HR Insights: Restructure Case Law Development

Penny v Frello Ltd – Lessons on Restructures

A recent case Penny v Frello Ltd [[2025] NZERA 317 has highlighted the importance of employers carefully considering the receipt of resignations during a restructure. What makes this case particularly interesting is that while the financial reasons for the restructure were sound, the challenges were around whether the consultation and the selection criteria and matrix were reasonable. 

Background

Mr. Penny was employed at Frello Ltd (Frello) as a software architect until his position was made redundant on 8 November 2023. He argued the decision to terminate his employment was predetermined because there had already been resignations in the team he worked with, negating the need to reduce the overall staff numbers. He argued there was a failure to genuinely consult with him and, therefore, his dismissal was unjustified.

Frello stated the decision to make Mr Penny’s position redundant was justified because there were genuine financial reasons for the restructure, and a thorough selection process was applied to determine which members of the software developer team would remain.

The proposal set out that the software developer team was to be reduced to five to three positions The selection criteria were set out, with each person to be assessed against a matrix. Frello confirmed in evidence that Mr Penny scored highly and was considered a very experienced member of the team. Mr Penny was aware that one of the five software developers had resigned. On 8 November 2023, Frello informed Mr Penny that he had been unsuccessful in retaining his position and that he was to be made redundant.

The same day Mr Penny was made redundant, another employee in the software development team told him they had also resigned earlier in the week. The evidence from Frello was slightly different and said the second employee was considering resigning, but did not actually resign until after Mr Penny had been informed that he was selected for redundancy. 

Frello argued the second employee indicating their intention to resign fell short of an actual resignation, but this was not found to be enough to meet its good faith obligations in the Employment Relations Act 2000. If the proposal were to reduce the team to three and the second developer were to resign, there would only be three developers left in the team. That meant the proposal’s objectives could have been met without making any developers redundant.

The Decision

 The Employment Relations Authority (ERA) found the dismissal of Mr Penny to be both substantively and procedurally unjustified.  

He was awarded:

• $20,000 without deduction

• Three weeks' wages as reimbursement of lost wages. 

Costs were reserved.

Key Takeaways

• Obligation to consult and provide all relevant information is fundamental for the employer to justify its actions in a restructure.
• Selection Criteria must be objective and clear to potentially affected employees about how they are assessed to ensure a fair process.
  
  

We can help

Navigating abandonment of employment issues requires care and a sound understanding of your obligations. Our HR Advisory team can help you apply best practice and minimise risk. 👉 Contact Michael at michaelp@cecc.org.nz for tailored support.