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Redundancy in New Zealand

Economic Downturn: Redundancy in New Zealand

Redundancy refers to dismissal of employee(s) in situations where the position (s) has become unnecessary to the employer or has become excess to the needs of an employer. Redundancy leaves the position of the laid off employee not open for any direct employment. Some of factors that may lead to the discharge of an employee include; closure of a particular business venture, introduction of new technology or even overcapacity in terms of employees or economic hardships in an organization necessitating the need to save money. Redundancy ought to be made within legal framework. Dismissal on grounds such as race, gender, pregnancy, disability and non membership are illegal acts and constitutes a crime which is legally enforceable under law. The New Zealand common law makes provisions for positions to be made redundant rather than the persons themselves. The law gives rights for an employer to make positions redundant on condition that they are just, fair and reasonable. Many employers have a tendency of dismissing workers without any justifiable reason. New Zealand law has developed in various ways to protect the vulnerable employees from such practices (Holness & Shrink 2009).

In 2000 Act on employees relations Section four, the principle of good faith in relation to employer versus employees on workplace consultation issues are well outlined. Such issues included may involve a productive relationship between the employer and the employee that is communicative. It also requires that when an employee intends to make a decision that is likely to affect the employee adversely, the employee has a right to access certain categories of information affecting workforce. The information may handle issues on the continuation of the contract or future decisions. Here employee has a role to basically comment on the information before any decision is made. This provision protects workers against possible manipulation by the employees. It also requires goof faith to be applied in collective bargaining. An example of case decided on these ground is the Engineers Union; a company offering engineering services and Carter Holt Harvey (CHH ltd) company case. The case was decided on August 30th 2002.This case concerned the plans of CHH to contract out maintenance work at its paper mill. The aggrieved party had sued on the decision that the action did not constitute good faith. The company had failed to consult the union on the matter and insisted on individual consultation. They had also failed to disclose relevant information to the union thereby misleading it on the contract content or such documentation. The courts made ruling that the principle of good faith was bleached and gave orders for proper consultation to be carried for a period of not less than one month before any decision could be taken on the contract and possible redundancies (Anderson, 2002).

Section Six part A, also offers protection for particular class of workers referred to as vulnerable if their part of work is contracted or incase of restructuring. Examples of such categories include workers engaged in cleaning and catering services for education, aged care, public service and local government among others. The law protects them by providing that they may be able to transfer their services to the part of an organization where work has been transferred. They are also protected in the sense that if rights to transfer their services are denied, they can file a case against their employers. This case is enforceable under law provided that the court can prove denial of transfer of services as well as the redundancy brought about by restructuring.

Additionally, the law has been made to ensure that redundancy is only made on the bases of justifiable reasons. Improvement of ERA (that is, Employers Relations Act) in 2004 by inclusion of a clause for testing justifiable reasons, made it now possible for an aggrieved employee to sue the employer under common law. The employee must be able to prove that the dismissal was based on unjustifiable reasons in a court of law. Justifiable reasons includes introduction of new technology, out sourcing and closure of business among other reasons. Procedure of choosing among employees which employee to send home must also be considered just. Any discharge of employees outside the acceptable reasons that are considered just constitutes a crime that maybe legally enforceable under the law. This again has seen the protection of the workers against unlawful and unjust dismissal. Therefore the employers in NZ are normally bound to follow the right procedure of dismissal despite the likelihood of the effects of the economic recession on their returns thus ensuring workers protection. An example of case law for dismissal is a case between an employee named Davison and HP Packaging Company (based in New Zealand). The company had intended to dismiss 60 workers within 8 months on the basis of restructuring. The courts ruled that only five positions could be made redundant and the applicant was one of them. However , the applicant sued for unfairness in selection criteria to be made redundant. The courts found the dismissal unjust and awarded the applicant wage lost due until he finds a new employment. Courts decision was influenced by the fact that the employee worked with the company for 20 years and had a large family.

