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Show me the money: Understanding the increases in compensation for employment disputes in New Zealand

Understanding the increases in compensation for employment disputes in New Zealand

The employment jurisdiction has traditionally been known for being modest in terms of awards made to successful individuals, specifically those seeking compensation for hurt and humiliation suffered. However, this perception is increasingly changing with awards being paid far in excess of what has been awarded previously.

In this article, James Crichton and Madeline Wrigley summarise the changes in the compensation model used by the Employment Relations Authority and Courts, and the impacts this is likely to have on the expectations of employees and employers when it comes to settling employment disputes.

Introduction of bands to guide compensation in employment disputes

Compensation is a remedy under section 123(c) of the Employment Relations Act 2000 (ERA2000) for hurt and humiliation caused by dismissal or unjustified action. Previously, when reaching a conclusion based on the appropriate compensation amount under the ERA2000, Authority Members and Judges would make an award based on the facts which are particular and materially relevant. This led to a wide range of awards, and in 2016 – 2017 the average award for hurt and humiliation suffered was $7,173.76. 

However, Chief Judge of the Employment Court, Christina Inglis, saw the assessment of compensation as “an inexact science” and urged the jurisdiction to consider taking a new approach which was introduced in the Human Rights Review Tribunal in the case Hammond v Credit Union Baywide (2015). In that case, the Tribunal outlined three bands of compensation for humiliation, loss of dignity and injury to the feelings of the applicant during an employment relationship. 

Chief Judge Inglis utilised this banding approach in the employment court via the case Waikato District Health Board v Archibald (2017), again stating that assessing compensation causes difficulties in terms of ensuring a degree of consistency across like cases while reflecting the individual circumstances of the particular case before the Court. 

The advantage of banding was seen to be that it would support informed settlements and predictability in awards, and provide a transparent appellate platform to those who wished to utilise it. 

Trends in compensation for employment disputes

Bands are now commonly used across the Authority and Court, and adjusted based on inflation levels by applying the Reserve Bank’s inflation calculator to the previous bands (notably in the GF v Comptroller of the NZ Customs Service (2023) case). The current bands are:

  • Band 1: low level loss/damage (up to $12,000)
  • Band 2: mid-range loss/damage ($12,000 – $50,000); and
  • Band 3 high level loss/damage (over $50,000).

Between 2017-2021 we have seen a trend where compensation mainly falls within the first two bands (Band 1 and Band 2). Examples of compensation awarded are $8,000 for “low level” stress versus $30,000, for feeling immediate physical impacts of nausea, anxiety, depression and feelings of being “exploited, hopeless and frightened”. 

However, the Employment Relations Authority Annual Report 2023 statistics show that compensation is predominately falling within Band 2 and Band 3 compared to the previous two years. In 2023, the lowest compensation award in the Employment Relations Authority was $500 while the highest was $55,000. This change in approach to compensation is likely associated with the Authority members holding a dim view of employers who have caused substantial harm to employees via their actions and also due to the view that awards have been too low for too long. 

Raising the bar for compensation

In 2024, the bar for compensation was set at a new level with Parker v Magnum Hire Limited & Anor, where the Authority awarded $105,000 for hurt and humiliation for three grievances (bullying disadvantage, suspension and constructive dismissal). The employee was found to have suffered severe harm as a result of the actions of the employer, including a panic attack (which the employee thought was a heart attack) and developing depression, anxiety and PTSD.  

In the Employment Court, the recent case Cronin-Lampe v The Board of Trustees of Melville High School (No 2) (2023) has also reset expectations. In this case, it was found that two school counsellors suffered from PTSD as a result of being exposed to a series of extremely traumatic events during employment and also a claim of breach of contract. While the judge found that an award of $85,000 and $63,750 should be made under the banding system for the hurt and injury to the teachers, it was ultimately found that the compensation for the successful breach of contract claim should prevail as it was a higher amount. 

There are some indications that Cronin-Lampe will be appealed by the Ministry of Education on the basis that the compensation under the bands should have been awarded, rather than the breach of contract matter award. 

Impacts on expectations for compensation moving forward 

The banding system has given parties more transparency around the expected amount awarded for hurt and humiliation, allowing parties to be more informed about their own risk profiles when it comes to settling personal grievance matters. 

For employee parties, this may mean that they have higher expectations for a higher remedy which may come across to employers during mediation or without prejudice discussions. It also may mean that proceeding to litigation is potentially more attractive than previously, given that the previously low awards meant that even those who were successful in the Authority or Courts made little to no profit, due to the costs along the way. 

While these expectations may prove to be difficult for employers to manage, it is important to note that to support a hurt and humiliation claim, employees need to provide information to demonstrate a causal link between the actions of the employer/workplace and the harm. What we may see in mediations is more employers seeking to obtain this information from employees, noting that it may not be considered sufficient for an employee to just provide a medical certificate. 

Moving forward, it is also evident that the Bands will continue to increase over time, as the GF case has demonstrated by adjusting the bands after only six years due to inflation.  

Ultimately, most employment issues are settled in a private and confidential setting, which means that it is difficult to get the full picture as to whether compensation levels will continue to trend within and above Band 2 levels. However, it is clear that the Employment Relations Authority and Employment Court are currently being presented with cases which result in higher remedies being paid, far in excess of what has been awarded previously. 

This is something that all parties should be taking into consideration when approaching employment disputes and the risks ahead.

For advice around settling employment disputes, please contact our team.

Disclaimer

This article, and any information contained on our website is necessarily brief and general in nature, and should not be substituted for professional advice. You should always seek professional advice before taking any action in relation to the matters addressed.

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