KEY POINTS:
At the moment there seem to be several mass redundancy announcements every week, here and overseas. The financial crisis is extending out into the "real" economy, resulting in major restructurings, which on a global scale affect hundreds of thousands of employees.
Where an employer decides to lay off
a large proportion of its workforce, how does it decide who has to go? One of the favoured devices, both here and overseas, is the time-honoured "last on, first off" test. In New Zealand, this is frequently the sole redundancy selection criterion, although often it is mixed in with other factors such as performance.
Employees and unions tend to favour the "LIFO" test, because it is (arguably) fairer. If you've been with an employer for 20 years, most people would say you deserve to keep your job more than someone who has been there less than a year. Also, many older workers find it hard to secure new employment. These rationales also play a part in many redundancy pay formulae, which generally reward those with longer service.
Some employers, however, dislike LIFO because it allows them no room to consider factors such as whether an employee has skills and experience relevant to the business moving forward, and in particular, whether they are a good performer. An employer might be forced to keep an employee who is in the bottom 10% judged on performance, and pay someone to leave who is in the top 10% - just because of their service history.
The other problem with LIFO policies (and to a lesser extent, policies that take into account both service and other factors), is that they tend to favour older employees - given that an employee benefits from simply being employed for a longer period. This raises the question of whether such policies discriminate indirectly against younger staff.
The UK High Court has just ruled that taking into account service is not age discrimination. In this case, the service criterion was just one of a number of factors - not the only one. The Court said that even if the service criterion does favour older workers, that is justified for other reasons (a defence in both New Zealand and the UK).
The judge in this case said that the length of service criterion respects loyalty and experience. He also said it protects older employees having to find work at a time when this is likely to be particularly hard. This was sufficient to justify using length of service, in combination with other factors.
As the comments responding to the Times article on this decision demonstrate, this is not an easy issue. Many young people are priced out of the housing market, and might well say that all staff are entitled to be judged on their performance and ability to do the job. As against that, in many roles, performance criteria are difficult to apply fairly, and are not infrequently used to dispense with people that management simply do not like.
Whatever the rights and wrongs, the New Zealand courts are unlikely to take a different view. Whether service is the sole criterion or one of several, the arguments are very similar.
Unfortunately, due to the economic situation, phrases such as "last in first out" will acquire a lot more meaning for many New Zealanders in the coming months.
Greg Cain
Greg Cain is an employment lawyer at Minter Ellison Rudd Watts.
Photo: Image from the New Zealand documentary film 'In the Land of Plenty' made by Alister Barry.