Offer of compensation ruled to be breach of good faith…

A recent Employments Relations Authority decision on a personal grievance for unjustified dismissal (following a redundancy) has had an unusual twist in that the employer’s offer to pay compensation has been held to be a breach of good faith.

The employer was going through a redundancy process and concluded that the employee’s position was redundant.  It offered to pay him his notice pay as compensation (which would make it tax free to the employee) if he accepted it in full and final settlement.

The employee refused and worked out his notice.  He then brought his claim alleging the redundancy was a sham.  This was rejected by the ERA, but it did conclude that because the employee had not raised a personal grievance at the time of the offer of compensation he was not entitled to compensation and the offer was in bad faith. 

The ERA declined to impose a penalty.  What the IRD’s attitude to this attempt to assist the employee to avoid tax will be remains to be seen.

Settlements that involve compensation payments (tax free) need to be carefully worded and carefully timed.  If you need help to get the process right give me a call on (04) 473 6850.

 

Alan Knowsley