EXECUTIVE SUMMARY

Restructuring is a natural part of the life cycle of most businesses as they grow or shrink, respond to changes in market conditions or other demands on the business, or change the business model under which they operate. Change may also be forced on the business through receivership or insolvency, and that change may be as radical as whole or partial business closure. Restructuring of a business therefore often entails redundancy of employees.

The world in which this life cycle occurs however has changed significantly over the years.

In particular, the phenomenon of globalisation has exposed businesses to greater and more frequent competitive pressures than ever before.

Restructuring and, often, redundancy can now be frequent rather than occasional features of employment relationships.

Notwithstanding changes in the underlying pressures, there have been few changes to the essential nature of employment and insolvency law over the same period.  Such changes as there have been created some prescription and protection in relation to only some aspects of restructuring and redundancy compensation. There has not been a comprehensive review of the restructuring and redundancy framework.

It is therefore timely to look at legal policy arrangements that underpin the processes of restructuring and redundancy, with a view to aligning them with modern realities.

These realities include the need to balance commercial imperatives with social policy safety nets that ensure the support and retention of workers so that despite the incidence of redundancy they can have secure employment in the context of economic transformation.

Public Advisory Group on Restructuring and Redundancy

The Labour Party’s 2005 policy manifesto stated an intention to establish “a Ministerial Advisory Group to examine the adequacy of redundancy law and provision”. 

The Public Advisory Group to the Minister of Labour on Restructuring and Redundancy (the Group) was established in 2007 to examine the adequacy of redundancy laws and provisions in New Zealand workplaces. The Group’s terms of reference call for this report to be provided to the Ministers of Labour, Social Development and Employment, and Economic Development by 30 June 2008.  This document is that report.

The Group is an independent body established to provide independent advice to the Ministers of Labour, Social Development and Employment, and Economic Development.  The Group’s members were nominated by the Minister of Labour and considered by the Cabinet Appointments and Honours Committee for appointment. 

The Group includes representatives from the following three organisations:

• New Zealand Council of Trade Unions (two seats)
• Business New Zealand (one seat), and
• State Services Commission (one seat).

Purpose of Report

As required, this report assesses the adequacy of redundancy laws and provisions and recommends options for addressing perceived gaps and issues with existing laws and policy provisions. The details of the Group’s Terms of Reference are set out in Appendix A (The Appendix can be obtained upon your request).

This report reviews New Zealand’s legislative framework for redundancy and provides a broad based comparative analysis with international frameworks. It also includes an analysis of key issues affecting the provision and legal framework of redundancy.

The Group has considered the adequacy of the legal framework in supporting successful transitions for workers and longer term mitigation of adverse labour market impacts. The adequacy of these laws and provisions has been examined at the level of individual employees and employers, and in respect of issues impacting on the wider economy.

The report is structured in four parts:

• Part one describes New Zealand’s legal framework, an analysis of redundancy related research, describes and provides a summary of key themes from public and expert consultation
• Part two reviews how other systems (European Union (EU), North America, Scandinavia, Australia and international Conventions such as the International Labour Organisation  (ILO)) regulate redundancy and provides a legal comparative analysis with New Zealand
• Part three examines the key issues resulting from the comparative analysis
• Part four provides recommendations based on the research and analysis conducted in this report.

The Group has considered the following areas of interest in its report:

• evidence from research on the extent of redundancy provisions in employment agreements, employer and employee experiences and extent of any problems with current arrangements
• whether any additional legal requirements should apply to all redundancy situations or should be more targeted
• the experience of other countries that have implemented similar requirements
• employees’ and unions’ experiences
• the costs of entitlements and compliance for employers
• relevant International Labour Organisation standards
• interface matters with the existing insolvency regime
• interface matters with Part 6A of the Employment Relations Act 2000, and
• portability of entitlements.

The Group also had regard for whether redundancy and restructuring situations disproportionately affect any particular groups, including any gender, ethnic and disability implications.

The Group’s Terms of Reference require that the report provides recommendations on the following matters:

• statutorily prescribed consultation requirements
• the amount of notice employers must provide employees in the event of a redundancy
• consultation requirements to avoid mass redundancies, and
• a statutory requirement for redundancy compensation or other entitlements.

Recommendations

The Restructuring and Redundancy Public Advisory Group’s recommendations are as follows:

RECOMMENDATION 1

That the government should consider the introduction of a statutory requirement for redundancy compensation and other entitlements incorporating the following features:

1. notice of redundancy termination to the affected worker
2. compensation based on length of service
3. a maximum level of statutory compensation, and
4. provision of redundancy support and other active labour market mechanisms to affected workers and organisations.

RECOMMENDATION 2

That the government considers the following options to implement Recommendation 1.

