The Employers and Manufacturers Association (EMA) says Work and Income New Zealand (Winz) is encouraging workers to take personal grievances against their former bosses so they can get benefits quicker.
From anecdotal evidence the practice had been going on for a number of years but the EMA Northern's latest annual survey showed 56, or 7 percent of the 759 respondents say they had personal grievances lodged against them to achieve this, said employment services manager David Lowe.
If a worker lodged a personal grievance against the former employer the 13-week stand-down period for a benefit was waived, which Mr Lowe said encouraged workers to lodge grievances, which only cost the price of a 50 cent stamp.
"Not because they have been treated badly but because they can get the benefit sooner."
The policy was flawed and needed to be changed, he said.
"It leads to behaviour and consequences that just aren't right."
Employers were facing a choice of paying out on a personal grievance or hiring an expensive lawyer to defend themselves, and the cheaper option was usually a simple business decision.
Mr Lowe said the EMA had been working with the Ministry of Social Development on the issue but not making much progress. It was hoping to talk to the minister Paula Bennett early next year.
Society did need a safety net for people who lost their jobs. The problem was with the particular policy, rather than Winz staff, he said.
"In all fairness their job is to give people their entitlements, not to try and hide them.
"The issue is not to have a dig at the people in Winz. The issue they have is the policy that requires their own staff to do that."
Winz deputy chief executive Patricia Reade said the department did not encourage people to take personal grievances when they lose their jobs.
Twenty-seven people were granted a provisional unemployment benefit between October 1, 2008 and to September 30, 2009 because they were pursuing a personal grievance, she said.
If a person believed they were unjustifiably dismissed they were told the Social Security Act 1964 gave Work and Income the discretion to pay a provisional unemployment benefit to clients who lost their job due to misconduct and who are taking a personal grievance against their former employer.
"This is on the proviso that they repay any benefit paid to them if a court, person, or body authorised by law determines that dismissal for misconduct was justified."
If they won their personal grievance case, and received a wage settlement, they must pay the unemployment benefit they received back.
Ms Reade did not respond to allegations the system was flawed or encouraged people to lodge grievances. She also did not respond to questions over whether there were any plans for changes to the system.
The power of googoo eyes (pictures)
Google Now is the future
TV's most inconsistent show?
The vanilla Budget
A day of building in time-lapse video
The magic of the Mackenzie
Nintendo, whata you up to?
Interviewing Sylvie Simmons
Navigating life as an intersex character
Wedding woe: Upgrading the ring