Status of Redundancy Payments Bill

I move, That the Status of Redundancy Payments Bill be now read a second time. I thank the select committee for the work it did on the bill. It was unusual—not the process that was adopted, the process was quite normal—but as the bill went to the Commerce Committee, and as no member felt there was any particular issue regarding interest involved in the matter, I chaired the select committee as well. So I chaired my own bill, and it was a most extraordinary situation that occurred in that respect. I thank members for their indulgence. The committee did include most parties within Parliament. For instance, it included the Greens, as Sue Bradford was on the committee for the hearing of evidence.

The bill does a number of things, and I thought I would run very quickly through the intention within the bill, and the amendments that were made as a result of the submissions process. First of all, the submissions that we did hear, by and large, supported the move towards doing something in this area. Indeed, the Government’s work in this area was endorsed by most submitters. This bill amends the preferential claim provisions for personal and corporate insolvency legislation to introduce personal preferences for employees’ redundancy entitlements. This arose essentially as a result of the collapse of the Weddel freezing works in the Hawke’s Bay. Even today I have people coming into my electorate office who tell quite horrifying stories of what happened to them and their families at the time that the Weddel freezing works collapsed, and of the loss of entitlements to their families—not just their rights to work, but to agreed compensation in the event of such things happening. What this particular bill does is remove the cap of $6,000 on preferential claims, and raise that. Secondly, it will remove the provisions of the Insolvency Amendment Act and section 104(1)(e)(ii) of the Insolvency Act 1967. As a result of that, the cap will be raised to $15,000, which will provide a more realistic level of expectation for those employees who find themselves in a position whereby they are out of work, other than through a fault of their own, as a result of the collapse of a company. Their entitlements will be protected up to that maximum, but, more important, there will be a 3-yearly review of the figure.

One of the problems that have occurred as a result of the operation of the insolvency laws, and the preferential credit status that applied to employees, was that the amounts they could have expected to pick up by way of loss of wages and redundancy compensation essentially devalued over time and were never revisited. The idea of the 3-year review provision is to allow an opportunity for those particular amounts to be raised by consumer price index increases, for example.

An issue that the select committee considered at some length was whether we should also include payment in lieu of notice. In the end the committee came down opposed to that provision. It did so because it was felt that it would be quite easy to rort that provision. Rather than providing for genuine redundancy compensation provisions, it could well be used in the situation of almost an insider-trading situation, frankly, whereby an employee could sign up for “in lieu of notice” provisions knowing that the company was in some difficulty. By and large that would not act to protect employees, but to, if one likes, enrich those who were probably top of the feeding chain in that respect. It was felt that it was a little difficult and a little dangerous to move in that respect.

I know that Sue Bradford was keen to see that provision in the bill. We were unable to accommodate what I thought were some very well-founded concerns that she had about payments in lieu of notice being considered part of wages and conditions, but the possible rorting of that provision made it an impossibility in this particular situation.

Further work is being done by the Government in the whole insolvency area and in terms of the rights of employees in such situations. This legislation will act to give employees a holding pattern at this time while that work is completed.

As far as the work of the select committee was concerned, I was pleased that the amendments that were carried were carried unanimously. The select committee did see sense in making this change at this time. Nobody on the committee likes the situation that employees find themselves in when there are job losses as a result of companies falling over. It is the history of this particular Government that very few companies are falling over at all any more. But we cannot know what the future holds. One of the things that my economics has taught me this year is that what goes up has to come down. We also know, as well, that industries will come and industries will go, over time, and there will be change. That is the dynamism of economic growth.

In those circumstances, as resources are being moved between one industry and another, there will inevitably be some displacement and loss along the way, and in those situations the workers should not unduly miss out. This bill is an attempt to address those particular matters.

It is a pity that this bill, which started off in the name of Rick Barker, was unable to be progressed any earlier than this, but those are the vagaries of the members bill system whereby one takes one’s number and takes one’s chance. I was pleased to pick up the cudgels on behalf of Mr Barker because, indeed, in my own electorate several of my constituents have faced similar situations when the freezing works industry was going through periods of fairly great restructuring.

This is a good bill. I thank the select committee for the work it has put into it. I thank all of those who came to the select committee with submissions. The amendments that have been made make it a stronger piece of legislation and I commend it to the House.

I am glad that the member who has just resumed his seat acknowledged the fact that the bill was introduced by Mr Barker. I am sure that if Mr Barker had not been promoted into Cabinet, the bill would still be in his name. But that is how it works: some go in and some do not, and some are left behind to pick up members’ bills.

