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Is redundancy compensation making a comeback?

By Claire Mansell - 7 Jun 2018

One of the lesser known policies of the current government was the promise to consider the reintroduction of minimum redundancy compensation for employees affected by restructuring.

Currently, there is no legislative requirement to provide redundancy compensation (except to vulnerable employees as defined under section 6A of the Employment Relations Act 2000). Practically, redundancy compensation clauses are becoming increasingly more uncommon. However, this may change.

The Minister for Work Place Relations and Safety has confirmed that within the next 12 months he will consider improving minimum redundancy protection for workers, having regard to the recommendations of the 2008 Ministerial Advisory Group Report on redundancy and restructure. That report recommended the introduction of the statutory requirement for redundancy compensation, including:

  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. A provision of redundancy support to the affected workers and organisations.

The report also noted a number of different ways that this could be implemented; including a voluntary code, a legal right to redundancy compensation with no specific formula, a statutory formula (which would be set out in legislation for determining redundancy and compensation) and an introduction of an insurance scheme to provide for redundancy compensation.

We will not know what shape the redundancy compensation scheme will take (if at all) until after consultation has been completed. However, we will provide an update once the government has finalised how it wants to move forward on this issue.

Nevertheless, employers should bear in mind that when hiring new staff that they may be required to provide redundancy compensation in the not too distant future and plan their business accordingly.

Contact

Claire Mansell

Kiren Narayan

Currently, there is no legislative requirement to provide redundancy compensation (except to vulnerable employees as defined under section 6A of the Employment Relations Act 2000). Practically, redundancy compensation clauses are becoming increasingly more uncommon. However, this may change.

The Minister for Work Place Relations and Safety has confirmed that within the next 12 months he will consider improving minimum redundancy protection for workers, having regard to the recommendations of the 2008 Ministerial Advisory Group Report on redundancy and restructure. That report recommended the introduction of the statutory requirement for redundancy compensation, including:

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. A provision of redundancy support to the affected workers and organisations.

The report also noted a number of different ways that this could be implemented; including a voluntary code, a legal right to redundancy compensation with no specific formula, a statutory formula (which would be set out in legislation for determining redundancy and compensation) and an introduction of an insurance scheme to provide for redundancy compensation.

We will not know what shape the redundancy compensation scheme will take (if at all) until after consultation has been completed. However, we will provide an update once the government has finalised how it wants to move forward on this issue.

Nevertheless, employers should bear in mind that when hiring new staff that they may be required to provide redundancy compensation in the not too distant future and plan their business accordingly.

 

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