Work and Income may face a costly class action after it appears to have spent decades wrongly advising some benefit applicants they cannot get support until their redundancy runs out.
Last week Work and Income admitted it had made an error after it rejected the benefit claim of Mary, an Auckland hotel worker, due to her Covid-19 redundancy payout.
The reversal came after RNZ pointed out that the Social Security Act said redundancy should not be a factor when calculating someone's entitlement to a benefit.
Further legal advice suggests it has been unlawful since 1991 to include redundancy as part of the calculation for a benefit stand-down.
RNZ has been contacted by many people who believe they are in a similar situation to Mary. Some cases are from the last few months, while others date back to the early 1990s. Some say they lost their savings and homes.
Grant Cameron, a senior partner at GCA Lawyers and a specialist in class action lawsuits, said "often bureaucratic mistakes are made and it's a question of how it is dealt with".
"On the information presented to date, there is a high prospect of a class action being formed provided people are sufficiently interested."
Victoria University law lecturer Māmari Stephens, an expert in social security and welfare law, said there was little case law relating to the issue of redundancy and benefit payments but people were "vulnerable" in such circumstances.
Stephens said there were two issues: the potentially narrow way in which the law relating to redundancy was applied. There could also be a difference between those who took voluntary redundancy and those considered "superfluous", and the nature of the training Work and Income staff received and how many of them understood the law.
"It seems to me there is a real risk to the department [of further legal action]."
Stephens said Work and Income's manual and procedures document appeared to correctly reflect the law but in practice this could be "lost in translation".
"There are some case workers who are not trained in the legislation and they are relying on the manual and procedures. How these are translated to the public can differ.
"This may be a classic example of the law saying one thing clearly and practice over time has evolved quite differently."
She said Work and Income did not like class actions because it involved going back and potentially re-calculating hundreds of thousands of cases.
The most recent example involved a missing day of payment relating to stand-down periods. Between 3 June, 1998, and 28 September, 2015, Work and Income waited an extra day after applicants' stand-down periods ended before making their initial benefit payments. It is believed to have cost many millions of dollars to rectify.
Stephens said one of Work and Income's imperatives was to "safeguard the public purse and minimise cost to the state".
RNZ has asked Work and Income and Social Development Minister Carmel Sepuloni a number of further questions about how long the practice has been in place; the number of people affected and whether back payments may need to be made.
A spokesperson for the minister said Sepuloni had not been aware of the issue but had asked officials for a briefing today. They had advised it was an "operational issue".
Work and Income earlier said frontline staff had been reminded redundancy payments should not form part of calculations made as to when a person's benefit payments should start.
It was encouraging anyone with concerns about how it had calculated their benefit start date to get in contact.
Ricardo Menedez-March, coordinator for Auckland Action Against Poverty, said Work and Income should make back payments to the "potentially thousands" of people denied a benefit.
"Particularly right now when we see unemployment rising rapidly, and when the government itself has acknowledged people should get access to benefits as soon as they become unemployed, I do think Work and Income has a duty to proactively look back at those cases."
He said the minister should order an investigation.