This is not a good bill. It is a bill that National strongly opposes. It is a ticking bomb for small business in New Zealand. Shortly after I came to this Parliament in the early 1990s, a large manufacturing firm in Porirua went into receivership. The staff of that firm found that their wages were unable to be paid to them, because the unsecured creditor with first call on the money held by the receiver, after he or she had paid his or her own liquidation fee, was the Inland Revenue Department. The Inland Revenue Department in those days got its share of the money before workers got their share of the money. That situation was changed in the early 1990s, I think quite fairly, so that people working for a firm that went broke got their wages and salaries before the taxman got his cut. Liquidator fees became the top priority, and wages, salaries, and holiday pay due to workers became the next priority. They were followed by—and this is important—payment to people who were suppliers to the business and were owed money; the suppliers of goods and services ranked No. 3, and tax ranked No. 4 in the list of priorities that a liquidator dealt with.

This bill takes redundancy payments—something negotiated into an agreement—and puts them up to No. 2, along with wages, salaries, and holiday pay, in order of priority for a liquidator to pay when a business goes under. What is the effect of that? The effect is twofold. Firstly, the incentives now are very strong on trade unions to negotiate very generous redundancy provisions, because if a business goes belly up, staff get them as part of the whole liquidator payout, and they get them at the same time and at the same ratio as, and with equality to, wages, salary, and holiday pay. So employers will now face a much stronger demand for good redundancy agreements. They know that this issue is not just about workers being made redundant if a business is in difficulty; they know that for every business that goes belly up, every business that ends up in liquidation, redundancy now becomes a call on the liquidator, and it is a call over and above that of the suppliers of goods and services.

Here is where the rubber hits the road with this bill. Who are the losers? The parties that are voting for this bill in the House are voting for small-business people to lose. The independent contractor, the person supplying goods and services—an electrician, for example—the people who go into the business to do work, are the ones who will lose. They did not mind waiting behind salaries and wages. I have never had one business person come to me and say: “I was working for a business. I was supplying goods and services. It went broke, I’ve lost money, and it’s outrageous that the staff were paid.” I have never had that. But now they will be saying that not only were the staff paid but all the staff got their redundancy as well, and that has threatened their businesses. Their small businesses will go under because, as suppliers, they have been caught, and all the staff will get a maximum of $15,000 redundancy paid to them before the suppliers get one dollar for the goods and services that they fronted up with. A supplier of materials to a business, who will have bought the materials and on-sold them but not have been paid for them, will lose. That person cannot go back to his or her supplier and say: “I’m sorry. I was supplying this material to a shirt manufacturer. It has gone belly up. Don’t worry—all their staff got a good redundancy. But I can’t pay you.” The supplier of the materials still has to pay his or her supplier down the chain.

This bill is appalling legislation in that the real loser will be small business. I look forward to the second week of February, I think it is, when the Minister of Finance and the Minister for Small Business are launching in Parliament a small-business offensive. Fifteen Ministers will be involved. They are going to travel around the country to talk to small businesses and tell them how much they love them and how well they are working with them. I look forward to their saying to those small businesses: “By the way, if you’ve supplied goods and services to someone who’s gone into liquidation, as a creditor you now rate lower than redundancy payments for the staff.”

I have to say I have never heard a request from anyone that redundancy payments be included above payment of suppliers of goods and services. I cannot understand how the Minister of Finance thinks it makes sense to put at risk a whole range of small businesses—which will go to the wall once a large business goes into liquidation—because of this provision. I cannot understand that, at all, and I hope the Minister will take a call and explain why someone’s redundancy payment—not someone’s wages or salary; we understand that having first call—is so important that it has to rank ahead of payments to people who have supplied goods and services, who will rank behind them.

National will be opposing this legislation. We will be seeking to amend it during the Committee stage, and I ask other political parties to have a really close look at it. The bill actually had very few submissions. It was not taken seriously by the community. It was a members’ bill in the name of Rick Barker; we cannot blame people for not taking it seriously. I do not think even the person who introduced it thought for one moment that it would go through.

My appeal to members of the Government and the Greens, who are going to ram this bill through, is to ask them to wait for the insolvency law review to come to Parliament, and to do this measure as part of that package, when people can take it seriously. I cannot see what the Greens will gain from being able to go to small businesses around the country and say: “Sorry, mate; if you’re a supplier, you’re out of luck.” Many suppliers will change business practice, and I accept that; many will now require cash on delivery. If one thinks a business is a bit dodgy, that is what one will do; the business will not get the goods unless it pays cash—and a Green member nods enthusiastically. That is fine; it will force some businesses out of business earlier. The businessman who just needs a week or two of credit will be gone under this bill.

