Do I need to restructure, and how do I do it properly?

Cluster: Hiring & employment Shape: Compliance (with decision elements in the stance pivot) Slug: restructuring-decisions Status: v1

Short version

Restructuring sounds like a strategic move. In a small business, it's usually one of three more specific things: you've got more cost than the business can carry, the work has changed shape and a role doesn't fit anymore, or you've got a performance problem you don't want to call a performance problem. The third one is the trap. The first two are real, and they have a real legal process.

The legal frame is unambiguous. Under section 103A of the Employment Relations Act 2000, dismissing someone by reason of redundancy still has to pass the same test as any other dismissal: what a fair and reasonable employer could have done in all the circumstances. That test has two halves. Substantive — there has to be a genuine business reason, and the role genuinely has to be surplus. Procedural — you have to consult in good faith before the decision is made, share the relevant information, genuinely consider feedback, and look at redeployment.

The 2026 PG reforms shifted the balance slightly on minor procedural errors for employers acting in substantive good faith. They did not weaken either of those two requirements. For SMBs, the same disciplines apply they always did: get the reason right, document the reason, run the consultation properly, and don't pre-decide.

Where to find the authoritative answer

⭐ Employment New Zealand — Redundancy and restructuring (employment.govt.nz/ending-employment/redundancy) — the operational walkthrough. Start here. Covers the process steps, what information to share, how consultation works in practice.
Employment Relations Act 2000, sections 4 and 103A (legislation.govt.nz) — the statutory anchor. Section 4 is good faith. Section 103A is the test of justification.
Employment NZ — Resolving problems (employment.govt.nz/resolving-problems) — what a personal grievance actually involves if it goes that way. Useful for understanding the exposure before you start.
Employment Relations Amendment Act 2026 — note for context. Most provisions don't change the restructuring framework for typical SMBs. The $200,000 remuneration threshold for unjustified dismissal claims won't apply to the vast majority of small-business roles.

What to watch for

1. The "is this actually a restructure" question. Genuine redundancy means the role genuinely isn't needed anymore — not that the person in the role isn't working out. The Employment Relations Authority and the Employment Court will look at substance, not labels. If you restructure a role and three months later the same work is being done by someone else under a different title, that's not a restructure. If you restructure a role because the person doing it has been a problem and you don't want to run a performance process, that's not a restructure either — that's a pretext dismissal, and it loses badly in front of the Authority. Get clear with yourself first: is the job gone, or is the person the issue?

2. Substantive justification needs evidence, not vibes. "Things have been tough lately" is not a substantive reason. Substantive justification means you can point to specifics: revenue against this role's cost, contract loss, workflow change, technology change, structural shift in demand. If your reason is forward-looking financial forecasting alone — "we think it's going to get worse" — that's the weakest ground available, and the Authority has been increasingly sceptical of pure-forecast cases. Write the reason down before you start the conversation. If you can't write it in a paragraph, you don't have it yet.

3. Consultation has to be genuine, which means it has to happen before the decision. This is the procedural trap most small employers fall into. The thinking happens in your head over weeks. By the time you write to the affected person, you've already decided. Genuine consultation means presenting a proposal, sharing the information behind it, inviting a response, and being genuinely open to changing course. If you've already told a third party "we're letting Sarah go," and then run a consultation, the consultation isn't genuine and the Authority will see that. Treat it as a proposal until it isn't.

4. The information you share has to be the actual information. Section 4(1A)(c) requires you to provide affected employees with information relevant to the continuation of their employment. In a financially-driven restructure, that typically includes the cost basis: what the role costs, what the revenue picture looks like, what the alternatives considered were. You don't have to share every internal document, but you can't hide the actual basis for the decision either. The Grace Team Accounting v Brake line of cases turned partly on calculation errors in the figures used to justify the redundancy — get the numbers right before you share them, and share enough of them that the employee can actually respond.

5. Redeployment is a real obligation, not a paperwork step. Before confirming a redundancy, you have to genuinely consider whether there's another role in the business the person could move into. In a five-person business, that often means there genuinely isn't one. That's a defensible answer — but it's only defensible if you actually thought about it. "Could the admin work be reshaped to absorb part of the disestablished role" is the kind of question you have to be able to show you considered. Telling the affected person to "apply like an external candidate" for an obvious internal fit is exactly the procedural failure the Authority will pick up.

