Redundancy Compensation in New Zealand Employment Law
When an employee's position is disestablished due to legitimate business reasons, this is commonly referred to as redundancy. This article outlines whether New Zealand employers are obligated to provide redundancy compensation.
Is Redundancy Compensation Mandatory?
New Zealand law does not generally require employers to pay redundancy compensation to employees whose positions are disestablished [Source: Employment Relations Act 2000]. Unlike some other jurisdictions, there is no specific statutory provision in the Employment Relations Act 2000 or related legislation that mandates redundancy compensation for all employees.
Where Redundancy Compensation May Arise
While not universally mandated, an entitlement to redundancy compensation can arise in specific circumstances:
- Individual Employment Agreements (IEAs): An individual employment agreement is a legally binding contract between an employer and an employee that sets out the terms and conditions of employment, including pay, hours, and termination provisions [Source: Employment Relations Act 2000, s 63]. If an employee's IEA includes a clause that explicitly provides for redundancy compensation, then the employer is contractually obligated to pay it [Source: Employment Relations Act 2000, s 63]. The amount and conditions of such compensation would be specified in the agreement.
- Collective Employment Agreements (CEAs): A collective employment agreement is a legally binding contract between an employer and two or more employees who are members of a union, setting out the terms and conditions of employment for those employees [Source: Employment Relations Act 2000, s 69]. If a CEA contains provisions for redundancy compensation, then employees covered by that agreement would be entitled to it [Source: Employment Relations Act 2000, s 69].
If neither an IEA nor a CEA specifies redundancy compensation, there is no statutory entitlement to such payment.
The Role of Good Faith in Redundancy
Despite the absence of a general statutory requirement for redundancy compensation, employers are always required to act in good faith throughout any redundancy process [Source: Employment Relations Act 2000, s 4]. Good faith is a fundamental principle in New Zealand employment law requiring employers and employees to act openly, honestly, and without misleading or deceiving each other [Source: Employment Relations Act 2000, s 4].
In the context of redundancy, acting in good faith includes:
- Genuine Business Reasons: The redundancy must be based on genuine business reasons, such as restructuring, financial difficulties, or changes in the operational requirements of the business [Source: Employment Relations Act 2000, s 103A].
- Consultation: Employers must genuinely consult with affected employees about the proposed redundancy. This involves providing all relevant information about the proposed changes and allowing the employees a real opportunity to provide feedback and for the employer to consider that feedback before making a final decision [Source: Employment Relations Act 2000, s 4].
- Consideration of Alternatives: Employers should explore any reasonable alternatives to redundancy with the employee [Source: Employment Relations Act 2000, s 4].
- Fair Process: The overall process must be fair and reasonable in the circumstances [Source: Employment Relations Act 2000, s 103A].
Consequences of Breaching Good Faith
If an employer fails to follow a fair and reasonable process or does not act in good faith during a redundancy, an employee may raise a personal grievance [Source: Employment Relations Act 2000, s 103]. A personal grievance is a complaint an employee can raise against their employer if they believe they have been unjustifiably dismissed, or disadvantaged by unfair treatment [Source: Employment Relations Act 2000, s 103].
While a successful personal grievance for an unjustified redundancy process may lead to remedies such as compensation for humiliation, loss of dignity, injury to feelings, or lost wages, it generally will not result in an award of redundancy compensation itself, unless such compensation was a contractual entitlement that was denied [Source: Employment Relations Act 2000, s 123]. The remedies are typically for the unjustifiable dismissal or disadvantage, not for the absence of a non-contractual redundancy payment.
Other Payments Upon Redundancy
Even if there is no redundancy compensation, employees whose employment is terminated due to redundancy are still entitled to their standard final payments, which include:
- Notice Period: Payment for the notice period specified in their employment agreement, or if none is specified, a reasonable notice period [Source: Employment Relations Act 2000, s 67A].
- Accrued Annual Leave: Payment for any outstanding accrued but untaken annual leave [Source: Holidays Act 2003, s 21].
- Accrued Public Holidays: Payment for any public holidays that fall after the last day of employment and for which the employee would have normally been paid [Source: Holidays Act 2003, s 44A].
- Wages and Other Entitlements: Any unpaid wages, allowances, or other contractual entitlements up to the date of termination [Source: Wages Protection Act 1983, s 4].
When to Seek Independent Legal Advice
If an individual is facing redundancy, believes their redundancy process has been unfair, or has questions about their entitlements under their employment agreement, it is advisable for them to seek independent legal advice. This can be obtained from an employment law specialist or by contacting Community Law Centres for free legal help.