Managing in Tough Times
Hello everyone
It is good to be back at my desk writing some commentary on the landscape for business and employers.
The election result has been well received across our clients who represent a wide range of sectors. Once the government is formed it will be useful to see some early steps to reset the levers of the economy to support growth.
While we hope to see business confidence rise and the economy revive it would be overly optimistic not to recognise that it is going to be a difficult time over the next 18 months.
Managing in Tough Times
In the pre-election economic and fiscal update (12 September 2023) Treasury reported:
“Slow economic growth is forecast to continue over the next eighteen months as high inflation necessitates high interest rates. Domestic inflationary pressure has remained persistent, and with ongoing domestic demand pressure, interest rates are expected to remain at their current level over the next year in order to reduce inflation. High interest rates are expected to constrain economic growth to a quarterly average of 0.4% over the next year, and the unemployment rate is expected to rise to 5.4% while wage growth eases from a relatively high 6.9% in June 2023 to 3.7% in June 2027. After a period of slow growth, annual inflation is expected to return to within the Reserve Bank of New Zealand’s target by December 2024 and interest rates are expected to gradually ease from late-2024. From then on, economic growth slowly lifts, and the unemployment rate starts to fall from mid-2025.”
Over the past year we have worked with many clients to effect change because of cost pressures and/or reduced work volumes.
In looking ahead it is reasonable to expect businesses will consider restructuring.
Being of a fairly respectable age I have seen a few cycles where businesses need to hunker down and manage through the tough times. These experiences have taught me that:
Companies who know their numbers and take early steps to contain costs and limit expenses have managed well through the difficult times. They avoid “cutting into the muscle” but protect their core business and their key people by reducing all costs that can be stripped out – and they don’t dally – they act.
Proposed changes need good financial analysis to determine whether they will provide the necessary cost savings, efficiencies for the business for a reasonable period of time, or will further changes be needed within months. Because restructuring is both stressful and demanding there is a danger of making cost reductions at the lesser end of the scale and finding further changes are needed within a short timeframe.
In the wider sense it is important to continually assess a business in terms of underutilised resource, unnecessary costs, non-essential work, waste, and options to do things differently and more efficiently.
Having seen the “death by a thousand cuts” approach my advice is - if you are going to make changes – make them all at one time. If you make a series of changes over a period of months employees are likely to question their security, the viability of the business, the intelligence of management in not getting it right first time. Good employees will be waiting for the next raft of changes and assessing whether they should go before they are pushed. Employees become unsettled, concerned for their own security, and afflicted by “survivor guilt”.
Holiday pay liabilities – employees are entitled to their holiday pay immediately upon termination. The notice payment can be paid in the normal pay cycle. However we are seeing holiday pay liability causing considerable financial pressure on some businesses and constraining decisions that are needed for the viability of the business.
The Risks of Getting it Wrong
There are strict requirements regarding consultation, providing relevant information and potential redeployment options before an employer can reach a decision to disestablish positions. It’s not rocket science, but it is reasonably intricate.
If the process is found to be flawed and the outcome predetermined, employers face the risk of a personal grievance (PG) claim for unfair or unjustified dismissal.
The financial risks of a PG are significant. If a claim is successful, the cost includes a minimum of three months pay, compensation for hurt and humiliation and representation costs, let alone the value of time spent by the employer.
Example of costs for a successful unjustified dismissal claim:
A minimum of 3 months’ pay: $24,325
Based on average NZ salary: $97,300
Mid-level damage compensatory payment: $15,000
Band 1 (low level damage or injury): awards up to $10,000;
Band 2 (mid-level damage or injury): awards between $10,000 and $40,000
Band 3 (high level damage or injury): awards above $40,000
Representation costs - Mediation: $5,000 – $10,000
Representation costs - Employment Relations Authority: $20,000 – $35,000 +
Where costs awarded to employee 2 day hearing: $8,000
$4,500 for the first day of investigation meeting,
$3,500 for each additional day
Total Estimate: $72,325 - $92,325
See compensation awards:
https://www.employment.govt.nz/about/employment-law/compensation-and-cost-award-tables/jan-jun-2023/
Our Track Record in Managing Risk for Employers:
January 2020 – October 2023:
Matters involving legal risk 1105
Matters managed with no legal challenges 1068
Personal Grievance Claims 38
Brought to Knowhow after PG raised 19
Matters resolved prior to mediation 14
Matters resolved at mediation 23
Matters to Employment Relations Authority 1 *
* The ERA matter is ongoing, and we are confident of success. We will update the metrics when we have an outcome.
If you are considering a restructure, please call us. It is essential you get good advice. Be wary of the people who are generalist advisors to business, where employment relations is not their speciality.
Restructuring processes are prescriptive and require a sound understanding of the required process and the relevant case law. The last thing any employer needs is a personal grievance for unjustified dismissal because the process has not been well managed, or the substance is questionable.
If you have received a personal grievance and need help, please call us. Employment matters are difficult and stressful, and they are our core business.
Changes in Employment Law
As changes in legislation are introduced under the new government, we will provide updates. Expect to see changes re Fair Pay Agreements and the 90 Day Trial period.
Siouxsie Wiles v University of Auckland
We are watching with interest the case Siouxsie Wiles is brining against the University of Auckland. Siouxsie was well known for her media profile during the lockdowns. The case relates to whether the commentary was within the scope of her work and if so, what obligations did the employer have to protect Ms Wiles from the reactions of people who did not agree with her commentary. We will keep you posted.
Christmas Closedown and Leave Liabilities
If you are planning to have a closedown of all or part of your business during the holiday season, you will need to provide 14 days written notice of your intention to close down.
It is a good time to review leave balances to ensure you are not carrying too much liability for annual leave. If employees have high leave balances the first step is to get agreement on dates of leave.
If that is not achievable, the employer can require the employee to take annual leave on 14 days written notice. We can assist with memos and advice in these matters.
The Knowhow Team
We are eagerly awaiting news of Emma’s baby who is due any day now.
Rebecca Dobby our Partner Employer Advisory, and Paige Palmer our HR Advisor have settled in extremely well to our team at Knowhow.
Kerry, Ashley, and I are on deck to help with all your HR and employment relations needs.
Please let us know of any friends or colleagues who are employers and who may need help in these areas.
Thank you all for your support and understanding over recent months where my availability has been somewhat limited. It is great to be back, and I look forward to working with you.
Referrals
We are very grateful to our clients who provide us with referrals. If you know of an employer who needs support in managing employment matters, including those difficult issues that arise with employees please pass on our contact details or let us know and we will contact them to outline what we do.
Best regards.
Sylvia Wood
Director
Knowhow Limited