Thursday, June 2, 2011

The Whitcoulls Saga

Posts have been a bit irregular for various reasons but the current row relating to the employment contracts being offered to Whitcoulls' employees has stirred me into action.

What is most disturbing about this matter is the total garbage that is appearing in some newspaper comments sections and in the comments section on websites such as David Farrar's Kiwiblog. In many of these comments there is a strong view that former Whitcoulls' employees should be grateful a benevolent capitalist has deigned to give them a job and that employees either do not or should not have any rights at all in such situations. What is even more disturbing is that these comments seem to be what, for those blogs, are the more reasonable views expressed! It is perhaps worth making at least a few points.

The first is that the Whitcoulls business has been sold to a new owner, which one assumes is a new legal entity and hence legally a new employer. That new owner is perfectly entitled to offer new terms of contract going forward. News reports suggest that in the main these contracts are fairly similar, with the exception of no redundancy clause, as those previously applying. Indeed it seems that a number of benefits accrue under these contracts, such as the carrying forward of holiday and sick leave entitlements, that need not necessarily be offered. However the point should be made, and which seems to have been ignored by many commentators, is that the reason for these offers is not of course to be nice to the workers - it is because the new owner wishes to have an established and experienced workforce in place in order to minimise any disruption during the transfer and to ensure that income flows into the business as soon as possible.

The second point is that underlying the offered contract is what one presumes is a deal with the receivers to deal with the liability for wages and other monetary entitlements owed to employees as a result of the receivership. Schedule 7 of the Companies Act makes employees preferential creditors in relation to a number of amounts owing due to termination arising out of a liquidation. These include accrued wages, holiday pay and redundancy entitlements. From the nature of the contract being offered it seems the new company is taking on the cost of accrued holiday pay (and sick leave entitlements) and that employees will presumably have been paid wages up to the time they shift to the new employer.

That means of course that the major remaining liability (which may well be very substantial) is for redundancy compensation - and the receivers and new owners have seemingly done a deal to shift that cost on to employees. This allows the receiver to pay that amount to creditors further down the priority list (most likely trade creditors). In other words the employee victims of poor mangement are being required to sacrifice their legal entitlements for the benefit of other creditors. This trick is to be achieved by a new employment contract that forces employees to surrender what may well be substantial redundancy entitlements if they are to gain new employment. One presumes that the new employer receives a reward for this in the price paid for the business.

It is this aspect of the arrangement that is highly dubious and which in effect means employees are being forced to surrender a clear contractual entitlement (and even employees have legal rights contrary to the view of some comments) for the benefit of the receiver and new owner. It also should be stressed that this is not a case of technical redundancies: that involves a transfer to a new employer on the same terms and conditions, including accrued entitlements, as previously applied. This is a clear case of if you want a job it will cost you! Perhaps not a premium being paid for new employment which is illegal (Wages Protection Act) but the next best thing.

It also means that some Whitcoulls' employees may now find themselves being made redundant in the near future as this will now be a largely costless exercise for the new employer - and it will not be difficult to argue that 'reorganisation' was necessary to 'rationalise' the new operation.

This whole episode has been a fiasco and should have been unlawful - not that this is likely to happen under the current government.

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