Employers considering costs - negotiating in troubled waters

Employers in the current economic climate are considering a variety of options to ensure viability of their businesses. For most businesses, payroll is one of the greatest expenses. Therefore, looking at ways in which costs can be cut and productivity improved is an obvious move. For many employers, redundancy is the ‘last option’, particularly in light of the time and expense they have invested in employees. Accordingly, employers are asking how can they introduce changes to reshape their business and reduce costs before redundancy is on the table.

Options available to employers to reduce costs include requesting employees take accrued annual leave, considering a reduction in wages, moving employees from a salaried to wage arrangement with the employee being paid for hours worked only, removing overtime bonus payments or other allowances, or reducing holiday entitlements to the statutory minimums.

A review of employment agreements is the starting point for employers. Agreements should ideally provide flexibility to enable adaptation to changing circumstances. An employer is not entitled to unilaterally vary an employee’s terms and conditions of employment. An employer should then speak to employees, explaining why the change is proposed, what the proposed changes are, when they might take effect and whether the changes are anticipated to be permanent (i.e. whether a review of the changes will occur within a period of time with the potential for the changes to be reversed to the current levels). Employees should be advised of the possibility of redundancies should the proposed variations be unacceptable or prove to be insufficient to address the genuine economic concerns of the business. Communication with employees about such issues and their implications is part of an employer’s obligation of good faith.

Any agreement by employees to alter their terms and conditions should be recorded in writing and signed by both employer and employee. This should not occur until an employee has had an opportunity to seek independent advice about the proposed changes.

If an employee refuses to agree to the proposed change in such circumstances, an employer remains entitled to consider a restructure of the work with a potential outcome being redundancies. Any redundancy must be justified both procedurally and substantively. There must be a genuine business reason for a redundancy and an employer must consult with affected employees prior to making any decision.

There are options available to employers who are facing challenges in the current economic climate. Such changes cannot be unilaterally imposed and require fair consultation with potentially affected employees. Consent must be obtained prior to any variation to terms and conditions of employment. In the event of non-agreement, employers are entitled to consider other options, including a restructure of the business, which may lead to redundancies.

(Article first published in Waikato Times, 20 March 2009) These publications are necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in these publications