So who wins out of it? It is just about impossible to see who can win out of it. It does nothing for economic growth. It does nothing to encourage the entrepreneurs and the risk takers in society. But it does everything to tell the trade union movement to get out there and negotiate good, strong redundancy packages. That is really what this bill is aimed at; it is another payback to the trade union movement—more of which we will see tomorrow with the amendments to the Employment Relations Act; more business-unfriendly legislation is about to come down the tubes tomorrow, from Margaret Wilson. National totally opposes this bill.

On behalf of the Green Party I would like to say how delighted I am that Mark Peck’s Status of Redundancy Payments Bill is finally back in the House for its second reading, and on its way to becoming law in the not too distant future. I sat in on the Commerce Committee for the purposes of its consideration of this particular legislation, and during that process I listened with interest to submitters from both sides of the equation—employers and workers. I think the bill as amended and back before the House tonight adopts a very fair approach, and has taken everyone’s interests into account, despite what the previous speaker was saying.

This legislation recognises that there is justice in removing the arbitrary $6,000 limit on wages and other payments owed to workers in an insolvency situation, and that redundancy compensation, as negotiated between staff and employers, is particularly important at a time when workers are actually being made redundant. There is no use people going through the difficult process of negotiating fair and reasonable redundancy clauses into employment contracts, if, when the chips are down, such contracts are rendered completely meaningless. There is no question that everyone suffers when a company or other employing body goes bust, but given that it is likely that employees’ entire income derives from that organisation, they are the most vulnerable group involved, and it is imperative that they be enabled to retrieve as much of what is rightfully theirs as is reasonably possible.

As the law stands at the moment, employee redundancy entitlements do not receive preferential status when a company becomes insolvent. This means that laid-off staff have to queue up with all other unsecured creditors for whatever percentage of moneys owing is paid out after the Inland Revenue Department is satisfied. We welcome this amending legislation, which, when passed, will mean that employees’ redundancy pay will be given priority status over other unsecured claims and over some preferential claims, in an insolvency situation.

This bill also does a good job in getting rid of the current limit of $6,000 on preferential claims in the case of insolvency, and raising it to $15,000. The $6,000 cap had not been increased since 1988, and I congratulate the Government on not only supporting this rise but also being willing to amend the bill so that there will now be a review of the level of the cap every 3 years in accordance with increases in average weekly earnings.

One issue I was concerned about during the select committee process was the situation of pay in lieu of notice. Union submitters sought amendments so that workers’ rights to pay in lieu of notice should be recognised as a liquidator’s expense, in order that payments could be made immediately. After all, such payments are usually treated in law as being the same as wages or salary during the notice period. However, I was fairly convinced by arguments made during the committee process that, in fact, it would not be particularly fair on other creditors to extend priority conditions to pay in lieu of notice where that pay was in relation to a time period past the point of the commencement of liquidation or bankruptcy. Pay is a priority debt if accrued in the 4 months prior to the beginning of the insolvency process, but not if it has accrued after that point.

As I said earlier, I think members of the committee have taken a very fair approach to this legislation, and what we have is a compromise that should both clarify and practically assist all those involved in insolvencies and liquidations. No one wants to think about these things until they happen, but unfortunately they do happen. It behoves us as responsible lawmakers to pay attention to the needs of those most affected at such times. I congratulate Mark Peck on navigating his member’s bill with such success through the tides of political fortune in this place, and I look forward to it becoming law in the near future.

I rise on behalf of United Future to oppose this bill. When this sort of legislation comes through it absolutely amazes me. It shows us that very few politicians have actually been small-business people. I see that Mark Peck, the supporter of this bill, has spent all of his life on a salary. Many people talk about the worker, but they seem to forget that the small-business people in this nation are workers, and they probably work longer and harder, and for less, than many others do.

We have had a good look at the select committee report on the bill, and see little to dissuade us from the view that giving redundancy payments preferential status could mean that the hardship of insolvency is simply transferred from one group of workers to another group of workers, as other creditors’ livelihood may also be at stake. The argument contained in the select committee report that the financial dependence of employees on their employers is greater than that of other creditors simply ignores this fact. Is it any coincidence that that is a carbon copy of the Council of Trade Unions’ own press statement on this bill? It states: “The effect of the bill will be to transfer a greater proportion of the risk of company collapses onto employees in downstream industries.”

