Being an employer in 2008 in uncertain economic times, coupled with low unemployment and global wage pressures, represents challenge rarely experienced. On one hand, employers cannot afford to lose staff; on the other, they may not be able to retain staff in the face of increasing global wage demands. With these competing pressures, employers cannot afford to keep employees who, although underperforming or misbehaving, keep demanding higher wages. So, it is worthwhile understanding how to manage the exit of those people who are affecting your ability to retain the best people.
Before considering dismissal of an employee, an employer must first establish why the employee must leave. Is it because they are not performing to required standards? Do they display negative attitude at work and not fit in with team mates? Has the employee engaged in unacceptable behaviour? Maybe they have been on sick leave for significant period of time? Or, has the position become surplus to the employer’s requirements? The reason for termination will determine the appropriate course of action that should be taken.
Essentially, there are four lawful reasons for terminating an employee’s employment:
1 The employee is failing to meet the requirements of the position.
2 The employee has behaved in manner that is inconsistent with his or her employment obligations (eg, assault, theft, breach of confidence, failure to follow instructions).
3 The employee’s role has become surplus to the needs of the employer.
4 The employee has been absent (and may continue to remain absent) from work for period of time due to illness.
The legal test for justified dismissal
Brief, but very important, mention needs to be made of the new legal test for justification contained in section 103A of the Employment Relations Act 2000. This ‘new’ test, introduced in 2004 as an amendment to the Employment Relations Act, represents far higher standard of objective justification for any actions undertaken.
The new legal test is whether fair and reasonable employer would have dismissed the employee in all the circumstances. In other words, the law does not allow range of actions from employers, rather the Employment Relations Authority and the Employment Court now step into the shoes of the employer to decide whether fair and reasonable employer would have dismissed in the circumstances.
Poor performance
In the event an employee fails to meet the requirements of his or her position, the employer should consider commencing performance management process. It is important to note poor performance can encompass an employee’s general attitude toward his or her position as well as to colleagues. For example, it may be appropriate to conduct performance management process for an employee who fails to get along with his or her team mates and who generally displays negative and uncooperative attitude.
Usually, the first step is to enter into counselling phase with the affected employee. During the period the employer should hold informal meetings with the employee on regular basis to discuss the employee’s performance. Together, the employer and the employee should aim to identify actions that will assist the employee in improving his or her performance. It is only after an employee has been in the informal counselling phase for reasonable period of time and shown insufficient improvement that an employer should start formal performance management process.
However, should the degree of poor performance be so severe that it impacts on the employer’s business or even appears to be deliberate, the employer could go straight to commencing formal disciplinary process. “Diagram 1” illustrates the usual process to be followed but it should only be used as guide.
It is good idea to have senior employer representative present to act as witness and take notes. If dispute then arises afterwards, the fact that the employer has made contemporaneous notes will add credibility to its version of events.
The actual process to effect termination for poor performance can be lengthy. It is not uncommon for such process to take two to four months. It is important to bear in mind that at any stage during the performance management process, there is the possibility that the employee improves his or her performance, which of course would mean termination was no longer necessary.
Serious misconduct
Serious misconduct issues may arise when an employee has done something inconsistent with his or her employment obligations (eg, assault, theft, breach of confidence, failure to follow instructions). As soon as it comes to an employer’s attention that an employee may have engaged in serious misconduct, the employer should commence preliminary investigation and gather facts and evidence. This may involve talking to witnesses or engaging the services of independent experts (for example forensic accountant in the event of allegations of embezzlement or theft).
The disciplinary process should only be commenced after the employer has conducted the preliminary investigation and has concluded that the allegations are of sufficient substance to warrant the commencement of disciplinary process.
Redundancy
Redundancy should be considered if the employee’s position (not the employee!) has become surplus to the employer’s requirements. In those circumstances an employer must be able to show they have genuine business reasons for restructure of the position.
There are both procedural and substantive requirements to consider before making an employee’s position redundant. It is important to have genuine reason for redundancy and to carry out “fair” process.
A process taking into account the principles of natural justice must apply to the restructuring process. Essentially, this requires an employer to consult with all affected employees before decision to restructure is made, for example to disestablish one position and to create another. Consultation requires more than notification. An employer must give potentially affected employees enough information about the proposed restructure, often referred to as the restructuring proposal, so they may consider and give their views and input on it, prior to decision being made.
Most importantly, the consultation process must not be mere formality or sham. There must be no hint of predetermination. An employer is meant to approach this process with an open mind and listen to any response employees may make, before making final decisions on proposal.
Medical Incapacity
It is well-established law in New Zealand that an employer is not bound to hold open job for an employee who is sick or prevented from carrying out his or her duties for an indefinite period.
Any termination for illness or incapacity must be substantively justified, and the test is described as point at which an employer can “fairly cry halt”. The emphasis is on “fairly”, and what is fair will depend on the particular facts of each case. By way of example, the size and operation of the employer is significant factor. small business with few staff cannot be expected to hold open position for as long as larger operation. In determining this point, the Courts would consider whether it was reasonable for an employer to decide at point the alternative and more permanent arrangements should be made. In other words, was the decision to dismiss one which fair and reasonable employer would have made, in all the circumstances, at the time the decision to dismiss became effective?
In addition to being substantively justified, as always, the employer must also show that the procedure followed in carrying out the dismissal was fair. Again, what is fair process will depend on the particular facts of each case.
See “diagram 2” which sets out the procedure generally followed.
As general rule, the employer should be in possession of specialist medical report evidencing when/if an employee will be able to return to work (or t
