KEY POINTS:
Redundancies are a fact of modern corporate life. Even in a buoyant economy, companies reorganise themselves frequently as markets change. But as the economy slows, increasing numbers of employees will lose their jobs.
Statistics from the Household Labour Force Survey, released this month for the most
recent quarter, showed a 1.3 per cent fall in the number of people in employment.
This was the sharpest drop since whole industries were being dismantled in the 1980s.
For the first time in years, many people will be wondering what they are entitled to if their job is axed.
The answer may be "not much, if anything".
There is no statutory right to redundancy compensation in New Zealand, although the Government is reviewing this area of employment rights.
Michael Quigg, of law firm Quigg Partners, and convener of the New Zealand Law Society's employment law committee, says: "The legal position is that generally if you don't have contractual entitlements to redundancy compensation you don't get it.
"If you are going to be entitled to redundancy compensation you need to be in a position to negotiate it into the agreement."
Quigg says he will be surprised if the Government now introduces a compulsory system, given that New Zealand has many small employers, and particularly during an economic slowdown.
For now, employees' rights to payment depend on their employment agreements.
Many individual and collectively bargained agreements do include provision for such payments but Peter Chemis, national chairman of law firm Buddle Findlay and an employment law specialist, says he believes that probably less than half of the workforce have redundancy compensation entitlements in their employment agreements.
Even senior staff may have contracts that do not include redundancy compensation. "Probably there are a number of general managers out there who don't have anything."
He also believes that many people do not realise redundancy payments are not an automatic right.
Erin Davies, a partner and head of the employment law team at Brookfields Lawyers, says that if there is no express provision for redundancy compensation in an agreement, employees may still be able to make a case for payment if they can point to the employer having made payments in similar circumstances in the past. This is a developing area of case law and advice is needed.
Chemis believes that it can be hard to make a case for payment if an employment contract is not specific.
Quigg says that, in his experience, most executives do have redundancy compensation terms written into their employment agreements.
While a common formula is four weeks' pay for the first year of service and two weeks for every subsequent year, executives are more likely to have terms providing for flat amounts unrelated to length of service - three or six months' salary, for example.
Even if there is no provision for the employee to receive financial compensation, Davies explains that employers must give notice of redundancy, as may be stated in the employment agreement, and may pay a sum of money in lieu of an employee working out notice.
If there is no provision for notice in the agreement, the employer must give a reasonable and fair warning.
"Whether the amount of notice given is reasonable will depend on a number of factors, including length of service and seniority," says Davies.
There is no statutory minimum notice for employees, including senior executives whose notice periods typically range from one to six months; three months is the average.
Before laying off workers, the employer needs to be able to show that the redundancy is genuinely for commercial reasons and that the employment is being terminated because the position has become superfluous to the employer's needs.
"The reason for redundancy must be genuine," says Davies. "It can't be a performance-based dismissal in disguise. It is the position that must be superfluous, not the person."
The procedure for making someone redundant is governed by the Employment Relations Act and by developing case law. The employer must act in a fair and reasonable manner, which will nearly always involve a consultation process, giving the employee information and giving him or her an opportunity to comment.
Davies says: "When an employee is being informed that they are to be made redundant, the news should not come as a surprise."
Maria Scott is a Christchurch journalist who specialises in personal finance
