Who Goes And How Do You Handle It?

I have a friend who owns a company. To get a wider perspective and stay on side with the bank he appointed outside directors to his Board. They recently resigned. They got the wind up as my friend, who has the controlling interest, would not plan to drastically retrench staff. His staff worked four day weeks instead, and natural attrition has pruned his workforce somewhat. The departing directors would be worried about Section 136 of the Companies Act. This says Directors who allow a company to trade whilst in danger of insolvency can be personally liable for debts. The legal definition of solvency is strict. It means “pay debts as become due in the normal course ….”. Many companies use their cash flow to pay debts on a rolling basis as the money comes in. Technically this can breech the law.

My friend founded his company years ago and has weathered the business and exchange rate cycles ever since. Orders come and go, and although grim at the moment, they will and are filling again. He makes quality stuff. The cost for him, of cutting staff and losing precious know how makes no sense. Neither does the costs and hassles of rehiring staff when things pick up. This boss and worker loyalty can transcend corporate types reference frames. The ” boss stuck with us in tough times – eh! We owe him one now things have picked up” sort of stuff. Institute of Director shiny suit members, Public Service bosses, lawmakers and hard nosed “money now” business owners can forget such passé values.

I have clients who worked for companies for years. One in particular had his shift canned because sales were down. The company “restructured” and he got the chop after 20 years. Being a loyal type he thought the boss would look after him, and particularly given his cultural values let the boss “sort it out as he knew best”. He guessed he would lose his supervisors pay and do more basic work. He was mistaken. Others with less service got chosen for the remaining positions. His rewards? Little notice, no redundancy pay for 20 loyal working years and to boot a cursory reference from some manager he hardly knew.

I have acquaintances and clients on public service payrolls funded by rates, taxes or levies. From the perspective of my business owning friend and private sector clients they live in a cuckoo land. Good employer practices, white collar unions and a fuzzy distancing from the wherewithal that finances their Department, Council or Quango can provide climates where redundancy is welcomed as a chance to get a payout windfall. Some retirement age staff wait for the shove and the golden handshake that should follow to top up taxpayer subsidised pensions. Others find jobs elsewhere in the public sector. With a bit of guile, and keeping their cards close to their chests they can end up with thousands of dollars redundancy severance and start the new job a few weeks later. Some clever redundant staff wrangle getting themselves hired back again into similar jobs as high paid consultants. Employment specialists and lawyers (myself included) aid, abet and rationalise such iffy practices – for “them’s the rules.”

Don’t misunderstand me, the trauma of genuine redundancy is gutting. Genuine redundancy payouts are to help cushion unemployment until a new job is found.

At present the law stands that unless your employment agreement has a clause that requires a redundancy payout you are sweet out of luck and have no entitlement for any compensation. There are however some statutory protections for vulnerable worker like cleaners and catering staff. The Labour MP Darien Fenton wants to change all this and has a private members bill before Parliament requiring minimum redundancy entitlements for all. It won the ballot and was to be heard on 19 August, but is now delayed. Her bill proposes four weeks pay for one complete years service and two weeks thereafter for each year up to a maximum of 26 weeks. This was the formula before the Employment Contracts Act in 1990 scuttled compulsory redundancy payments found in nearly all awards for workers.

Let’s have a look at the current law to see if there is any compensatory redress notwithstanding a genuine redundancy and an employment agreement that has no entitlement for redundancy pay. The door is ajar for some remedy if the boss is unfair in how he went about making a redundancy. In legal parlance this is the difference between substantive justification (the job had to go) and procedural fairness (how it was done).

When advising bosses I tell them golden rule is to treat their staff as they would be like to be treated themselves. The Employment Relations Act spells out redundancies are to be carried out in good faith and stack up against the test of what a fair and reasonable employer would have done in all the circumstances. (s 4 & s103). In general, the same considerations apply to a 3 chair hairdressing salon as they do to a factory employing 95.

This requires the boss to talk through and share the information why he or she is planning redundancies. This is to be done before declaring redundancies to see if there are ways of saving jobs. Maybe four-day weeks, people working part-time, staff volunteering to leave or older guys taking early retirement. This consultation has to be genuine -not just going through the motions stuff to satisfy the law- and the boss is to keep an open mind over employee suggestions. If a union is involved there is still an obligation to talk to each worker.

In cases where jobs remain the selection criteria for these is to be made known and genuine assessments made of staff who apply. A worker is entitled to know how they stacked up against these criteria. Temporary workers are not normally to be preferred over long serving staff, but there is no legal requirement to follow the old adage “last on – first off’.

The opportunity to have a support person at interviews is desirable. It is also incumbent on the boss to provide reasonable notice. During this period opportunity should be given to attend interviews for other jobs, help with CV’s and if appropriate counselling. With long serving staff care is required to pave the way for a dignified exit. Mums (and dads) on parental leave are to get the same consideration as other staff.

In broad terms, successful challenges to redundancies that do not stack up on the above mentioned procedural grounds can produce compensation for hurt and humiliation. These are not normally large sums averaging say around $5,000 – $7000. This is because there is no entitlement for earnings loss as the job genuinely has gone and Judges cannot impose redundancy payouts on bosses if there is none stated.

It will be interesting to see if Darien Fenton’s Bill gets anywhere.

Have a matter you’d like to discuss? Get in contact with us now for a free 15 minute phone consultation.