6. The 2026 PG reform doesn't bail you out on the basics. The Amendment Act 2026 lets employers who act in substantive good faith have a stronger defence against personal grievances built on minor procedural slips. It does not soften the substantive justification requirement, the consultation requirement, or the redeployment requirement. Don't read commentary about "rebalancing the personal grievance system" as licence to cut corners on the structural disciplines. The corners the reform softens are technical — exact wording, exact timing, exact form. The disciplines above remain load-bearing.

A separate point on whether restructuring is the right reach at all

Most small-business restructuring conversations start in a place that isn't actually about structure. The owner is carrying cost they can't sustain, or a role isn't working, or both. Restructuring is one of the available answers, but it isn't always the right one.

If the issue is cost, the prior questions are: have you renegotiated the supplier costs, the rent, the contracts, the discretionary spend? Have you talked honestly with the person about reducing hours, changing scope, or moving to a part-time arrangement? These conversations sometimes land better than expected, especially if the person values the job and the business is genuinely tight. Mutual agreement variations don't trigger redundancy obligations because they aren't dismissals.

If the issue is performance, the prior questions are in D6 — performance management procedural backbone. Running a performance process is harder and slower than a restructure, but using a restructure to remove a performance problem is not just legally risky, it's also professionally lazy. The Authority sees through it, and so do the rest of your team.

If the issue is fit — the role evolved, the person didn't — that's a genuine restructure case, and it can be done properly. But name it that way to yourself first. "The role has changed in ways the current incumbent can't reasonably grow into" is a defensible substantive reason, provided you can show the role has actually changed and you've considered whether redeployment or training is reasonable.

The reach test is simple. Before you start: write down what specifically is wrong. If what's wrong is the person, restructuring is the wrong tool. If what's wrong is the role or the cost structure, it's the right tool — and the disciplines above apply.

Where this entry stops

This entry doesn't cover:

The mechanics of running a specific consultation meeting — Employment NZ has operational templates and an Agreement Builder routing path
Redundancy compensation entitlements — there's no statutory entitlement; whatever is in the employment agreement applies
Restructures involving business sale or transfer — Part 6A of the ERA covers vulnerable workers (cleaners, caterers, etc.) and employee protection provisions add layers most SMB restructures don't touch
Collective restructures involving union members — different process, different consultation obligations
Specific case strategy if you've already received a personal grievance — that's a lawyer conversation, not a wayfinder conversation

For any of those, get specialist advice. The cost of an hour with an employment lawyer before you start the process is dramatically lower than the cost of a personal grievance after it.

Last verified: 11 May 2026.

Related entries:

D6 — Performance management procedural backbone — if the problem is performance, start here, not with restructuring
Entry 3 — Personal grievance reforms — what the 2026 reform changed and didn't change
A1 — Employment agreement essentials — the agreement governs the procedural floor, including any redundancy provisions
Entry 9 — Hiring first employee — the upstream decisions that shape your later restructuring options
C5 — Closing the business properly — if the restructure is really a wind-down, this is the entry

What lives on the references subpage:

Employment Relations Act 2000, section 103A — the test of justification. legislation.govt.nz — search by section number.
Employment Relations Act 2000, section 4 — good faith obligations, including the specific duties around proposed decisions affecting continuation of employment. legislation.govt.nz.
Employment New Zealand — Redundancy and restructuring — operational guidance, process steps, templates. employment.govt.nz/ending-employment/redundancy.
Grace Team Accounting Ltd v Brake [2014] NZCA 541 — Court of Appeal authority on the substantive justification test and the requirement for accurate information. Search NZLII.
Employment Relations Amendment Act 2026 — context for what the 2026 reforms changed (procedural defence threshold, $200K remuneration cap on PG claims) and what they didn't (substantive justification, consultation, redeployment obligations). legislation.govt.nz.
Employment NZ helpline — 0800 20 90 20 — free guidance for both employers and employees on specific situations.