Two companies that care for disabled people asked to be put under statutory management because they could not afford the potential $176 million liability of a court-ordered requirement to pay workers for the time they are asleep at their care houses.
However, the Service and Food Workers Union says the problem is the Government under-funding services not the requirement for staff to be properly paid.
Commerce Minister Simon Power announced today that the Government had put Idea Services and Timata Hou, wholly-owned subsidiaries of IHC New Zealand and registered charities funded by the health and social development ministries, into statutory management.
Idea cares for almost 5000 people of whom 3000 are in residential care. Timata Hou, a residential rehabilitation service, cares for 67 people.
Last July, a benchmark Employment Court ruling found against IHC, which had opposed paying for sleep-over hours.
Under the ruling, staff staying overnight at the IHC's houses are entitled to get at least $12.50 per hour for their 10-hour shifts. Staff had received a shift allowance of $34 per night. IHC has about 250,000 sleep-over shifts per year.
The Court of Appeal will hear an appeal on October 28.
IHC New Zealand chief executive Ralph Jones said the companies had no choice but to ask for statutory management, given the potential $176m liability they faced.
"While Idea Services is currently in the spotlight, all service providers will be considering whether they can continue to operate in the face of such a huge liability for back pay and ongoing costs," he said in a statement.
Health Ministry acting director-general Andrew Bridgman said statutory management was a pragmatic solution.
"The Employment Court ruling has placed Idea Services in a financially untenable position of significant back pay and interest," he said.
Last year the ministry funded $378m of community residential disability contracts. Sleepovers were estimated to cost between $400m and $500m in back pay for all providers - there are about 100 - over the previous five years.
"In addition, the ruling would increase the cost of these services by an extra $60m to $70m per year - an increase of between 16 per cent and 19 per cent which would make most of these services unaffordable in their current form," Mr Bridgman said.
If the decision was upheld by the appeal court, the ministry would need to work with partners to find a long-term solution for about 7000 residents.
Service and Food Workers Union national Secretary John Ryall said the Government should drop the court appeal.
"The reason that IHC has been forced to put its trading companies into statutory management is because the Government, as the funder, has sat on its hands and refused to acknowledge that disability support workers have been ripped off for the last 20 years," he said.
The court recognised staff should be paid to stay at work overnight and be on-call for up to five intellectually disabled adults.
He said the Government should fund the liabilities the companies faced.
"It is time the Government fronted up and took responsibility for this situation."
Mr Power said IHC itself was not affected and there was no suggestion of wrongdoing but statutory management would prevent the companies from folding suddenly and leaving those in its care homeless.
Sir John Anderson was appointed statutory manager with an advisory committee made up of IHC head Ralph Jones, Idea Services director Donald Thompson and IHC national vice-president and another director of Idea Services, Shelley Payne.