What entitlement to compensation do the redundant workers have?
As a wave of restructuring sweeps across the public sector, the impact on those workers who will inevitably lose their jobs comes into sharp focus.
It is not uncommon for government agencies to reorganise and thin down certain business units, only to bulk them back up again later under a new chief executive or government. Employees who are made redundant are often able to find new employment in other departments as they cycle through the same processes.
By and large, the number of public servants has either remained static or has increased in recent years such that opportunities in other agencies have remained available to those made redundant.
What is different about the current environment is that the Government has called for 6.5 to 7% reductions in operating expenses by public sector agencies. With salaries typically being the most significant cost, this means a lot of jobs will go, and they will not be replaced, at least within the short-medium term.
Where people who have been made redundant do find further employment, they also now have the added uncertainty of potentially being placed on a 90-day trial period.
This raises the question as to what people who find themselves in this position are entitled to by way of redundancy compensation and notice. In other words, what security can redundant workers expect in these circumstances?
The news is not necessarily good as there is no legal or statutory entitlement to redundancy compensation. People are often quite shocked to discover they can be given a minimum amount of notice and nothing further if they are made redundant. The basic rule is, if the employer has not committed to paying redundancy compensation in its policies or employment agreements, it has no obligation to do so.
The approach to paying compensation to redundant workers differs significantly across employers. Large public sector agencies tend to provide for redundancy compensation to be paid in their individual and collective employment agreements. However, smaller employers and private sector employers often do not.
As to how much, again the practice varies. Employers have historically based the amount of compensation on years of service. A formula of four or six weeks’ pay for the first year of employment, and two weeks’ pay for each subsequent year, to a maximum of six months in total, is not uncommon in the public service, although there has been a shift more towards a standard rate of between and and three months for all affected workers in more recent years.
On the one hand it makes sense to reward service, yet on the other the impact on redundant employees is the same regardless of how long they have been employed by the one employer and arguably is worse for workers who have been with that employer for a short time only.
While this level of compensation may not seem particularly generous when faced with the prospect of a restricted labour market, it does at least provide some buffer. For those who are not entitled to any compensation, the situation is even more problematic. This highlights the issue as to whether the Government should legislate for some minimum level of compensation to be paid to redundant employees.
The previous government established a tripartite forum with BusinessNZ and the Council of Trade Unions to develop an income insurance scheme, which would have supported workers with up to 80% of their income for up to seven months if they lost their job through no fault of their own. It was proposed this would be funded by levies on wages and salaries, with both workers and employers contributing an estimated 1.39% each.
This scheme never got off the ground and certainly had its flaws, including the possibility of manipulation by employers and employees, and the additional costs being passed on to fund it.
Given the direction of the Government, the introduction of a social insurance type of scheme funded by additional taxes, seems unlikely at this point, but we do need to continue the discussion that has been started.
The unfortunate reality is that restructuring and job losses are likely to increase in the immediate future as we remain in a fiscally challenged environment, and also as AI sucks up jobs previously performed by workers. We will need to find a fair but sustainable way to support those who find themselves out of work and who are truly vulnerable.