I find it interesting that the committee rejected the idea of extending the priority for wages and salaries beyond the point of commencement of liquidation or bankruptcy, for the reason that this would have a negative effect on other unsecured creditors and would discourage financing and investment, yet the committee was happy to increase the cap of employee priority from $6,000 to $15,000 without any mention whatsoever of what implications that might have on the ability of other creditors to get their money back, or the willingness of those people to provide credit to business in the first place. I note again that this increase to $15,000 was also at the suggestion of the Council of Trade Unions.

If this bill makes banks and other providers of business credit more reluctant to lend money, it will drive up the cost of available credit. Banks will demand more information on potential redundancy payments, which adds to compliance costs. The hardest-hit creditors will be small firms with few assets, such as retailers and those that have a small number of significant debtors, such as firms reliant on freezing works for their business.

The bill may give companies an incentive to reduce their exposure to redundancy payments in the first place through greater investment in capital rather than labour. Having said that, I am happy to see that the committee decided to exclude company directors from the employee priority, in light of the possibility that such people, who are in the best position to know beforehand whether the company is going down the gurgler, could use this law to award themselves large redundancy payments. As I noted in my first reading speech, the public are sickened when they see executives who oversaw a company’s poor performance being rewarded with large golden handshakes while workers are laid off. Thankfully, the amendment made to the bill by the committee should ensure that directors cannot elevate their claim from last place to second place in a carve-up of assets, which would allow them to clean out their company to the detriment of creditors.

But the fundamental problem with this bill remains. By further shutting out the possibility that unsecured creditors will get their money, the bill could create a domino effect as those businesses then fail to recoup their losses themselves and collapse into insolvency, where a lot of their business is tied up with one or two debtors. The bill would adversely affect unsecured creditors much more than banks, as there are already lots of preferences in front of them eroding their claims.

The additional preferential claim that the bill creates may also be the difference between a receiver being able to trade a company out of trouble, thereby protecting the job of workers, and the business being wound up, as happened with the South Island retailers Smiths City, which collapsed in the early 1990s. That is an example of a company that would not have survived under the proposed law. If workers would receive large redundancy payments, there would be little incentive for them to stay with the firm while it attempted to trade its way out of receivership. It is just shocking for the workers if we have a law that can create such a burden of redundancy payments that they make getting a firm back on track almost impossible, whereas otherwise somebody might well be able to go into that firm, see its potential, put different expertise into it, and resurrect it.

In the case of Aoraki Corporation v McGavin, when redundancy payments were referred to they were described as compensation for the loss of the benefit of continued employment. Redundancy is not payment for work done; it is compensation to remove some immediate financial worry associated with job loss. In some cases, workers receive a windfall if they quickly find other jobs after being made redundant. What will happen to the poor old creditor who has already done his or her work, and has already had to pay his or her workers? The employees will get their big redundancy payouts, and may go straight into a job the next day, but this legislation does not worry about the poor fellow who has done all his work—he gets nothing at all.

Given the nature of a company collapse, it is inevitable that some creditors will miss out. Sometimes the whole issue can be academic if there are not enough funds to pay creditors beyond the debenture holder, as in the case of the collapse of Hartner Construction. Qantas New Zealand had enough to pay for workers’ wages and holiday pay, but there was nothing left for its consortium of investors. So the pay to which workers are normally entitled is, at least, given priority under the current law.

We have to ask ourselves whether compensation that is designed to remove some immediate financial worry associated with the loss of a job should take precedence over payment for work already done by contractors and suppliers, who, as we know all too well, also have staff and families of their own to look after. United Future says that, no, it should not. Therefore, we will not be supporting this bill. We strongly believe that work already done and due for payment must be ranked ahead of redundancy payments. [Interruption] I hear an interjection from a member of the Green Party commenting on our family ability. I say to that member that most small-business people are family people. They put their heart and soul into their businesses. They do not need this sort of legislation to challenge them on payment for work they have already done, just because some parties believe that if enough money is thrown at anything, all the problems go away. We believe that work done deserves to be paid for before anything else such as this sort of legislation promotes.

I thank the House for the opportunity to take a call on the Status of Redundancy Payments Bill. At the outset I have to say that I was not on the Commerce Committee, which considered this legislation, but if I had been I would have strongly opposed it. This legislation is absolute garbage. I really do not know who thinks up this stuff. It is the worst type of socialist claptrap I have encountered since I have been in this House. Who thought of it? Who created it? Is it that member’s bill?

