Health Minister Tony Ryall has ruled out a Government bailout of disability services facing hundreds of millions of dollars debt for backpay arising from an Employment Court ruling.

Yesterday two IHC subsidiaries - IDEA Services and Timata Hou - were put into statutory management as a result of the Employment Court's sleepovers decision.

The court's ruling that staff who slept overnight at residential centres should be paid an hourly wage rather than a $34 allowance has opened IHC up to a potential $176 million bill for backpay.

IHC is appealing against the decision but its plight has prompted calls for the Government to pay up.

The Ministry of Health has calculated it will cost 100 providers a total of $500 million in backpay and $70 million more a year in future wage costs.

Yesterday, Mr Ryall said the Government was not liable for the backpay and would not pay it.

He said the Government gave about $375 million a year to services for about 7000 disabled people and wanted to continue to provide good residential care.

"We would want to do the best we can for that to continue. But that is something we will have to consider in light of the court decision."

IHC asked the Government to place its subsidiaries into statutory management pending the outcome of the appeal so it could continue to offer services. Chief executive Ralph Jones said it was the only way to continue to offer services because its assets would not cover the potential $170 million bill in backpay for staff. The Court of Appeal is expected to consider the Employment Court decision later this month.

The Government has now also stepped into the appeal, saying it has significant implications for the wider economy as well as the disability sector. Its intervention will allow it to make its own arguments on the issues to the court.

Mr Ryall said the finding that "averaging" of earnings over a fortnight was not acceptable would impact on the wider economy and other employers.

It would mean salaried workers whose complete package usually took overtime into account would have to be paid overtime. Workers who were paid on volume - such as fruitpickers - would also be affected.

He said if averaging was allowed it would reduce the future wage bill increase for disability services from $70 million a year to about $20 million a year.

Labour leader Phil Goff said a Labour government would cover the costs and alluded to National's recent tax cuts and its $1.6 billion bailout of investors in South Canterbury Finance.

Mr Jones said the disability sector was almost wholly reliant on government funding and other providers would also be considering whether they could continue to operate given the massive liability for backpay and ongoing costs.