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Covid-19 and redundancy

April 17, 2020

Covid-19 is not a reason to make a position redundant. We’ve had several cases where employees have sought our advice because their position has been made redundant, based on a letter from their respective employers which reads “due to Covid-19 and it’s impact on our business.”

Despite the turmoil upheaval and uncertainty caused by Covid-19, an employer is still required to establish a genuine commercial justification for making a position redundant. This means an employer must provide information to potentially affected employees which demonstrates how covid-19 is impacting the business. For example: loss of revenue, declining sales, customers cancelling orders.

In Grace Team Accounting Limited v Brake [2014] the Court of Appeal confirmed that employers must establish, based on the information they have provided to the employee, that there is a genuine commercial justification for proposing to make a position redundant. In this case the employer (an accounting firm) genuinely considered it was in a difficult financial position – and therefore needed to make Ms Brake’s position redundant. However, when the Court reviewed the financial information provided by the employer it found several errors. Therefore, the Court of Appeal concluded the employer’s decision to make the position redundant was not justified and Ms Brake was successful in her personal grievance claim. The employer was not able to establish a genuine commercial justification for making the position redundant.

If an employer is considering make a position redundant, because of the impact of Covid-19, then it must:

  1. provide financial information to potentially affected employees which demonstrates how Covid-19 is impacting the business; and
  2. engage affected employees in a genuine conversation as to whether there are other creative solutions to avoiding redundancy.

Of course, redundancy is not the only option. During a redundancy consultation process an employer and employee can explore all sorts of ways to lessen the impact of Covid-19 without necessarily making the position redundant – for example: unpaid stand-down or reduced hours for an agreed period, a variation to wages/salary (again for an agreed period), or redeployment into another role – and if the employer proceeds with making the position redundant then redeployment would need to be considered. The reason why an employer is required to consult with an employee as part of the process involving a proposal to disestablish their position, is so that both parties can explore the possibility of other solutions – an important point made by the then Chief Judge of the Employment Court in the Simpsons Farms decision.

Covid-19 will impact business owners and employees. This article is a gentle reminder to pull together and look to creative solutions that are in the interests of both.