1. A Code which acts as a guide to employers on notice, compensation, and other matters in respect of redundancy. Compliance with this Code will be voluntary but may form the basis of Government considerations of what constitutes a ‘good employer’ in the context of contracting and migration policy.
2. A legal right to redundancy compensation with no specified formula. This could take  one of two forms:
   1. First of all it could be a mechanism similar to that provided for ‘vulnerable’ employees in Part 6A of the Employment Relations Act 2000. This would mean that all workers would have the right to redundancy compensation. The quantum would be as agreed or could be referred to the Employment Relations Authority for settlement. The quantum set by the Authority or Employment Court could be subject to criteria which include firm size as well as length of service, industry practice and other matters.
   2. The second option could be that all workers in a collective agreement have the legal right to redundancy compensation and the formula could be as agreed or as determined in the Employment Relations Authority or Employment Court.
3. A statutory formula for notice and compensation. There are numerous options which include:
   1. 4 weeks notice plus redundancy compensation based on 4 weeks for the first year of service and 2 weeks for each subsequent year up to a maximum statutory requirement for 26 weeks pay. This option is supported by the NZCTU.
   2. A formula as in (c) (i) above but excluding workers on wages or salary of $150,000 or more per annum.
   3. A formula as in (c) (i) above but excluding workers with less than one year’s service from compensation but including all workers for the 4 week’s notice requirement.
   4. A formula as in (c) (i) above but excluding employers of a specified size - for instance1-5 workers.
   5. A formula as in (c) (i) above but with a maximum statutory   payment - for instance 16-20 weeks, with the ability to negotiate additional payments above that level.
   6. A formula as in (c) (i) above but with a sliding scale of notice based on length of service.
   7. A combination of the above variations.
   8. A formula based on the Australian National Employment Standard (see Appendix I, (The Appendix can be obtained upon your request)).
4. An insurance scheme to provide for redundancy compensation. There are several options including:
   1. A levy based scheme similar to ACC which provides for payment only to those affected.
   2. A levy based scheme with additional assistance from the Government.
   3. A fund that is built up by contributions from employers, workers and possibly the Government but with ‘worker accounts’ rather than an insurance scheme.
   4. A variation to KiwiSaver where there is a portion of contributions that can be accessed in a redundancy situation.
5. A Redundancy Support Scheme which would exist alongside a statutory formula as in (c) (i) above. This would channel support to workers and employers in the form of active labour market assistance. However, it would also provide to employers that registered with the scheme and who employ fewer than 20 workers a rebate on the cost of redundancy compensation. This could be based on a maximum rebate of (e.g.) $2000 per worker.

RECOMMENDATION 3

That if the government does introduce a statutory provision for redundancy notice and compensation it then considers ratifying ILO Convention 158.

RECOMMENDATION 4

That if the government does introduce a statutory provision for redundancy notice and compensation, it phases in such a provision with a one year delay. That in the one year period there is a major education and awareness arising campaign.

RECOMMENDATION 5

That if the government does introduce a statutory provision for redundancy notice and compensation then it ensures the Department of Labour and other relevant departments are resourced adequately to provide advice, develop calculators and other resources.

RECOMMENDATION 6

That notice of redundancy is a priority debt under the Companies Act 1993.

RECOMMENDATION 7

That redundancy compensation is non-taxable and that tax records are also used so that statistics on the incidence of redundancy can be recorded.

RECOMMENDATION 8

That the government enhance the Security in Change work programme. This should include:

1. A major awareness raising programme on redundancy support.
2. Developing connections with the Unified Skills Strategy so that lifelong learning is maintained throughout redundancy experiences and that Industry Training Organisations are actively involved in retraining support.
3. Expanding the scope and level of support for workers made redundant.
4. Widespread consultation with stakeholders on how to move to an ‘employment security’ framework.
5. Consideration of cost implications for Government of enhanced Security in Change.
6. Consider the possible interface between redundancy support, income maintenance, employment security and the investment in jobs for sustainability (e.g. home insulation).

RECOMMENDATION 9

That the consultation provisions required in case law between employers and workers in restructuring and redundancy situations are codified.

RECOMMENDATION 10

That employers are encouraged to notify the Ministry of Social Development of redundancies as early as possible but taking into account relevant commercial and other legal obligations for instance Stock Exchange disclosure requirements.

As can be seen from recommendation 1, the Group recommends work towards a formal framework incorporating notice and compensation. However, the report does not recommend a specific form for this outcome. The impacts of any one of the identified options on its own will not be uniform nor necessarily equitable.  For that reason it will be necessary to undertake further work to determine the best mix of options for the wider New Zealand context.  It is to be expected that wide consultation with interested groups will form a central feature of any implementation of the Group’s recommendations. 

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