Building a case for restructuring your business

In these challenging economic times, many businesses may find they need to change the way they operate, to save money, be more efficient, or take advantage of new opportunities.

We’ve been through a heck of a ride over the past few years and it looks like there will be considerable pressures on organisations, households, and individuals for a while to come.

A common way to refocus your business is to restructure. Restructuring is a process centred on the work being done in the business and which roles are performing which tasks. It is about changing your organisation’s structure so it can best meet your vision and objectives.

There have been a number of high-profile companies in NZ and overseas laying off staff in an effort to cut costs, and MyHR has seen a significant uptick in requests from our members for assistance with restructures. 

Now, it can be tempting to rush into a restructure without doing the due diligence work upfront, but you need to properly prepare the case for any proposed changes you are considering, which will include your commercial justification and any supporting documents.

Getting the process right and always acting in good faith will enable you to make the necessary changes smoothly, without opening yourself up to too much legal risk.

Before you start

A word to the wise: restructuring is a consultation process, so nothing is set in stone until you:

1. Notify any employees that will be impacted by the proposed changes to their employment.
2. Present them with the change proposal for their consideration and input.
3. Genuinely consider their feedback in making your decision (this includes responding to any suggestions they may make).

Restructuring isn’t about the people in the roles. There is no fault on the part of the employee(s), so don’t instigate a restructure as a pretext for getting rid of a troublesome worker or someone who’s not performing. Doing this will open you up to the risk of personal grievances for unjustified disadvantage or unjustified dismissal.

There are separate processes for properly handling misconduct, underperformance, or other employment issues.

Assessing your options

In order for your restructure to be legally justifiable, there must be a good commercial reason for beginning this process.

• If your revenue is down and you’re looking to reduce costs, have you reduced discretionary spending?
• Tried to renegotiate your lease with your landlord?
• Raised prices for your customers?
• Stopped hiring to replace resignations?
• Put more money into your marketing activities to increase your revenue.

Any and all of these actions will show that you’ve genuinely tried to address the situation before considering restructuring your organisation.

Building your restructure case

The case for restructuring needs to be based on getting the best possible organisational design to deliver on your strategy, to your customers and stakeholders etc. Behind it all, you need a genuine commercial justification (legally known as ‘substantive justification’).

We stress the word ‘genuine’ here. If you are challenged, the Employment Relations Authority will closely scrutinise your reasoning and the process you followed. If they find you based your restructure on faulty or insufficient evidence or there were procedural flaws, it could cost you hefty sums in fines and reimbursement of lost wages and compensation for hurt, humiliation and injury to feelings. A need to push through urgent changes won’t hold water as a defence.

We always advise organisations to start by taking a step back to define your company’s overall goals and objectives. What is driving the need to change and what do you want to achieve? What sort of enterprise do you want to be?

It could be you have cash-flow problems or other financial issues that require reducing overheads, of which salaries/wages are a major component. Or there might be opportunities you want to pounce on, technological advances, or a need for new products to meet customer demand.

Once you have done this broad, high-level analysis, you can then drill down into defining what work needs to be done to realise these aims. From there you can work out the design of your team(s), the roles within it, and the sorts of skills and aptitudes you need to ensure you get the work done.

Watch: Sylvie's advice for SMEs thinking about restructuring

The restructure proposal

The next step is putting together your restructure proposal for your employees, which will outline the proposed changes to the organisation’s structure, individual roles or responsibilities, pay or other terms of employment (e.g. hours of work), and the commercial reasoning behind it all.

You are legally required to share all information you have factored in when considering this proposal. You can anonymise or aggregate the data (e.g. have "Sales Team Salaries" as a line item instead of individual lines for each employee), but you do need to lay out what you're considering and how this proposal will make a difference.

If you are realigning the roles in your team, including disestablishing some positions or creating new ones, the selection process must be fair and transparent. You need to present the affected employees with the selection criteria that you propose using to choose the candidates for any newly-created roles, which they are entitled to review and provide feedback on. You must then fairly consider that feedback, and make changes as appropriate.

You are also required to present employees with draft job descriptions for the proposed new (or changed) roles. We strongly recommend including these in the initial consultation pack, so that you are presenting employees with as much information as possible at the start of the process.

Otherwise, you're drip-feeding them information, which restarts the clock on the consultation period.

Redundancies aren’t guaranteed

Restructuring aims at ensuring your business has the right roles performing the right tasks to deliver on your objectives. It doesn’t always mean your headcount will be reduced.

In fact, redundancy should be your last resort.

Investigating the options for redeployment is a necessary step in the process. If there’s an alternative role that the employee has the skills to do, or they could do it after some retraining, you are required to offer it to them. This is more than simply offering the employee the opportunity to apply for a suitable alternative role.

You aren’t, however, obliged to offer redeployment to a position that requires a significant amount of retraining or skills and experience the employee doesn’t have.

The employee doesn’t have to accept the offer of redeployment, but this will mean they face redundancy.

Learn more about the difference between restructures and redundancy.

From there: consultation with affected employees

Here’s the basic consultation process you must follow:

• Notify the affected employees and present them with the restructure proposal and all the supporting documentation for their consideration and input.
• Give them time to consider the proposal and prepare their responses - we recommend allowing a minimum of 2 days, but up to 2 weeks is considered reasonable.
• Meet with them to hear their feedback.
• Genuinely consider their responses and actively engage and respond to any suggestions they may make.
• Decide whether you will proceed with the restructure or not.
• If, after considering their feedback, your proposed org structure looks significantly different from your original proposal, you must present this afresh to your team, and restart the clock on their time to
  consider and provide feedback on the updated version of your proposal
• Confirm the decision and invite expressions of interest for the new roles.
• Apply selection criteria to select successful candidates.
• Confirm redundancy or who has been successful.

Find out more about the restructuring process.

How MyHR can help

We are here to support you through this process, including preparing all proposal documents and guiding you through each step.