NEW ZEALAND: Hurt and humiliation payouts on the rise
Statistics and case law confirm a striking and continuous upward trend in awards for hurt and humiliation under section 123 of the Employment Relations Act 2000.
For the first half of this decade (and for years preceding that) hurt and humiliation awards remained largely consistent, with judges following and establishing fixed precedents. But from around 2015 a series of cases have taken into account inflation, in particular, the inflation of awards in other areas of law, and sought to reset the baseline. Although the current average level of award has not been published, we can see that the median award is now over $12,000. Cases in 2017 and 2018 established the principle of guideline ‘bands’ of awards at an increased level:
- Band 1 (lowest severity) – $0-$10,000
- Band 2 (mid-level severity) – $10,000-$40,000
- Band 3 (highest severity) – $40,000+
Ministry of Business, Innovation and Employment statistics show that there is indeed a decisive new trend towards larger awards. Examples of recent awards include $25,000 for a failure to consult fully in relation to redundancy redeployment and a $23,000 award for serious payroll issues which led to a constructive dismissal – even when these payroll issues were separately remedied in the decision. These highlight the much more significant risk of substantial awards against employers.
Impact on settlement agreements
While the direct risk to employers from increased awards is obvious, there are also implications when it comes to the negotiation of settlement agreements. On the one hand, employees are likely to push for greater compensation, by reference to their potential entitlement if pursuing a claim. On the other hand, in some circumstances there may be more scope to offer tax-free compensation under the auspices of section 123, meaning the value of the payment for the employee is enhanced.
It is also important to bear in mind that the IRD has previously permitted only relatively modest sums to receive tax-free status, and we are yet to see whether it will update its guidance to reflect recent trends. Those seeking to allocate very large sums to hurt and humiliation compensation might well attract IRD review and challenge.