Submission of the New Zealand Council of Trade Unions on the Status of Redundancy Payments Bill 15 April 2003
1. Introduction 1.1 The New Zealand Council of Trade Unions (CTU) is the internationally recognised central trade union centre in New Zealand. It represents 34 affiliated unions with a membership of approximately 300,000. 1.2 The CTU welcomes the opportunity to make a submission on the. The CTU wholeheartedly supports this Bill. 1.3 The CTU is requesting that this Bill proceed without delay and is not subject to delays that may occur as part of the broader Review of Insolvency and subsequent drafting of legislation. 2. Issues in relation to the Bill 2.1 This Bill recognises that there is a strong case for removing the arbitrary $6000 limit on wages and other payments owed to workers in an insolvency situation. It also recognises that redundancy compensation is a valuable part of any employment agreement. It is particularly applicable when there is an actual redundancy situation. Redundancy compensation is just as important as wages at that time. 2.2 For employees it is a time of great distress when they are suddenly informed that their employer is insolvent. This is not to suggest that others are not also casualties in these circumstances. But employees are likely to be in a situation that their entire income is derived from their employment by that firm. Therefore there needs to be particular consideration of their interests. 2.3 Employees who have reached agreement with their employer on a form of redundancy compensation are understandably frustrated when, at the very time such a payment is applicable, it is not ranked as a priority
debt. Employees are therefore denied the benefit of such compensation unless there is a high level of payment to unsecured creditors. 2.4 There is a need for the Government to protect an employee's entitlement to a contractually negotiated redundancy payment. In the current situation, an employee may have (say) $2000 owed in wages and $12,000 owing in redundancy compensation. The maximum entitlement is $2000 even though $14,000 is contractually owed. This is unfair on the employee. 2.5 The CTU submits that the moral hazard issue where Managers could award themselves generous redundancy payments prior to an insolvency situation, should be covered under the normal processes in insolvency situations where there can be subsequent scrutiny of the actions of Directors and management prior to insolvency. 2.6 The restriction of preferential ranking for employees for wages and holiday pay up to a limit of only $6,000 is unfair. This limit has not been increased since October 1988. 2.7 The CTU submits that if a new ceiling is enacted, there should be a mechanism for periodic review of this limit. 2.8 The Government has previously noted that while it supports the "pari passu" principle, which states that like creditors should be treated equally, there is also a need to protect the rights of vulnerable groups, such as employees. Frequently employee debts make up a relatively small percentage of the total debt owed by an insolvent entity. 2.9 Also, section 3 (a)(ii) of the Employment Relations Act 2000 notes: the inherent inequality of bargaining power in employment relationships.
2.10 This needs to be considered in the circumstances of employees in insolvency situations where they often are simply informed that they have lost their jobs and feel they are powerless to respond in any way. 2.11 The CTU has made submissions on the Review of Insolvency. Our proposal at that time was that the limit for wages and holiday pay should be increased from $6,000 to $12,000 and that redundancy notice and compensation should rank as a priority debt in addition to the limit on wages. 2.12 In addition, there are many instances in an insolvency situation where workers miss out on notice of termination or pay-in-lieu of notice. Liquidators are not directly bound by the notice of termination provisions in employment agreements and pay in lieu of notice has the status only of an unsecured claim. This Bill should also address that issue and ensure that pay in lieu of notice and other monies owed to employees come within the definition of priority payments. 2.13 We also note International Labour Organisation Convention 173: Protection of Workers Claims Convention, 1992. This Convention has not been ratified by New Zealand although Australia has done so. ILO Convention 173 requires in general that workers claims, including claims relating to wages, holiday pay and other paid absences, and pay relating to termination should be privileged. This Convention would therefore require that pay in lieu of notice is a preferential payment. 2.14 The CTU also notes that on 22 nd November 2001 the Associate Minister of Commerce announced that: The tier one change of most public interest is the increase in the amount of money that employees will be legally entitled to if their employer becomes insolvent. This will increase from $6000 to $15000, and can be made up of any combination of unpaid wages, salary, holiday pay or redundancy payments for the four month period prior to liquidation.
2.15 This announcement effectively capped the amount of redundancy pay that could be preferential whereas the CTU submission was that there should be no cap. 2.16 However, the announcement by the Associate Minister was made nearly 18 months ago but there still has been no progress on legislation to address this policy announcement. 3. Conclusion 3.1 The CTU supports the. 3.2 The CTU does not want to see the matter of priority payments for employees delayed by the ongoing Review of Insolvency. 3.3 The CTU supports pay-in-lieu of notice being a secured debt. 3.4 If a new ceiling is legislated, there should be a mechanism for a periodic review.