Another provision for protection is that of notification. This provision requires that notice be given to trade union and to employees in case of possible redundancy. This advance notification helps the employees to prepare psychologically and also to take appropriate legal action to stop it if it's not within the acceptable legal frame work. Notice is also required in government agencies incase stock exchange failure and also failure of businesses such as liquidation and receivership. Notification will help the employees get their benefits in case of business failures and also notices on the government will help them get legal protection as well.

NZ has also structured its law system to protect the worker by including a provision for basic consultation. The law has been improved from historical aspect to emphasis of principle of good faith in consultation, and also procedural guidelines have been put in place. This section of employees relations act provides that the employer must consult with the employee before he makes any decision. In addition the employee has a right to examine redundancy proposal and comment on the proposal. The employer is required by law to make a decision using an open mind and in view of these comments. In effect, the law protects the citizens of New Zealand against unlawful dismissal.

The law has also developed in as evidenced by the 1974 Act on Wage Adjustment Regulations. The Act limited both the amount of redundancy and the entitlement of the aggrieved party. It also required that compensation was to be 2 % of net pay for each year up to a maximum of 20 years. With the abolishment of this act, the country has improved the law on the employee who could be dismissed unlawfully.

NZ holiday Act also protects the rights of the dismissed workers by ensuring that they are entitled to leave pay, sick pay and holiday pay. The act gives protection to redundant employees in the effect that they the workers made redundant are not extinguished by redundancy. In addition the redundancy compensation is classified as a priority debt in case company gets insolvent. Priority debtors do not require notice in case of insolvency and their claim is settled first before any other debts.

Introduction of redundancy rebate has improved the law of NZ on the issue of employee relationships. The law came into legislation in 2008 to remedy the effects of taxation in relation to redundancy compensation. The earlier act was unfair to the dismissed employees who received compensation due to the fact that it moved them to a higher bracket of taxation during the year of compensation. The rebate is based on a flat rate of 6% per dollar for the first $60,000 up to a maximum of $3,600. The remedy on taxation of redundancy compensation has helped protect the worker from unfair treatment in the area of taxation.

Inclusion of key union rights in the employees relations act has also helped the country in protection of the workers. Such rights includes; the right of representation of members collective employment interests and right to be parties to collective agreement among other things has helped improve the workers protection. Employees are able to represent their personal grievances through these unions (Burgess, 2009).

Finally section 125 offers remedies incase of personal grievances resulting from unlawful redundancy. These remedies range from reinstatements, reimbursement for loss of money and compensation for loss of dignity due to unemployment among other losses. The present approach to redundancy in NZ is not adequate in light of the present down turn in the economy. The country is currently having a rate of employment at 5%. Besides that, the country is currently facing economic recession. This situation most often leads to most employers cutting down the number of the human resource to save on costs. The current approach can not adequately protect the workers who may be laid off due to economic recession in the country because of the following reasons:

New Zealand does not provide for redundancy compensation if this was not included in the established employment contract. There is no legal right for any dismissed worker to claim for compensation. The common law does not contain any provision concerning the same unless it was expressly stated in the employment agreement between the employer and the employees or their unions. The employers are likely to take advantage of this loophole and terminate workers on non legal grounds since they will not incur extra cost of compensation if not provided in the employment agreement. NZ cabinet in 2003 had made a ruling that if the employment contract does not provide any clause for compensation the issue is left to both parties for negotiation. This weakness would make workers more vulnerable to employer's unexpected termination and now made much more obvious by the economic crises in the country

Failure of the country's law to provide adequate provision is seen in taxation of redundancy compensation received in case of an agreement that provided for compensation. The amount of compensation is added to an individual income and often taxed on the same rate. In effect, the individual is pushed to some sort of higher tax bracket than they normally are. As a result the average employee is taxed more than their actual capacity or ability to pay leading to situations on inequitable income distribution (Blackstone & Lewis 2006).

