The Year ahead: Is 2023 the Year of Restructure?

The economic outlook for the remainder of 2023 for New Zealand looks challenging. The Reserve Bank has just raised the Official Cash Rate by 50 basis points to 4.75% which means the main trading banks will shortly follow suit with similar increases, all aimed at tackling the high inflation rates that persist.

Against that, Westpac’s Economic Bulletin dated 3 February 2023 notes:

 

At the moment, New Zealand’s residential building sector remains hot, with activity levels and consent issuance currently running at record highs. That is unlikely to last. Indeed, operating and borrowing costs have already risen sharply, while house prices have tumbled across the country. As prospective buyers of new builds become increasingly nervous and property developers more cautious about bringing new projects to market, forward orders are likely to drop, leading to lower investment and eventually less building activity.

 

If the above analysis is correct, the building/construction industry will face strong headwinds in the second half of 2023 while there will be a secondary impact in terms of many businesses ability to sustain their ongoing overhead structures, such as their employee head count.  

 

Where this occurs, we inevitably receive several enquiries from clients regarding the restructuring of a business and redundancies.

 

This is not new; we have been through a number of similar cycles (for different reasons) in the past.

 

The Global Financial Crisis (GFC) resulted in New Zealand experiencing six quarters of recession in 2008 and 2009. The GFC was described as the most serious financial crisis since the Great Depression. During this period the New Zealand economy saw a jump in unemployment from 3.6% at the end of 2007 to 6.1% through to 2013.

 

If the current economic situation turns into a recession over many quarters, we can expect unemployment to rise, in many respects, by way of business restructuring and downsizing.

 

Unfortunately, while often necessary, restructuring is often fertile ground for personal grievances.

 

To avoid personal grievances during a restructuring it is important to bear in mind a few simple guidelines to consider:

 

These are:  

• An employer should have a genuine business reason to restructure their business and terminate an employee’s employment by way of redundancy. Workplace change should not be used as a way to ‘get rid of’ an employment problem or avoid managing individual employee performance issues.

• The employer should be able to produce evidence of the need for change in their business. Genuine business reasons might be, as an example, a drop in the business market due to loss of customers.

• Changes of this nature may result in a structural change such as merging two or more existing roles, refocusing aspects of a role, removing roles that are not needed, or a combination of these things. All such possibilities should be considered.

• Making the decision to implement a restructuring that will result in an employee’s role being made redundant needs to be carried out in a procedurally fair manner. 

• An employer should never predetermine their decision. Where a proposed change might affect someone’s role, you need to undertake a fair and reasonable consultation process in good faith.  

• A fair and reasonable consultation process should include the following minimum steps: 

- Circulate the business restructure proposal to all employees likely to be affected, noting your reasoning for the proposed change; 

- Be clear on the selection criteria;

- Provide employees a reasonable opportunity to respond, comment and suggest alternative options to the restructuring proposal. This may involve setting up a meeting(s) with affected employee(s) to discuss the proposal and answer any questions they may have; 

- Consider, and take into account any responses from the employee(s) before making any final decisions about the restructuring. 

• Ultimately, the business will need to ensure it is communicative and transparent throughout the restructuring and redundancy process. 

 

The above is not a precise guide to restructuring, but rather a few key guidelines.

 

Given the economic outlook, it is likely that there will be more business restructurings in the second half of 2023 than in the years prior.

 

It is important consider your business’ health and plan in the event you need to proceed with a restructuring in the coming months.

 

If your business is in a position where a restructuring may be required it is important to get sound legal advice on your legal to your employees.

 

For legal advice on all matters restructuring contact Jaesen Sumner (jaesen@fsl.nz), Ruth Williams (ruth@fsl.nz) or Jordan Todd (jordan@fsl.nz).