Proposed statutory minimum redundancy entitlements

Posted by Benefitz Admin on September 7 2009 in News

Proposed statutory minimum redundancy entitlements

Recently drawn from the ballot is a controversial Private Members’ Bill introduced by Darien Fenton (List Member of the Labour Party). Initially planned to have its first reading on 19 August 2009, if passed the Bill will amend the Employment Relations Act 2000 and provide minimum statutory entitlements for employees in the event of dismissal for redundancy.

The Bill had its genesis in the recommendations of the Public Advisory Group on restructuring and redundancy, which reported to the Government in November 2008, proposing the introduction of minimum notice of redundancy termination and a statutory entitlement to redundancy compensation.

If enacted, the Bill provides that where employees have been in a continuous employment relationship with an employer for one calendar year or more, they must be provided, as a minimum, with:

• Notice of dismissal for redundancy of no less than four weeks; and
• Compensation for redundancy of four weeks remuneration for the first full year of employment, and a further two weeks remuneration for each subsequent full or partial year of employment, up to a maximum entitlement of 26 weeks remuneration.

The Bill introduces a new legislative definition of “redundancy”, namely:

“The substantial disappearance of the work performed by an employee, by reason of the restructuring, downsizing, going into receivership or administration, or cessation of the operations of the employer.”

This is different from the common definition of redundancy as being a situation where the position of the employee is, or will become, superfluous to the needs of the employer.

Commentators have already criticised the Bill, including:

• That the cost for small employers will be “a death knell” for small businesses (Max Whitehead, from the Whitehead Group). Interestingly, the 26 week maximum compensation is much more substantial than in Australia, where the entitlement is 12 weeks pay.
• There is no definition of calculation of a week’s remuneration in order to deal with, for example, employees working irregular weekly hours.

The Bill is consistent with the previous Labour Government’s legislative desire to bring increased benefits to workers. Although such support is not in the National Government’s expressed policy, there is considerable pressure on it to support redundant workers. The Bill’s first reading has been delayed to give all political parties time to consider whether to support it through its first reading and referral to the Select Committee. Presumably unlikely to be enacted it its current form, it is nonetheless a political “hot potato” and likely to generate ongoing controversy. Watch this space.

If you have any questions about this issue, or any other employment relations questions, please do not hesitate to contact Shelley Eden on + 64 9 336 0844 or +64 27 265 5174.