Another shortcoming portrayed by law is based on the idea that redundancy provision in the common law of NZ is usually on the position, rather than on the person occupying the position. Due to this limitation a person whose employment contract is terminated has limited rights to seek a court action in his capacity as an individual. The court has also limited power to grant remedies to an agrrieved person who brings a case in his capacity as an individual rather than on the position. This again portrays the weakness of the country's law to protect its workers adequately in light of possible massive downsizing by the firms.

Additionally, NZ law lays little emphasis on collective bargaining as compared to other companies such as North America. Collective bargaining refers to group representation of an employee's rights and needs through employees unions Research shows that the issue of collective bargaining is not well developed in NZ. This portrays the country's law as weaker in protection of workers in relation to international standards.

In an attempt to change these labor laws, one of the aspect to consider is that of common law recognizing redundancy on position rather than the people occupying the positions. The effective way would to emphasize on the people rather than the position. This emphasis would enable an aggrieved person to present a case directly to the court in his capacity as an individual. The current law also makes it difficult in terms of interpretation of the case as the aggrieved party has to prove that the misconduct was done to him as an individual.

Taxation of redundancy compensation would be my other issue of concern. This is because taxation of this amount contrasts the principle of equality in taxation. This principle requires that every tax payer must pay tax according to his ability to pay. The compensation n amount does not indicate the individual's ability to pay since it does not indicate his regular income.

Similarly, I would also suggest changing compensation clause to provide that all employees dismissed under redundancy should be provided for compensation. This would ensure that most workers are protected especially in the periods of economic down turns. Workers need to be compensated because the termination of the contract is not voluntary. They may also need to cover for the value of service and the opportunity cost of the interest lost in investing to the particular employer. It also ensures that human rights of the workers are catered for by ensuring a just compensation in case of discharge of an employee. Besides that, it would ensure conformity with international standards which require that adequate allowance be given to workers in the event of redundancy.

Another issue that requires change would include the entire law system on exclusive provision to ensure notice is given to competent authorities in case of impending need for redundancy. This not only ensures conformity to international labour laws but also gives protection to the workers against unlawful dismissal.

The issue of protection of workers is of paramount importance especially in the light of the economic turmoil in the country. Dismissal of workers affects the morale of the remaining employees. Negative effects on the employee morale lowers their efficiency and hence their productivity. Low productivity of workers has a direct effect on the output of a company and the overall economy of a country (Reeyes, 2007). Additionally, the massive dismissals of workers would have the effects of lowering their standard of living and also causing the level of unemployment to rise in the country. Unemployment is a macroeconomic factor that affects not only the individual household but the aggregate economy as a whole. Finally, the protection of workers of the country would serve as a means of correcting the already deteriorating economy by mitigating the adverse effects of unemployment.

In conclusion, legal aspects of redundancy are of paramount importance for any country. Countries should align their labour laws to international laws to ensure conformity to international standards. In addition the system of law should leave no loophole that would lead to unlawful dismissal as it increases unemployment levels of a country and thereby bringing an indirect impact on the economy.


Anderson, G. (September 3rd, 2002). Transplanting Good Faith into New Zealand Labour Law: The Experience under the Employment Relations Act 2000. 9 (3): 1 15 .Retrieved on August 27, 2009 from: http://www.austlii.edu.au/au/journals/MurUEJL/2002/40.html

Burgess, F. (2009). Burgess' Commercial Law. Charleston, SC, U.S.A: BiblioBazaar publishers.

Blackstone, W. & Lewis, W. (2006) Commentaries on the laws of England. NY. United States: The Law book Exchange publishers.

Holness, D & Shrink, G. (2009). Fresh perspectives of commercial law I. London. England: Pearson publishers

Reeyes, P. (2007). The long white cloud. Charleston, SC, U.S.A: Bibilo Bazaar publishers

Wood, G. (August 5th 2008). Personal Grievance Dismissal Redundancy Employment Relations Act 2000. 25(08):1 16. Retrieved on August 27th 2009: from http://www.ers.dol.govt.nz/publications/ecs/april2009/ecs apr 09_13.html.