Increasing employment compensation payments

13 November 2018

DianaEmployees seeking remedies for alleged wrongdoing by action (or inaction) of their Employers are entitled to claim compensation under S123 Employment Relations Act 2000 for “hurt, humiliation and loss of dignity”. This compensation is in addition to any award for loss of earnings, and is tax free in the hands of the Employee. Any such claim must be supported by evidence, whether in the Authority or in the Courts.

Traditionally awards have not been high, however following a 2017 decision of Chief Judge Inglis in the Employment Court there has been a marked trend of significant increases in awards to successful employees.

This must signal alarm bells for employers.

How the law works

Both the Employment Relations Authority (ERA) and the Employment Court are empowered by the Employment Relations Act 2000 to award compensation where an employee has a personal grievance against their employer “for humiliation, loss of dignity and injury to feelings”. In the majority of cases, this compensation is claimed by employees who allege they have been disadvantaged, mistreated or unjustifiably dismissed.

Such emotional harm is subjective, relating to the employee’s feelings and consequently difficult to measure. Additional awards are also available providing compensation for lost wages and employee benefits resulting from the employer’s actions.

The value of historical compensation awards

Over the past 25 years, the majority of awards have been under $10,000.  There have been exceptional cases where employees have received as much as $35,000 to $50,000, but these are rare and usually occurred within the public sector and large corporates. Settlements achieved as a result of the mediation process have generally been lower than $10,000, with the associated cost savings for the parties.

The future of compensation for emotional harm

Change is coming.  As early as 2015 the Employment Court said that awards needed to be consistent, but there was danger in keeping them at an artificially low level. In 2016, the Court reiterated that awards should not be over-generous, but they should be fair, realistic and not miserly. There were also issues with the low level of awards when compared with those from the Human Rights Tribunal.

The definitive turning point happened in the 2017 case (Waikato District Health Board v Archibald [2017] NZEmpC 132, where the court introduced a three band compensation assessment: low level, mid-range and high level loss and damage.

The case involved a Health Promoter whose role was disestablished after 14 years’ service, who was given the option of taking up a new position which would require her to commute for three hours/day, or have her employment terminated. She was 67 years old, with some health issues and felt that the excessive travel would destroy her, so opted for termination. The DHB position was that she was not entitled to redundancy as she had been offered redeployment to an alternative position.

The Employment Court found she was unjustifiably dismissed and ordered the DHB to pay her severance payment and $20,000 in compensation.

In arriving at this compensation figure the court identified three broad bands to assist in the analysis:

  • Band 1 - involving low level loss or injury   $nil- $10,000
  • Band 2 - involving mid-range loss or injury $10,000 - $50,000
  • Band 3 - involving high level loss or injury  $50,000 and over

These bands are now used by the Employment Court and the Employment Relations Authority so where we were seeing traditional awards of less than $10,000, there have now been an increasing number of awards within the range of $15,000 to $25,000.

Where to from here?

It is likely that compensation awards will regularly be made in the vicinity of $20,000. As an employer, you should be aware that over and above this compensation, you could face additional penalties, legal costs, and have to pay lost wages and other benefits if the court rules against you. We are already seeing claims at this level in the initial letter to our members raising a personal grievance, which in our view creates unrealistic expectations in the minds of employees, and makes it increasingly difficult to settle matters at an early stage for a modest sum.

Employers will need to take even more care to ensure that they have complied with the requirements of procedural fairness, and that action has not been taken without a genuine reason for doing so. If you are unsure at any stage please take advantage of the advice and support that can be provided by our experienced legal team - we much prefer to be the fence at the top rather than the ambulance at the bottom!

 

Diana Hudson | Managing Solicitor


 

Legal Team

 

Diana Hudson | Managing Solicitor | 03 456 1804 | 021 816 469 | diana@osea.org.nz

David Browne | Solicitor | 03 456 1812 | 021 225 6938 | david@osea.org.nz

Grant Walker | Advocate | 03 455 5165 | grant@osea.org.nz

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