Be clear on rights to redundancy

23:25, Nov 26 2012
BE PREPARED: A new member's bill to Parliament provides for minimum entitlements for employees if they are made redundant.

Employees, listen up - here is something you may not know. If you are made redundant you will not be entitled to payment of any redundancy compensation unless you have an employment agreement which provides for this. It does not matter how long you have worked for a particular employer: no contract - no entitlement.

Harsh? Well, Labour MP Sue Moroney clearly thinks so. She recently introduced a member's bill to Parliament which provides for minimum entitlements for employees if they are made redundant.

If the bill becomes law, every employee would be entitled to at least four weeks' notice of their redundancy. They would also be entitled to redundancy compensation of four weeks' pay for the first year of employment plus two weeks' pay for every subsequent year, up to a maximum of 26 weeks' pay in total. A similar bill was voted down by the National-led government in 2010.

Moroney says this bill is about "ensuring that if you draw the short straw, no matter if you are an engineer, an IT specialist, or factory worker, you won't be left high and dry". With the economy in the state it is, it is hard to argue against this sentiment from the perspective of those out of work through no fault of their own.

Employees may need greater protection in tough economic times, but introducing mandatory redundancy compensation to the level envisaged by Moroney could have unintended consequences.

In most cases the impact of such legislation would be felt by small employers. In the case of large employers, including government agencies, most of these businesses already provide for redundancy compensation in their employment agreements. So, for these employers the legislation will make little or no difference.


However, take your local dairy employing a handful of people. If the business has to restructure to prevent it going under, requiring the employer to pay significant redundancy compensation will only hasten the demise. The knock-on effect is the loss of employment of the other staff.

Further, when you consider the extensive procedural obligations on employers who restructure that already exist, imposing a mandatory requirement to pay compensation on these businesses may be going one step too far.

So, what is the right answer? If previous votes are anything to go by, Moroney's bill as it stands has little chance of success.

The most pragmatic approach for unions and employee advocates may be to seek to limit the impact of the legislation to those larger employers who can afford it. There are examples already of where this National-led government has introduced legislation in the employment area, and has limited it to certain groups of employees.

For example, when the trial period legislation was introduced, it was limited to businesses with fewer than 20 staff. While it was later extended to all employers, the legislators have recognised different considerations apply to small and large employers.

Under this proposal, employers with fewer than 20 employees could still offer redundancy compensation but they would not be obliged to.

In the meantime, employees should remember there is no automatic entitlement to redundancy compensation and they should seek to negotiate this as part of their employment agreement offer. Interestingly, a recent United States study indicated about 57 per cent of men negotiated employment agreement offers, whereas only 9 per cent of women did. In other words, they just accepted what was offered.

Employees should carefully review any contract offer and seek advice if necessary. If it does not provide for payment of redundancy compensation, they should ask why not. It would not be unreasonable to ask that redundancy compensation be provided for, and Moroney's formula provides a useful starting point.

If you don't ask, you don't get. If you ask and the employer says no, at least you know where you stand.

Susan Hornsby-Geluk is a partner at Chen Palmer, public and employment law specialists.

The Dominion Post