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Plan for redundant workers to get income support at last

The Government in its Budget 2021 has signalled changes which will affect the entire employment landscape in New Zealand.

The government has announced it is jointly designing a Social Unemployment Insurance scheme with BusinessNZ and the Council of Trade Unions (CTU).

Social unemployment schemeThe Social Unemployment Scheme will be designed to provide support to “displaced workers” (most likely workers who have been made redundant). It would include an income replacement rate which will be significantly higher than current social welfare payments.

Finance Minister Grant Robertson has indicated that the income replacement may be as much as 80 per cent of an employee’s salary prior to being made redundant.

Minimum and maximum caps are likely to apply. He has separately talked about an ACC style scheme where benefits would be paid from a pot of money raised through a payroll levy on both employers and employees.

Those receiving income replacement would be expected to actively search for work and would be assisted by the support programmes. Income replacement would be available for a defined period.

It would be long enough to allow displaced workers a realistic opportunity to find good work that matches their skills and experience. After that the social welfare system would take over.

Both BusinessNZ and the CTU have made clear that additional support under the scheme should include making education and training opportunities available for workers to acquire new skills.

Additional assistance might include career planning, job search and job preparation and relocation assistance. There may even be capability developed for early interventions where a redundancy situation is notified to help workers avoid unemployment.

Improving support for displaced workers will be an important step in improving New Zealand’s productivity. Fear often forces workers to grab the first job that comes by thereby setting themselves on a pathway of lower wages. The so-called wage scouring is hard to climb out of. Their skills may be lost from the market.

As employment lawyers we see the impact on people’s lives of redundancy. It can be devastating.

Previously there have been attempts to mitigate the impacts of redundancy, but nothing has seemed to stick. Our Court of Appeal issued a landmark decision under Sir Robin Cooke in 1994 opening the door for the courts to award redundancy compensation for lost wages if fairness required it.

Four years later this was reversed by a different Court of Appeal which decided that where redundancy was for genuine reasons but procedurally flawed, only compensation for hurt and humiliation is available (not lost wages). At times Parliament has tried to play a role as well. But nothing solid and permanent has ever been in place.

For the first time ever, I think we have a high likelihood that something permanent and enduring will be implemented given the support of both BusinessNZ and the CTU.

The Government’s announcement follows a joint statement BusinessNZ and the CTU made just before the alert level 4 lockdown asking the Government to undertake analysis on such a scheme.

In their statement they agreed that substantially improved support for displaced workers will be a vital part of preparing New Zealand for the future of work. Current support for displaced workers is one of the weakest in the OECD.

The Ministry of Social Development and in particular the Ministry of Business, Innovation and Employment have begun work on possible models for the scheme. But how the system will mesh with the current employment law framework could become the subject of debate.

What will happen where employees are already entitled to redundancy compensation under their employment agreements?

One option may be to exclude entitlements under the scheme until the employee’s compensation provided under their contract is exhausted. But some employers may rankle at the idea they are saving costs for a government scheme by virtue of offering employees more than minimum entitlements.

The alternative may be that employees receive the scheme regardless of the redundancy compensation they are owed, but is this fair when they are already financially supported?

If a levy is used, how will that be calculated and who will bear the costs?

Some industries and employers are prone to frequent restructures. Anecdotally, I have observed the public service, banking sector telecommunications, and some other large corporates are prone to frequent restructures.

Other industries and small businesses conduct restructures far less frequently. I expect there is very little data at present to confirm exactly who are conducting the most restructures at present. Is it fair for employers with a stable structure to pay the same levy as those who more frequently restructure?

And what can be called a redundancy? Frequently employment disputes are settled through mediated agreements which are confidential, particularly when performance concerns or serious misconduct have been raised.

With the new scheme, there may be a temptation to categorise the employee’s exit as redundancy (wrongly) to grant them access to the scheme. This should not be allowed to happen, but how will this be monitored?

At present mediation services maintain the utmost confidentiality of information they receive. But an exception may need to be made for the scheme.

All of these questions will need to be resolved before any scheme is implemented. However, I see none of these questions as insurmountable barriers to a scheme that could lead to favourable outcomes for both employers and employees.

The CTU and BusinessNZ are to be congratulated for the leadership they have given. With their joint support and Government backing I believe we will get a good scheme that will last for a long time to come. It is worth putting some good work into it now to get a blueprint that will last.

The impact of redundancy is significant on those affected and none of the parties involved in this work want to see that continue. It is great to see an area of law which I have seen many people damaged by, reformed for the better.