Everything You Need To Know About Redundancy (2026 Updated)

Redundancy is one of the toughest parts of running a business - even when it’s genuinely necessary and you’re trying to do the right thing.

If you’re considering restructuring, cutting roles, or closing part of your operation, it’s normal to feel unsure about what you can (and can’t) do. This guide is updated to reflect current expectations and common pitfalls we’re seeing in practice, so you can move forward with more confidence.

Below, we’ll walk you through what redundancy means in New Zealand, what “a fair process” looks like, what you may need to pay, and where employers often trip up.

What Is Redundancy In New Zealand?

In New Zealand, a redundancy happens when a job (the role) is no longer needed by the business. Importantly, redundancy is about the position, not the person.

You might be facing redundancy because of things like:

• a downturn in revenue or loss of a major client
• changes to technology or systems (so the work is now automated or done differently)
• a restructure to remove duplication (e.g. merging teams)
• outsourcing part of your operations
• relocation or closure of a site

Redundancy is different from performance management or disciplinary action. If the real issue is performance or conduct, you generally shouldn’t “solve” that by calling it redundancy - that’s a common pathway to an unjustified dismissal claim under the Employment Relations Act 2000.

Also, redundancy doesn’t automatically mean a business is failing. Plenty of healthy businesses restructure for efficiency, compliance, or to respond to market changes. The key is that the reason must be genuine, and the process must be fair.

Do You Need To Have A Redundancy Clause In The Employment Agreement?

You don’t need a special “redundancy clause” to run a restructure. But your Employment Contract often becomes extremely relevant when it comes to:

• notice periods
• any redundancy compensation entitlements
• how consultation and changes to work are handled
• restraint and confidentiality obligations (where applicable)

If you’re not sure what the agreement says - or you’re using an old template - it’s worth getting advice before you start the process. Fixing mistakes after the fact is usually harder and more expensive.

When Is Redundancy “Genuine” (And When Is It Not)?

A redundancy is generally considered genuine when the business decision is real, and the role is genuinely no longer required.

That doesn’t mean you need to be in financial crisis, or that your decision can’t be challenged. But it does mean you should be able to explain (and evidence) the business reasons for the proposed change.

Examples Of Genuine Redundancy Scenarios

• You’re merging two roles into one because there’s overlap.
• You’re moving from in-house admin to outsourced bookkeeping.
• You’ve lost work and need fewer staff to operate sustainably.
• You’re closing a particular service line and those roles disappear.

Common “Not Genuine” Red Flags

Here are situations that often raise questions:

• You remove someone’s role and then hire a new person into a very similar role soon after.
• You label it redundancy but the real issue is performance or “fit”.
• You decide the outcome first and treat consultation as a box-ticking exercise.
• You use redundancy to avoid a difficult performance management pathway.

There can be legitimate reasons to create a new role after disestablishing an old one - but you want the documentation and reasoning to stack up, and you want to handle consultation and redeployment properly.

What About “Reducing Hours” Instead Of Redundancy?

Sometimes you don’t need to remove a role - you just need to reduce staffing costs or operating hours. But changing hours is still a change to terms of employment, and you generally can’t just impose it unilaterally.

If you’re considering this approach, it’s worth reading about reducing staff hours first, because the process (including consultation) matters a lot.

How Do You Do A Redundancy Properly? A Step-By-Step Process

In New Zealand, redundancy is less about having a “perfect” business plan and more about following a fair process.

Even if your business reason is genuine, you can still face legal risk if the process is rushed, unclear, or predetermined.

Here’s a practical step-by-step structure that typically aligns with good faith obligations under the Employment Relations Act 2000.

1) Get Clear On The Business Case (Before You Talk To Staff)

You should be able to explain:

• what is changing (structure, workflow, locations, budget, systems)
• why the change is needed (the business drivers)
• which roles are impacted and how
• what alternatives you considered (and why they weren’t workable)

At this stage, it’s usually smart to prepare a written proposal (even a simple one) so you can consult clearly and consistently.

2) Prepare A Proposal And Start Consultation Early

Consultation should happen while the decision is still genuinely open. That means presenting a proposal (not a done deal), inviting feedback, and giving reasonable time for staff to respond.

Your proposal might include:

• the proposed new structure (including any new roles)
• which roles are proposed to be disestablished
• any selection criteria (if not everyone in a group will be made redundant)
• a process and timeline for feedback

Employees should be given a real opportunity to understand what’s proposed, ask questions, and provide input. In many cases, they can bring a support person or representative.

3) Consider Feedback In Good Faith (And Document It)

This is a step employers sometimes underestimate. If staff raise alternatives - for example, job-sharing, reduced hours, or phased changes - you don’t have to accept them, but you do need to genuinely consider them and respond.

Good documentation here can make a big difference later, especially if there’s a dispute about whether consultation was meaningful.

4) Make A Decision And Confirm Outcomes In Writing

Once feedback has been considered, you can confirm the final decision.

If redundancy is confirmed, the communication should usually cover:

• confirmation that the role is disestablished (and from what date)
• notice period and final day of employment
• any redundancy compensation (if applicable)
• what happens with unused leave
• any support offered (e.g. time for interviews, references, EAP)

5) Look At Redeployment And Alternative Roles

In many redundancy situations, you should consider whether there are other roles available that the employee could reasonably do (with training if appropriate). Whether redeployment is required will depend on the circumstances, but it’s a common expectation in a fair redundancy process.

If you have suitable vacancies, it’s generally better to discuss those early rather than treat redundancy as the only pathway.

6) If You’re Selecting Between Employees, Use Fair Selection Criteria

If you have multiple employees in similar roles and fewer roles going forward, you may need a selection process.

