Insurance scheme for no-fault employment termination proposed

New Zealand is currently one of the few countries in the OECD that does not have a government operated redundancy insurance scheme, active retraining support, or a requirement to in-build redundancy compensation into employment agreements. This means that employees whose roles are made redundant rely on:

  1. a lengthy notice period, which gives them more time to seek new employment;
  2. negotiating a robust redundancy clause in their employment agreements, which provides them with redundancy compensation;
  3. private redundancy insurance as an add-on to regular income protection (often criticised as unreliable); or
  4. reaching an agreement for a pay-out from their employer during the restructuring process.

Proposed redundancy insurance scheme

First announced in 2021’s Budget, the Government, Business New Zealand and the New Zealand Council of Trade Unions have now proposed the finer details of an Income Insurance scheme, which aims to support workers with 80% of their income for up to seven months if they experience a no-fault termination of their employment (for example, due to medical incapacity or a redundancy/ restructure).

Like ACC, the scheme will be funded by levies on wages and salaries, with both workers and employers contributing.

The key features of the proposed New Zealand Income Insurance Scheme are:

  • Broad coverage for different working arrangements
  • Coverage for job losses due to redundancy, health conditions and disabilities
  • A four-week notice period and four-week payment, at 80% of salary, from employers
  • A further six months of financial support from the scheme, at 80% of wages or a salary
  • Option to extend support for up to 12 months for training and rehabilitation
  • A case management service to support people’s return to work
  • Administered by ACC
  • Funded by levies on wages and salaries, with both workers and employers paying an estimated 1.39% each
  • Workers would become eligible after six months of levy contributions in the 18 months prior to the no-fault termination.

Our thoughts

A scheme of this nature ensures employees whose roles are made redundant (and who cannot qualify for welfare support) have a safety net that will provide them with stability and income while they search for a suitable new role; or undertake training to refine their skills or enter a new industry. It also means those who experience a debilitating illness or health condition and cannot access ACC support receive an outcome more equitable with those who suffer an accident.

The above may mean employers will find restructures are met with less resistance. Companies may find it easier to streamline their businesses.

However, we do spot a possible loophole in the scheme open to exploitation: employees may request that the termination of their employment (however that may come about) be classified as a redundancy in order to access the benefits of the scheme. Employers may agree to take this route to mitigate the risk of being subject to a personal grievance. This might smooth over any potential employment relationship problems, but it would not align with the spirit of the scheme and would be a cause for concern.

Loopholes aside, with the unemployment rate currently at 3.2%, some may consider the funding better used to combat other issues, such as addressing urgent skill shortages and/or investment in creating sustainable long-term employment opportunities instead.

Some may also take the view that making support conditional on actual redundancy encourages people to wait until they receive notice of termination by reason of redundancy and may discourage job searching, contributing to low labour-market dynamism and job mobility. In contrast, qualification for continued welfare support and lost wages in the Employment Relations Authority requires active job searching.

Whether it be an ambulance at the bottom of the cliff or a ringfence, the scheme’s effectiveness remains to be seen, and may well evolve and adapt as more stakeholders have an input. The scheme is now open for public consultation, with submissions closing on 26 April 2022. Those who have thoughts (positive or negative) should ensure they have their say now by emailing incomeinsurance@mbie.govt.nz.

More information can also be found via: https://www.mbie.govt.nz/have-your-say/income-insurance/

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