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The true cost of personal grievance?

21 December 2006

The true cost of personal grievance?

Canterbury Manufacturers’ Association is warning that not only are an increasing number of businesses coming under pressure from employment advocates to offer out of court, cash payments to former employees but these ‘unofficial’ settlements are distorting the indications in official statistics.

The Government reports that between 2003 and 2005, the number of cases heard by the Employment Relations Authority has remained consistent between 1700 and 1800 and the number of cases going to mediation has fallen. It also reports that for the same period, the average amount awarded at mediation is between $5000 and $6000 and the CMA says that while some take this as an indication of success for the legislation, unofficial settlements might not support such a conclusion.

“The CMA supports the Employers and Manufacturers Association (Northern) position that an increasing number of companies are being confronted by demands for a pay off by advocates working on behalf of employees as a quick settlement”, says Chief Executive John Walley. “With this practice taken into consideration, the CMA places the average cost of settlement closer to $8000 rather than between $5000 and $6000 and we have heard of this going much higher when legal costs are added into the equation”.

Mr. Walley says that in its current form, the Employment Relations Act is open to exploitation. “Unfortunately, the complexity of the legislation enables personal grievance cases to be manipulated by advocates supporting employees with nothing to loose in pursuing unsound claims against employers. It is now much easier for the practiced ambulance chasing advocates to characterise cases as stress or harassment, these areas are highly subjective and difficult to deal with, without practice and precise procedural accuracy. The ‘no-win, no-fee’ environment encourages gaming by employees and their advocates, overall the real winners are the third parties involved gaming or responding to gaming in the system”.

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Mr. Walley says that a growing number of companies are adopting a policy of refusing unofficial settlements. This is forcing them to become more aware of how to run good process and implement better management practices. It is noticeable how quickly the stand over approach evaporates once it becomes known that a “no unofficial settlement” approach exists with a particular employer – the ambulance chasers go elsewhere for easier pickings.

“Both employers and their staff need to be well educated on their obligations and rights under employment legislation”, says Mr. Walley. “The cash cost aside, there is the opportunity cost associated with the time involved and the impact on a company’s performance; especially as it is often the owners or senior management involved in defending a personal grievance as opposed to running their businesses. Companies, especially the more vulnerable start-up or small and medium enterprises, can face comparatively significant costs in the personal grievance area; the money has to come from somewhere”.

“Rather than look exclusively at the number of cases dealt with officially by the Employment Relations Authority, the focus should be on educating employers and employees of their obligations under the legislation. In the longer term deal the self-interested gaming, and amend the legislation to eliminate the complex procedural requirements and subjective grievance issues”.


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