Part 6A obligations (and what their accrued holiday and other entitlements are); and

• Exemptions to Part 6A for certain small to medium enterprises, that is, those employers who have 19 or less employees. There would be“associated persons” criteria, which would prevent large companies from creating subsidiaries so that they fell within the exemption.

ConclusionThe proposed reforms are likely to have important impacts in the restructuring context. The changes made to the decision in Wrigley are extensive, essentially exempting much of the evaluative information required to be provided by that case. The amendments to Part 6A will only impact on employers in the industries listed in Schedule 1A, mainly those employing cleaning and catering staff. Further, with the amendment requiring changes to the schedule to be made through legislative action, any extension of the application of Part 6A will be less likely and a more protracted process. The Bill is currently before the Transport and Industrial Relations Select Committee which is due to report back on 3 December 2013.


Overseas Snippets

German Bank clerk turned €64 payment into €222,222,222.22A bank clerk who nodded off at his keyboard during a transaction nearly made a client hundreds of millions of euros richer. The bank clerk was making a payment of €64.20, but fell asleep and left his hand on the number 2 key, accidentally putting through a payment of €222,222,222.22. The payment almost went through, after the bank clerk’s supervisor failed to pick up on the error. Fortunately however the payment was prevented from going through by the quick thinking of another colleague!

Tim’s Letter from London

Baking in unfamiliar heat – we’re into our fourth week of almost-30-degree days – I write from my sun-drenched desk East London. In the street outside, chattering kids on the way home from school are vying for space with handlebar-moustachioed young men on fixed-gear bicycles. As yet my face remains cleanshaven; my forearms free of ironic tattoos. But who knows how long this will hold – I’ve been renting here in Hoxton barely a fortnight.

Since landing in Blighty last year, I’ve been studying towards a Masters in law in the warren of ugly office buildings (accompanied, to be aesthetically fair, by Dickens’ Old Curiosity Shop) that is the London School of Economics.

A year overseas passes quickly. There’s been much to learn. Escalator queuing etiquette. The correct pronunciation of the word ‘ham’ if one wants to receive processed pork, rather than a blank look. And some of the intricacies and peculiarities of UK employment law.

As Michael is fond of telling our Australian clients, Kiwi and Aussie employment law is ‘the same, except where it’s different’. Much the same applies here in the UK: employment lawyers’ coffee-table arguments are still about ‘what a fair and reasonable employer could do’, or whether the court substituted its view for that of the employer, or about the latest battle over the terms of a bonus agreement (that said, the bonuses being fought over, even in these only-just-edging-out-of-recessionary times, are often a little more substantial here than in the average Wellington stoush.)

And the differences? Things here tend to be a bit more rigorous. As New Zealand cautiously shifted to 90-day trial periods, the UK recently extended its unfair dismissal qualifying period to a rather more substantial 730 days. Collective agreements here aren’t always contractually enforceable, strike action demands compliance with rigorous balloting requirements, and whistleblowing and discrimination claims are much more common. A cynic might suggest the qualifying period has something to do with the latter.

But it isn’t all differences, and nor are the influences all southward-bound: following in the reverse-colonial footsteps of the flat white and the ubiquitous London garden cabbage tree, New Zealand-style mediation looks set to kick off here from 2014.

I’ll sign off now, as the cloud covers the sky, and the Beeb reports that summer’s done for the year. Reassuring rain seems to be on the way.

Tim Sissons is on sabbatical from Quigg Partners completing his Masters of Laws at the London School of Economics.

Employment Seminar Series 2013

To register visit www.quiggpartners.com

5 November - Health and Safety Guest speaker Mike Cosman

• Proposed Reforms• Employer Responsibilities• Dealing with an Investigation

10 September - Computer Forensic Issues Guest speaker Campbell McKenzie

• Privacy Issues• The duty of fidelity• Confidentiality

Restructuring Special The Bar for Employers is Lifted · Claire English DDI: 474 0768...

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