But management at the Yorkshire Residential SchoolCollege for the Deaf in Doncaster unfairly fired four members of their teaching staff during the shake-up, an industrial tribunal decided.
The Sheffield hearing was told that auditors had warned that the organisation - which specialises in general education and vocational courses for those with serious hearing problems - would be bankrupt within three years unless a major restructuring exercise was carried out to take account of falling student numbers.
Student numbers had dropped from 279 in 1996-97 to 183 in 2000 - 01, leading to a series of redundancies - a total cutback from 155 to 97 between 1997 and 2000.
But the tribunal decided that during the resulting changes, four members of staff - Michael Revill, Arthur Lindon, John Thompson and June Burgin - had been unfairly dismissed.
The organisation was ordered to pay the four a total of more than pound;40,000 in redundancy and compensation in addition to payments already made. Tribunal chairman Mr Philip Lancaster said the college management had broken its own redundancy policy of "last in first out".
He said in the case of Mrs Burgin, 59, a maths teacher, her post had not been made redundant but the terms and conditions had changed including longer hours and a pay cut of more than pound;5,700 a year. She refused to accept the post.
Mr Lancaster said that in the case of Mr Thompson, a 62-year-old workshop technician, the duties still existed but only the job title had changed. His application for the new post was rejected.
The tribunal ruled that in the case of Mr Revill, a 45-year-old tutor in the motor vehicle department, one of two jobs on the same level was being lost. When he lost out in his application for a new job, the interviewing panel was "almost entirely subjective".
Mr Lindon, 54, a painter and decorating tutor, was absent through illness at the time new appointments were made and he was made redundant.
Director Mr Hartley Heard told the tribunal he joined the school and college in September 1998 and was handed the task of supervising a review of its teaching activities and finances.
Mr Heard said the college had to change its delivery of education because of changes in student intake and added: "We have had an increasing number of students who are deaf but are also coming to us with a much wider range of difficulties." As a result of the latest shake-up, 25 staff lost their jobs last year but the four disputed their dismissals and claimed unfair dismissal.