KEY POINTS:
Last Thursday, the long-awaited report of the Public Advisory Group on Restructuring and Redundancy was released. The report recommended, among other things, that the Government consider requiring employers to pay redundancy compensation.
This is a controversial topic to say the least. Of those who made submissions, most unions and community law advisers supported compulsory redundancy pay, while most employers and professional groups took the opposite view. This is probably a fair reflection of the division between the two sides of industry on this issue.
Some years ago, the Court of Appeal said that the employer's obligation to treat employees fairly in a redundancy context would in some cases include paying redundancy compensation. However, within a few years, various judicial arrivals and departures had resulted in a more conservative Court of Appeal. In 1998, the Court reversed the position, saying that redundancy compensation is only payable where specifically provided for in the employment agreement.
Many employment agreements do not say whether redundancy compensation is payable, and so the Court's decision was significant in denying large numbers of employees access to redundancy compensation (or protecting employers from having to pay out more money, depending on your perspective!).
The report explores the various arguments in some detail. There are many complex issues here, including whether the impact on employers of having to pay out more will, in terms of the impact on the economy as a whole, outweigh the benefit to employees of getting the extra cash.
The report said that the Group "was able to reach agreement" that the Government consider introducing statutory redundancy pay based on length of service. A cynic would say that given the Group had two union representatives and one employer representative (and one from the State Services Commission), this outcome was always likely.
Despite exploring a wide range of possible mechanisms to give effect to its recommendation, the report did not recommend anything more specific. It did comment however that employees with less than a year' service could be excluded, which would affect up to a third of all employees, based on current turnover statistics.
One point the report was not able to cover (given that it was apparently completed in June) is the impact of the recent crashes in the financial markets. From an employee's perspective, in a buoyant economy with a tight labour market, redundancy pay is less important than it is in a recession, where large numbers of employees are being made redundant every week, and unemployment is therefore increasing. Where jobs are easy to find, employees are more easily able to make do without redundancy pay. Where the opposite applies, they may get only one month's notice and be out of work for several months.
There seems to be an international trend towards legislating for redundancy pay. According to the report, Australian employees with at least a year's service and who work for an employer with 15 or more employees are entitled to redundancy pay. This varies with length of service, from 4 weeks to 12 weeks' pay.
Similarly, most UK employees who have two years service are entitled to 330 pounds per year of service, or 495 pounds for complete years served while the employee was aged 41 or over.
This is a difficult subject and not one that employers and employees are likely to agree on. Whether compulsory redundancy pay ever gets past first base will likely depend on who wins in November. If Labour, yes (Trevor Mallard has said the Government's preference is for a statutory minimum).
If National, unlikely.
Greg Cain
Greg Cain is an employment lawyer at Minter Ellison Rudd Watts.