💬 Rod Donald: No.

I would not own it, either. Who owns this bill? It is the most anti-business legislation that I have seen for ages. All that it will do is to add to the cost of compliance, which is already killing this country’s businesses.

I will give an example of why I am saying that. I had the opportunity to speak to some executives from a company called Weyerhaeuser the other day. For the edification of the members on the Government side of the House, that company turns over US$22 billion a year. Its executives came to New Zealand to look at a small investment the company has in Nelson. In conversation with its executives, they said to me they had brought a chequebook and were going to do something about extending the company’s investment here. They found that the compliance regime in this country was the biggest turn-off to business anywhere in the world. They said that we grew great trees and had a great country, but our compliance regime and the Resource Management Act, in particular, was something that Weyerhaeuser just could not afford. The tragedy is that the executives of that company left this country without opening its chequebook.

All the risk in this legislation is piled on the employer. Already employers work harder than most people. They risk everything in most cases. They mortgage their homes. This is the worst kind of double whammy imaginable. How hard does the Government want to make it, and how much is enough? With its appetite for tax and for knocking hardworking Kiwis, how much will be enough?

That is the question those members should be asking themselves. I bet the members across on the Government side of the House cannot answer that. I believe there is a misconception in this country that all business is large—that all business can afford this measure. The reality is that businesses employing 10 employees or fewer make up 90 percent of the incorporated businesses in this country.

💬 Marc Alexander: They can’t afford it.

No, they cannot afford it. Business people risk everything in order to get into business, and then suddenly they get hit with this legislation.

Whatever happened to a fair day’s pay for a fair day’s work? Who says the relationship has to continue past that point? That is not fair, and is not reasonable. Who risked the capital in the first instance? Who risked their life savings? Surely businesses have paid enough before going belly up, without the Government coming along then and saying there is a double whammy, and it wants a bit more from them. The employee-employer relationship is essentially about work, not about non-work. [Interruption] A couple of members on the Government side of the House are calling out. They have never been in business, I am sure; otherwise they would not make such stupid comments. How much blood does the Government want? How much is enough? Unless we address this issue, we will just drive more and more businesses and business people out of business, and out of this country. They will become so risk-averse that they will not have the appetite to get involved in business, because it will not be worth it.

Let me give members another example. When I worked in this country in the early 1990s, I got involved with a company called Serco. In fact, there were four brave guys who saw an opportunity. They looked at a company that I think was called Works and Development Services Corporation, said they thought they could organise a management buy-out there, and asked whether I could assist them. I said yes, we should have a look at it. They paid about $5 million for the assets, but there was a contingent liability on the books for redundancy of $35 million. Members should think that through. If legislation such as this had been invoked then, that buy-out would not have happened. Those four guys—they were bright guys, and also brave—took a risk. They saw an opportunity and were prepared to mortgage their homes, which they did. They were able to talk a bank into backing them, on the basis that it saw the same opportunity that they saw. If they had seen under legislation a contingent liability of $35 million to be paid out regardless of the circumstances, they would not have taken that risk. That company is a success; it is now an international business. It employed something like 1,100 people in this country in my day, and now it is one of the success stories not only of New Zealand but also of Australasia. But with the short-sighted nonsense that this Government is driving, that would never, never have happened. That is the type of success story that the National Party is prepared to help to drive, and will drive once we get the opportunity.

This legislation is the worst kind of nonsense. It shows the worst kind of business ignorance I have encountered for a long time—all care and no responsibility. Is it not easy to spend someone else’s money? That is a concept that the Government members will understand, because that is all they have done all their lives. They have been ticket clippers, and nothing else. No one has answered this question yet: who thought this bill up? Who in the House is prepared to put up a hand and say this bill is his or her piece of legislation? Can anyone name that person? I am listening, but the House has gone awfully quiet. Whose legislation is this? Has that person ever been in business?

💬 Marc Alexander: It belongs to the socialists.

It is a combined effort, is it? I did not appreciate that. I did not realise it was a combined effort. Have those people over there on the Government benches ever risked anything, let alone risked everything? Mr Perry knows the answer to that. I ask him whether those members have risked anything?

💬 Edwin Perry: No.

They do not know what it is like to be in business. It is very easy to spend someone else’s money. This bill represents the worst type of tall-poppy syndrome I have ever seen.

Debate interrupted.

The House adjourned at 10 p.m.