Big boost in compensation awards for employees

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When an employee raises a personal grievance, and the matter does not settle either through private negotiation or at mediation, the next step is usually an Employment Relations Authority hearing.

Where the Authority upholds an employee’s personal grievance, it may order remedies as set out in s 123 of the Employment Relations Act 2000. Typical remedies are lost remuneration (usually up to three months’ wages) and compensation for hurt and humiliation. The latter is tax free (so the amount ordered is without deduction) as it is compensation, not remuneration which is taxable.

Compensation for hurt and humiliation remained largely unchanged for many years, with the average between $5000 and $10,000. The occasional awards more than $15,000 to $20,000 were reserved for cases where the impact on the employee was of a very serious nature.

However, in a 2017 Employment Court case, Waikato District Health Board v Archibald,  Judge Christina Inglis (now Chief Judge Inglis) reviewed compensation awards and opined that they had remained artificially low. This was particularly noticeable when contrasted with awards made in employment cases,  where the employee could elect to have the matter heard before the Human Rights Review Tribunal (such as discrimination in employment claims), where compensation awards were significantly higher.

To try to apply consistency in compensation awards, Chief Judge Inglis in the Archibald case proposed a banding system: Band 1 for the lowest level of loss, Band 2 for mid-range loss and Band 3 for the highest level of loss. In Archibald, the Court held that the employee’s loss in that case was around the middle of Band 2 and ordered $20,000 in compensation.

Since then, a number of Authority cases have also adopted the banding system and, given that $20,000 was held to be the “middle of the middle”, this has seen a dramatic increase in compensation awards for hurt and humiliation. One example was the case of Maday v Avondale College Board of Trustees (currently under appeal) in April 2018, where the employee was awarded $50,000 in hurt and humiliation compensation.

Last month, in the case of Richora Group Ltd v Cheng, Chief Judge Inglis took further steps to try and quantify the range for each band, concluding: “Drawing the threads together, I approach the three bands across the spectrum of cases in terms of quantum as $0-$10,000 (band 1); $10,000-$40,000 (band 2); more than $40,000 (band 3).”

In other words, what was once the average compensation payment, has now been relegated to the lowest-harm category with the average or middle band being between $10,000 to $40,000.

This dramatic increase in compensation awards has had a flow-on effect to settlement agreements (both private and at mediation) given the increased risks for an employer of proceeding to litigation if an employee’s personal grievance is upheld. Such risk significantly informs the amount each party is prepared to offer or accept.

The increased risk employers now face in “getting things wrong” puts even further pressure on them to ensure they follow a fair process during disciplinaries, and that disciplinary outcomes are proportionate to an employee’s conduct, with dismissal being reserved for the most serious offences.

Employment law is very much a case of an ounce of prevention being worth a pound of cure. Employers are urged to get legal advice when conducting disciplinaries, particularly where the ultimate sanction of dismissal is the likely outcome.

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About Author

Erin Burke

Employment Lawyer and Director at Practica Legal Email: erin@practicalegal.co.nz phone: 027 459 3375