NZ Company Redundancy and Restructuring: Employment Law Guide for Directors 2026

Why New Companies Need to Understand Redundancy Law from Day One

Many NZ company directors make their first hire without understanding the full legal framework that governs ending that employment relationship. If the business needs to downsize or restructure, the Employment Relations Act 2000 applies in full - regardless of how new the company is.

Genuine vs Sham Redundancy

The ERA takes a hard line. For a redundancy to be lawful, the position must genuinely no longer be required. Common mistakes:

• Claiming redundancy while advertising for a similar role externally
• Using redundancy to remove an underperforming employee instead of following performance management
• Failing to consider whether the employee could fill another role (redeployment obligation)
• Not genuinely consulting before making the decision

The ERA has awarded up to NZ$30,000 for hurt and humiliation when redundancy processes were not genuine.

The Correct Restructuring Process

1. Written proposal - explain the business reason, which positions are affected, and why
2. Genuine consultation - provide the proposal, give reasonable time to respond (5-10 working days), genuinely consider their feedback
3. Redeployment consideration - actively consider whether the employee could fill any other role
4. Written decision - communicate the outcome with clear reasons

Redundancy Compensation

New Zealand has no statutory redundancy payment entitlement. However:

• Check the employment agreement first - many templates include a redundancy payment clause (often 2-4 weeks per year of service)
• The notice period must be paid in full, or payment in lieu given
• All accrued annual leave must be paid out on termination (Holidays Act 2003, s.87)

The 90-Day Trial Period

Companies with fewer than 20 employees can use a 90-day trial provision. During this period, the employee can be dismissed without access to personal grievance remedies - but the trial clause must be in a written agreement signed before the employee starts work.

If you advise new NZ companies on employment law, FreshFirms gives you a daily alert on newly-incorporated companies in your region - the moment they register and before they make their first hire is when employment law advice is most needed.