Business Mentor: Treating employees legally and fairly

What obligations do I have to my staff if I close my business down?

Robyn McKinney, Employment Relations Consultant with the Employers & Manufacturers Association, responds:

Employers are required under the Employment Relations Act to treat their employees in good faith if they are proposing a change to the business that might have an impact on employees.

Where a business is closing down, good faith involves advising employees of the possibility of closure as soon as that possibility becomes apparent.

If practicable, employers should consult their employees about possible alternatives, but where this is not practicable, the employer must still keep employees informed about the probable date of closure.

Where employees' employment agreements or contracts contain contractual provisions relating to redundancy, the employer must comply with the provisions.

These may relate to the amount of notice to be given, the compensation payable, redeployment opportunities and the right of employees to attend interviews for other positions during the notice period.

Where there are no contractual provisions, the employer must ensure that employees are given a reasonable amount of notice of the closure.

What is considered reasonable will depend on the seniority and length of service of employees.

For a manager with 10 years service, the courts have found that three months notice is reasonable. If the employment agreement does not cover the matter of notice, then notice of a month is adequate.

Employers should also consider whether they can provide any outplacement or financial counselling to employees whose positions will become redundant.

As well as payment for all wages due to the closure and any redundancy compensation that might be due under the terms of an employment agreement or contract, the employer must pay employees for any outstanding holidays owed, and holiday pay for any part years of service.

Where the closure arises out of a receivership situation, employers' liability for unpaid wages and holiday pay is capped at $6000 an employee under the Companies Act.

Where the company is in receivership or liquidation, or if there are reasonable grounds for believing that the company has insufficient assets to pay the amounts in full, employees can ask a Labour Inspector to bring an action for recovery of minimum wages and holiday pay against any officer, director or agent of a company.

* Send your Mentor questions to: Ellen_Read@nzherald.co.nz

* Answers will be provided by Business in the Community's Business Mentor Programme.