The current economic downturn is seeing many an organisation consider the merits of a restructure. Whether it's in the context of the public or private sector, obligations under employment law don't change, and potential legal liability and reputational risks to the employer always exist if the process is not managed correctly. Within the context of local authorities, however, there are some additional and very specific legislative requirements which need to be carefully and appropriately navigated.

The general obligations of any employer are that, when proposing a restructure, employers must ensure that the proposed changes are:

1. Substantively justified - meaning that the employer has genuine reasons to undertake the restructure; and
2. Procedurally justified - meaning that the employer has used a fair and proper process when undertaking the restructure.

In addition to these obligations, there are some specific challenges that public sector employers, including local authorities, must deal with. Broadly, these are:

1. How public sector employers can substantively justify restructuring
2. The legislative requirements imposed on public sector employers to be a good employer and to make any new appointments based on merit; and
3. The challenges imposed by the prevalence of unions in the public sector.

Substantive Justification

The case law on substantive justification for restructuring has typically centred around whether employers have genuine business reasons for undertaking a restructure. However, as local authorities are reliant on rates and central government funding, they are not usually able to cite commercial concerns, such as a downturn in business, to justify undertaking a restructure.

Local authorities should therefore look to rely on other justifications that are related to the specific funding, and/or organisational, challenges that they face, and not on the commercial reasons that are generally relied upon by private sector employers.

Procedural Justification

As discussed above, employment law imposes a number of obligations on employers when undertaking restructures. The duty of good faith in the Employment Relations Act 2000 (ERA)is a core employment obligation which requires the parties to an employment relationship to be active and constructive in establishing and maintaining a productive employment and to be responsive and communicative.[1]

The ERA also requires employers to provide employees who may be affected by a restructure with access to information which is relevant to the continuation of their employment, and an opportunity to comment on the information before any decision is made.[2]

Accordingly, employers are required to consult with any employees that would be affected by a proposed restructure before making any decisions. The recommended approach is for employers to consult with affected employees about the proposal and invite those employees to provide feedback on the proposal. Any feedback must then be considered before the employer makes a final decision about the restructure.

During the consultation process, employers must be alive to avoiding the use of language which could be interpreted as pre-determination of the outcome of the restructuring. Any evidence that a decision has been predetermined could provide a basis for a personal grievance claim.

Employers, including local authorities, must be cautious about the process that they follow during a restructure, as even well-meaning employers with genuine reasons to restructure can become unstuck if they fail to follow a proper process. In a worst-case scenario, the Employment Relations Authority may order that an employee who was made redundant via a defective restructure be reinstated, as reinstatement is recognised under the ERA as a primary remedy.[3]

Legislative Obligations on Local Authorities

While all employers are required to comply with the above-mentioned provisions of the ERA, the Local Government Act 2002 (LGA)requires local authorities to operate personnel policies that are consistent with the principle of being a good employer.[4] This 'good employer' obligation requires local authorities to give preference to the person who is best suited to the position when making an appointment.[5]

This requirement has some practical implications for local authorities considering restructuring; particularly if the authority is proposing to create new roles in addition to disestablishing existing ones.

While employment law generally requires employers to consider the possibility of redeployment for employees whose roles are proposed to be disestablished under the restructure, the LGA imposes an additional obligation on local authorities to ensure any redeployment appointments are entirely merit based.

Unions and Restructuring

The high rate of union membership in the public sector is another key consideration for local authorities considering a restructure proposal. Unions will typically provide strong opposition to the proposal in the first instance, and then detailed and comprehensive feedback on the proposal. Genuine consideration of the feedback is required, and a substantive response needs to be given. Failing to do so can also put the employer at risk of a personal grievance claim.

The above are but some of the pitfalls for the inexperienced. The stakes are high, so we recommend that a local authority planning on restructuring seek legal advice to ensure the restructure proposal is both substantively and procedurally justified.

Amanda Douglas is a partner at Wynn Williams, where she leads the Firm's national employment practice. Amanda has specialised in employment law and local government law for 25 years.

[1] Employment Relations Act 2000, Section 4(1A)(b).

[2] Section 4(1A)(c).

[3] Section 125.

[4] Local Government Act 2002, schedule 7 clause 36.

[5] Local Government Act 2002, schedule 7 clause 36(3)(a).