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Reasons For Redundancy Must Stack Up

14 October 2013

In the recent case of Totara Hills Farm v Davidson the judge found a farmer to have unjustifiably dismissed his farm manager for redundancy. The dismissal was unjustified even though the judge said that the farmer had not used the redundancy as an excuse for dismissal for poor performance and conflict in their relationship.

 

The Totara Hills case

In this case the farmer employed several staff including a farm manager and a stock manager on his farm known as Totara Hills. During the early period of the farm manager’s employment the farmer warned his manager that his employment would be in jeopardy if he did not improve. The farm manager later claimed that the farmer’s conduct was bullying and demeaning towards him.

The farmer had several meetings with his farm staff to discuss how to reduce costs because there had been several years of drought and poor prices and because the outlook was not good. The farmer also asked his staff for input regarding the redundancy of the farm manager or the stock manager. Finally, the farmer advised the farm manager that he was being made redundant because of “market and seasonal factors” and that he could apply for the junior shepherd position. The farm manager rejected that suggestion because he regarded it as demeaning.

 

The judge’s decision

The judge stated that the Court was not entitled to substitute its decision for that of the employer to make an employee redundant.  It is not enough for an employer to simply to say that this was a genuine business decision and the Court is not entitled to inquire into the merits of it. The Court will need to examine the reasons given to determine whether the decision, and how it was reached, were what a fair and reasonable employer would have done in all the relevant circumstances.

The farmer gave scant evidence to the Court of his justification for dismissing the farm manager. The judge said that a fair and reasonable employer would, at the least, have offered the shepherd’s position to the farm manager, not just suggested that he apply for it. The judge also found that the cost saving in wages of $6,000 was nowhere near the 10% saving that the farmer told staff he wished to save. The judge therefore doubted the genuineness of the redundancy and found it unjustified.

 

Redundancy decision must be justified

Previously, it was thought that so long as the employer could state genuine business reasons for a redundancy, the Court would not look behind those reasons. This case makes it clear that the Court will scrutinise the reasons to decide whether the redundancy is justified.

Before embarking on the process to make any employee redundant, it is wise for any employer to take specialist professional advice to ensure that the process followed and the reasons given for the redundancy will withstand any challenge. On the other hand, the employee should also take specialist advice if he or she believes an unfair process has been followed or unjustifiable reasons have been given for the redundancy.

 
Please email me at barbara.mcdermott@nwm.co.nz with your ideas for future articles.  Keep an eye out for next month’s column, where I will discuss another relevant rural legal issue.


Barbara McDermott is a partner of Norris Ward McKinnon, specialising in commercial and rural law.  With offices in Hamilton and Huntly, we have friendly, expert legal advisors ready to help you with your business and personal legal matters.   Find out more about us at www.nwm.co.nz