Your rights: Redundancy ratio varies

Q. I have recently been made redundant. The salary figure used to calculate the redundancy payment was the average of the past 12 months worked. Is this correct?

I have heard that it must be averaged over the last four months. This would be of considerable financial benefit to me as I have had substantial pay increases in the past six months.

A. There is no general obligation on an employer to pay redundancy compensation unless it is a term of your employment agreement. As such, there is no legal rule about how many months should be used to calculate redundancy compensation payments.

A redundancy policy or contractual term will often include a formula for calculating payments.

Where no formula is provided, the way in which payments are calculated will depend on the wording of the redundancy clause and company practice. If it is an established company practice that your employer pays redundancy compensation on the basis of an average over the last four months, or calculated on your ordinary weekly pay at the time of your redundancy, then you may have a valid claim for any shortfall in compensation.

However, if the wording of the redundancy clause is unclear and there is no clearly established practice or policy, then your employer is entitled to determine how redundancy compensation will be calculated, provided the calculation is fairly and consistently applied. 

 * Caitlin Wright is a senior solicitor with Chapman Tripp's employment team. Answers are of a general nature only and should not be substituted for specific legal advice.

* Email your employment law questions in 200 words or less to careers@nzherald.co.nz with "Your rights" in the subject line. Questions are not normally acknowledged on receipt and will be answered only through this column.