When work doors shut

By MARK STORY

Your neighbour is made redundant, and instead of taking pity on him you think, "I bet he walked away with a nice big redundancy cheque". Sadly, employment law expert Andrew Scott-Howman says the reality - at least for most non-executive staff - is bleaker.

"People expect a lot more by way of redundancy compensation than the law provides for," says the employment lawyer with Bell Gully.

He claims most people would be shocked to discover how vulnerable they would be if redundancy hit tomorrow. If their employer was to follow the letter of the law, they could walk away with a payment for notice - which may be no more than a month's pay.

Technically, an employee who becomes genuinely superfluous to an employer's requirements can be made redundant.

Typically, redundancies are caused either by the sale or closure of a business, or by restructuring.

Whatever the circumstances, employers are required to forewarn staff by consulting them. While they are also required to seek feedback before taking further action, business owners aren't obliged to act on staff reaction.

Scott-Howman says consultation doesn't translate to an obligation to pay redundancy compensation (the New Zealand term for severance pay) unless it is provided for within an employment contract.

"Telling staff well in advance that they are being made redundant is supposed to soften the blow. But it's the compensation factor, which is intended to tide them over until they find another job, that will be of more interest," says Scott-Howman.

Unlike many other countries, notably in Europe, New Zealand law doesn't require employers to provide any redundancy compensation - only notice of their redundancy, which might be a few weeks' pay. Scott-Howman suspects most people who have found new jobs in the past five or 10 years are probably sitting on contracts stating that no compensation will be made available in event of redundancy.

Interestingly, all collective agreements today are required to spell out what will happen if redundancy occurs. But that doesn't necessarily mean compensation will always be paid.

Adding insult to injury, Scott-Howman's experience suggests employees higher up the corporate ladder are likely to fare better in redundancy compensation stakes, even where there may be no contractual entitlement.

For example, when offshore medical publisher Medi-Media bought out local rival Adis Press - with a view to shutting it down - staff were paid better redundancy packages than their contracts provided for. Adis Press exceeded its contracted obligation and paid staff six weeks and four weeks respectively (capped at 35 weeks).

Former marketing manager David Brash, says this decision suggests some employers feel morally responsible for adequately compensating staff made redundant.

"I was highly respectful of the firm's decision to extend use of the company vehicle and healthcare benefits for several months," says Brash.

"Management's decision to sweeten the compensation package and offer counselling also helped to allay staffs' fear and anger that such a successful company should be shut down."

While employers can walk away without paying any redundancy compensation, Paul Walsh, HR director with Sky City, says it makes good business sense to do the right thing. Redundancy compensation packages for senior Sky City execs vary according to experience. But the formula contained within their collective employment contract for all waged staff allows for four weeks' pay for the first year's service and two weeks for every subsequent year (capped at 12 weeks).

"Having redundancy compensation prescribed for within a black-and-white formula means everyone knows where they stand," says Walsh.

Within the employment environment, mediation is often used as a forum for employees arguing for compensation for redundancy above contractual entitlements. Scott-Howman says many employees try to argue for payments of compensation on a basis of fairness rather than strict entitlement.

"Employers often agree to negotiate redundancy compensation, even though not legally obliged to, and benchmark appropriate compensation based on offshore examples or on people in similar jobs."

As an alternative to redundancy payouts it is not uncommon for CEOs to insist on a "face-doesn't-fit clause" within their employment contract. This requires the employer to pay out some compensation to them if the relationship falls apart. In an attempt to put a veneer of respectability over a CEO's untimely exit, Scott-Howman says an unhappy marriage between a CEO and their board might be dressed up as a redundancy compensation package.

He says many senior execs willingly accept employment contracts without redundancy compensation clauses on the pretext that there will never be an occasion when their job becomes superfluous to the organisation. That's logical, but what happens if your employer decides to close or sell the business?

Until now, staff who discover the boss is selling the business and have no redundancy compensation clause in their employment contract have either relied on the boss' sense of what is right or had to stake a legal claim to adequate compensation. While senior staff typically fare well in these cases, often waged workers are left high and dry.

But assuming the Employment Relations Law Reform Bill - at select committee stage - is enacted without amendment (by year-end as expected), wage earners will no longer be dispensable pawns when companies are sold.

Part 6A of the act is likely to include a Transfer of Undertakings provision that will dictate what business owners are required to do when selling a business. The new act would include particular protection for employees in certain industries.

An employee protection provision contained within the bill would require a company's new owners to retain all staff on the same or better employment conditions than the previous owner.

This means all employees would be able to choose whether to work for a new owner - and have some protection against a situation where new and potentially less-beneficial terms of employment might be imposed on them as the result of the sale of a business.