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What is reasonable notice of redundancy
The Court of Appeal has again reduced the remedies awarded to redundant workers whose redundancies were commercially necessary, but carried out in a procedurally unfair manner.
Charta Packaging Ltd employed around 70 people to produce packaging.
In 1998, its profit margins came under heavy pressure due to increased competition and it posted a loss for that year. It forecast it would also incur a similar loss in the following year.
In March 1999, the Company decided that its situation required that it make 17 (30%) of its work force redundant. On 18 and 19 March 1999, it held preliminary meetings with its Wellington staff and advised them of the situation and the need to reduce costs.
On 19 March 1999, staff were asked to sign a form agreeing to a pay cut. The prospect of redundancies was also confirmed and an assessment form on which, staff were told, redundancy decisions would be based was provided for staff to complete.
The assessment form process did not eventuate and on 25 March 1999 some staff were made redundant. They were told to leave the premises and were paid one months wages in lieu of notice.
A similar process was adopted in Auckland.
Eight of the redundant staff brought personal grievance claims against the Company. They alleged, amongst other things, that the process used by the Company to select who was to be made redundant was flawed and unfair. They also alleged that, as their employment contracts did not contain a notice provision, they were entitled to reasonable notice of termination and the one months notice given to them fell short of this.
The Employment Tribunal, and the Employment Court on appeal, upheld their claims and awarded between 3 and 6 months pay for reasonable notice and $11,000 to $15,000 compensation for humiliation and distress to each grievant.
The Company appealed to the Court of Appeal. It argued that in fixing reasonable notice at between 3 and 6 months, the Employment Court had taken into account irrelevant factors. It also argued that the awards made for humiliation and distress were also too high in comparison to those made in similar cases, which indicated that the Court had applied incorrect principles.
The Court of Appeal agreed with the Company on both counts.
As regards what constituted reasonable notice "In deciding whether the circumstances justify notice beyond prevailing practices it is necessary to consider if they reasonably warrant a longer period to [allow employees to] address the situation, perhaps to retrain, to seek re-employment or to become self-employed. All these factors however must be weighed against the financial circumstances of the Company. This is an important distinction with reasonable notice in other employment contexts. Reasonable consistency with other awards is also required .Other than in Mrs Stewart's case, we can see no basis for a period of reasonable notice for any appellant beyond two months", the Court of Appeal said.
The Court of Appeal went on to find that Mrs Stewart was entitled to three months notice of termination because the Company had explored with her winding down her employment over 6 months in anticipation of her retirement. She therefore had an expectation that she would have a job for six months.
As regards compensation for humiliation and distress, the Court of Appeal held that the awards made to the grievants failed to distinguish between the impact of not having a job and that of the manner in which terminations of employment were implemented. With a genuine redundancy dismissal (as opposed to other types of dismissals) an employee is not entitled to compensation for humiliation and distress suffered as a result of losing his or her job. "After excising the element of job loss we consider that [an award] of $7000 to each [grievant] would have been appropriate", the Court of Appeal said.
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Recent cases, including this case, indicate that compensation for humiliation and distress awarded to redundant workers for purely procedural flaws usually range between $4000 and $7000. In such cases, lost wages are not recoverable because the employee would have been made redundant regardless.
If this is the range of compensation awarded after "excising the element of job loss" (ie: where job loss was inevitable), then we are likely to see an increase in compensation awards in cases where job loss was not inevitable.
More on Termination & Dismissal
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