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New Zealand Engineering 1998 June
Does Your Contract
of Employment Include a Redundancy Clause?
Ken
Tuxford is the Employment Contracts Advisor for IPENZ.
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While it has always made good sense
for employees to try and negotiate a provision in their contract of employment
covering their terms of severance in the event of them being declared redundant,
until a recent Court of Appeal decision it was still possible for a redundant
employee whose contract did not include any reference to redundancy to
submit a personal grievance claim for compensation to either the Employment
Tribunal or Employment Court.
Notwithstanding that a contract of employment may or may not have included
a provision covering redundancy, since the passing of the Employment Contracts
Act 1991 the Tribunal and the Court have often invoked what was generally
considered to be one of their fundamental arbitrary functions, that of
adjudicating on the unfair treatment of any employee by his or her employer.
For over 100 years, the contract of employment that has been agreed to
between an employer and employee has not only been seen to be, but indeed
legally accepted to be, different to the standard common law contract that
one normally enters into when taking out a mortgage or purchasing a vehicle.
In exercising their arbitrary functions based on the principles of fairness,
equity and good conscience, both the Employment Court and Employment Tribunal
have in the past few years made numerous awards granting compensation to
redundant employees. In making these awards, the Tribunal and the Court
have invariably given due regard to such factors as the length of service,
loss of earnings and the social and economic disturbance that the redundant
employee would experience, possibly necessitating the employee and family
having to relocate to another town or city; and giving due consideration
that the employee could have made long-term financial commitments, such
as paying off a mortgage based on the reasonable expectation that he or
she could have hoped to continue in their employment until reaching retirement
age.
However, a recent unanimous judgement by a seven-judge bench of the
Court of Appeal has overturned a judgement by the Employment Court by ruling
in the case of Aoraki Corporation v Colin McGavin, that because
Mr McGavin's contract of employment did not include any provision covering
redundancy, that the Aoraki Corporation (the appellant) did not have to
pay the redundancy compensation of $87,688 previously awarded by the Employment
Court.
However, the Court of Appeal did award Mr McGavin a substantially lesser
sum of $15,000 for the humiliation and distress caused by the way he was
dismissed. In my opinion, the reasons given by the Court for making this
token award are extremely subjective, and one envisages that a redundant
employee could be entering into a legal minefield if he or she attempted
to try and sustain a case for compensation based on these particular grounds. |
While this latest judgement by the Court of Appeal removes any ambiguity
as to an employer's liability to pay compensation to a redundant employee,
in my opinion this decision could also have much wider implications for
other matters affecting the employment relationship and which have not
been specifically included in a contract of employment. Clearly, the effect
of this judgement is to abolish the former special status of contracts
of employment and it would appear that in the future all such contracts
will be considered by the judiciary as being no different from common law
contracts dealing with commodities! In simple terms, what the Court of
Appeal has said is that the Employment Tribunal or Employment Court cannot
hear and consider any matter that is not specifically included in a contract
of employment.
No
come back
So if your contract of employment does not include a provision covering
redundancy, then in the event of you being declared redundant, you will
not only have no entitlement to redundancy compensation, but you will be
unable to seek any redress through any other legal avenue. Already, as
a consequence of the Appeal Court's judgement, many personal grievance
cases at present before the Employment Tribunal and Employment Court are
being withdrawn.
Interestingly, this latest decision by the Court of Appeal is a complete
reversal and overturns a 1993 five-judge Court of Appeal decision in the
Bilderbeck v Brighouse case, in which the then Court ruled that
a contract of employment was not an ordinary commercial contract and therefore
required special consideration, particularly in respect that an employment
contract requires the parties to observe the principles of fair and reasonable
treatment. The majority of the 1993 Court therefore found that even if
an employment contract did not include an entitlement to redundancy compensation,
the employer could be required to pay compensation if either the Employment
Tribunal or Employment Court found that the redundant employee had been
unfairly treated.
There can be no question that this latest Court of Appeal judgement
could have quite serious implications for those members of the Institution
who do not have a redundancy provision in their contract of employment.
Unfortunately, unlike many other western countries, there is no legislative
statutory protection in New Zealand for a redundant employee. The last
statutory protection for redundancy in New Zealand was during the late
70s (since revoked) which provided a statutory minimum of two weeks' pay
for the first year of service and one week's pay for each subsequent year
of service to redundant employees.
Negotiate
Accordingly, while I would strongly recommend that all members of the Institution
review the provisions of their present contract of employment, I am under
no illusion that negotiating a provision for redundancy in your employment
contract will be a simple matter. In the light of the Court of Appeal's
decision, many employees can now expect to meet strong resistance from
some employers on including redundancy provisions in future contracts of
employment. To those members who may consider that having a redundancy
provision in their contract of employment will give them greater protection
of their long-term interests, and meet employer resistance to such a proposal,
I would recommend that they give serious consideration to retaining the
services of a Bargaining Agent to represent them and negotiate their contract
for them. Having advised many members in recent years on their rights in
coping with a redundancy situation, I am well aware of the devastation
and trauma that some members have experienced on being informed that they
are redundant. Members considering future employment opportunities will
now also need to have more comprehensive information about an enterprise,
in particular, the enterprise's past track record and its prospects for
future long-term viability.
Any member requiring confidential free advice or assistance with any
problem relating to their contract of employment should not hesitate to
contact the Institution's Employment Contracts Service.
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