Selection criteria should be:

• relevant to the role and future business needs
• applied consistently
• not discriminatory (directly or indirectly)
• explainable (you should be able to show how the criteria was applied)

This is one of the areas where getting advice upfront can really reduce the risk of a personal grievance.

What Do You Have To Pay In A Redundancy?

When redundancy happens, employers often focus on “redundancy pay”. But there are a few different payment categories to think about.

1) Notice (Or Payment In Lieu Of Notice)

Most employees are entitled to notice of termination as set out in their employment agreement. If you want the employment to end immediately (or earlier than the notice period), you may need to pay out that notice period instead.

This is often called payment in lieu of notice. Whether it’s allowed, and how it should be handled, can depend on what the employment agreement says and how you communicate it.

2) Redundancy Compensation (If The Agreement Provides For It)

In New Zealand, redundancy compensation isn’t automatically required by law for every employee. It depends on what the employment agreement says (or what you’ve agreed in practice or policy).

If the agreement includes redundancy compensation, you’ll need to follow it.

If the agreement is silent, you may still choose to offer an ex gratia payment (a discretionary payment) as part of a fair and supportive exit - but you should be careful about how you describe it and ensure it’s documented properly.

3) Holiday Pay And Other Final Entitlements

On termination, employees may be entitled to final pay items including:

• any wages owed up to the final day
• unused annual leave (paid out)
• public holiday entitlements (if relevant)
• alternative holiday entitlements (if applicable)

These entitlements are usually governed by the Holidays Act 2003 and the employee’s agreement, and it’s important to calculate them correctly.

4) What About Sick Leave?

Sick leave generally isn’t “paid out” on termination (even if unused), unless the employment agreement provides for it. But there can be tricky issues where an employee is sick during a redundancy process - which is one reason it’s worth getting tailored advice early.

Voluntary Redundancy, Forced Redundancy, And Other Common Scenarios

Not all redundancies look the same. Here are a few situations we regularly get asked about.

Voluntary Vs Forced Redundancy

Some businesses offer voluntary redundancy first - for example, asking for expressions of interest before confirming any compulsory redundancies. Done well, this can reduce conflict and give employees more control.

But voluntary redundancy still needs to be handled carefully, especially where there’s a risk the “voluntary” choice isn’t genuinely voluntary or where acceptance criteria aren’t clear. The difference matters, so it helps to understand voluntary vs forced redundancy before you communicate anything to the team.

Can You Make Someone Redundant While They’re On Leave?

Potentially, yes - but it’s sensitive and often higher risk.

If an employee is on annual leave, parental leave, or sick leave, you still have obligations to consult in good faith. That may mean ensuring they receive the proposal, have adequate time to respond, and can participate meaningfully (which might require extending timelines or providing information in writing).

Also be mindful of discrimination risk. For example, selecting someone for redundancy because they are pregnant or on parental leave is likely unlawful.

What If The Redundancy Is Really About Performance?

If the underlying problem is poor performance, the safer and fairer path is usually a performance management process - not redundancy.

Performance concerns should generally be addressed through clear expectations, support, and documented steps, rather than re-labelling the issue. Otherwise, you risk the employee alleging the redundancy is a sham.

If you’re unsure which pathway fits your situation, it can help to look at how a proper performance management process differs from a restructure.

Common Redundancy Mistakes Employers Make (And How To Avoid Them)

Even well-intentioned employers can make mistakes in redundancy processes - often because they’re moving quickly under financial pressure or trying to avoid difficult conversations.

Here are some of the most common issues (and what to do instead).

1) Deciding First, Consulting Second

If your proposal is effectively “this is happening, any comments?”, that’s not really consultation. A fair process usually means keeping an open mind until feedback is received and considered.

2) Using Vague Or Shifting Reasons

Be consistent and clear about the business reasons for the restructure. If the explanation keeps changing, it can look like the redundancy isn’t genuine.

3) Not Providing Enough Information

Employees need enough information to respond meaningfully. That doesn’t mean you must disclose every confidential detail, but you generally should share what’s necessary for them to understand the proposal and give informed feedback.

4) Unfair Selection Criteria

Selection criteria that is subjective (“attitude”, “culture fit”) or unrelated to the future role can create risk.

If you need selection criteria, keep it role-focused (skills, experience, qualifications, performance evidence) and apply it consistently.

5) Paperwork That Doesn’t Match Reality

If your letters, timelines, and internal documents don’t line up with what actually happened, that can create problems later.

For example, if you say you considered redeployment, but there’s no record of any roles being discussed, you may have difficulty showing the process was fair.

6) Relying On Outdated Or Generic Employment Documents

Redundancy risk often increases when employment agreements and policies are outdated, inconsistent, or copied from templates that don’t match how your workplace actually operates.

Strong legal foundations - including clear contracts and a workable redundancy process - protect you from day one, and reduce the chances of disputes when business conditions change.

Key Takeaways

• Redundancy in New Zealand is about the role no longer being required, not about the employee personally.
• A redundancy must be genuine (real business reasons) and handled through a fair process that follows good faith obligations under the Employment Relations Act 2000.
• Consultation should be meaningful, with a genuine opportunity for employees to give feedback before decisions are finalised.
• If you need to select between employees for fewer roles, you should use fair, role-relevant selection criteria and apply it consistently.
• What you have to pay on redundancy can include notice (or payment in lieu), holiday pay and other final entitlements, and redundancy compensation if it’s in the employment agreement.
• Voluntary redundancy, redundancies during leave, and “restructures” that overlap with performance issues are higher-risk scenarios where tailored legal advice can save a lot of stress later.

If you’d like help managing a redundancy process, reviewing your restructure plan, or updating your employment documents, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.