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Employment Law
12 Aug 2009
Proposed Statutory Minimum Redundancy Entitlements
Somewhat unexpectedly, the Employment Relations (Minimum Redundancy Entitlements) Amendment Bill has been drawn from the ballot and is currently on the Order Paper awaiting its first reading.
The Bill, a private member's bill introduced by Darien Fenton (List Member of the Labour Party) would (if passed) amend the Employment Relations Act 2000 to insert a new Part 6E to provide minimum statutory entitlements for employees in the event of dismissal for redundancy.
The provisions of the Bill are based on the recommendations of the Public Advisory Group on Restructuring and Redundancy who reported to the Government in November 2008, and propose the introduction of a statutory entitlement to redundancy compensation and minimum notice of redundancy termination for redundancy to affected employees.
The Bill (if enacted) would apply to all employees, regardless of seniority or industry group, and provides that every eligible employee whose position is redundant must be provided, as a minimum, with:
- notice of dismissal of no less than four weeks; and
- compensation for redundancy of four weeks' remuneration for the first full year of the employee's continuous employment with the employer, and a further two weeks' remuneration for each subsequent full or partial year of continuous employment, up to a maximum entitlement of 26 weeks' remuneration.
The only criteria for eligibility is that the employee must be in a continuous employment relationship with an employer for one calendar year or more.
An interesting aspect of the Bill as drafted is the definition of 'redundancy', which is defined as:
"the substantial disappearance of the work performed by an employee, by reason of the restructuring, downsizing, going into receivership or administration, or cessation of the operations of the employer."
This definition does not appear to be drawn from any previous statutory definitions (such as that in the Labour Relations Act 1987) or any case law. The Courts, however, have consistently defined redundancy as a situation where the position of the employee is, or will become, superfluous to the needs of the employer. To have a different definition of redundancy focused instead on the "substantial disappearance" of work just for the purposes of Part 6E of the Employment Relations Act may lead to unnecessary confusion and cut across an employer's management prerogative.
There are a number of other potential issues with the Bill in its current form, including:
- who will cover the cost? The Bill as drafted states that employees will be entitled to redundancy compensation but does not expressly state that employers will be liable for the extra cost, although this appears to be the intention. Small employers, in particular, may struggle with the added burden;
- the Bill does not state how a week's remuneration would be calculated, for example is it base salary and what if employees work irregular weekly hours; and
- the Bill does not guarantee that employees would receive their minimum entitlement to redundancy compensation in situations where the employer company goes into receivership, as was the case recently with the employees made redundant from Lane Walker Rudkin.
In addition, the minimum entitlements in the Bill are significantly more generous than statutory entitlements in other countries, for example:
- there is no cap on a "week's remuneration" as there is in the UK, where a week's pay is subject to a maximum of £240; and
- the 26 week maximum compensation entitlement is much more substantial than in Australia, where the entitlement is limited to 12 weeks' pay.
The bill is due for its first reading on Wednesday 19 August.
Authors
Carl Blake
Senior Associate - Dispute Resolution
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Katherine Burson
Senior Associate - Employment
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Lucy Jenkins
Senior Associate - Employment
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The Employment Relations (Minimum Redundancy Entitlements) Amendment Bill, a private member's bill introduced by Darien Fenton (List Member of the Labour Party) would (if passed) amend the Employment Relations Act 2000 to insert a new Part 6E to provide minimum statutory entitlements for employees in the event of dismissal for redundancy.
