How to put a dollar value on an individual’s emotional suffering has been the topic of significant debate in employment law over the past few years.
Historically awards of compensation for humiliation and distress have been low. Typically an employee who has been unjustifiably dismissed may expect to receive three months lost wages and compensation of around $10 000 - $15 000. That may not be an insignificant amount, but when you factor in legal fees and the emotional cost of taking an employer to court, many employees come out the other end questioning whether it was worth it.
For these reasons the Employment Court has sought to introduce a greater level of rigour and consistency in the assessment of compensatory awards. The first significant step towards this was in 2017 when the Chief Judge of the Employment Court, Christina Inglis, took a “banding” approach based on the level of emotional harm suffered.
Band 1 reflects a low level of loss or injury and might result in an award of between $0 - $10 000. Band 2 reflects a moderate level of loss or injury and might result in an award of compensation of between $10 000 – $40 000 and the third band represents a high level of loss or injury and may lead to an award of over $40 000.
Whilst this guidance is helpful, assessing compensation awards is not an exact science. There are a range of factors which influence where on the spectrum of cases this one sits. Some relevant matters have been found to include the circumstances of the dismissal and the effect it had on the applicant employee, psychological and health impacts, the effect on the ability of the applicant to find another job, the period of time that the applicant had been employed, the applicant’s age and financial capacity, and how long they intended to remain in the employment of that employer.
Importantly the emotional harm suffered by the employee must be connected to the circumstances and impact of the personal grievance. So, for example, if an employee was dismissed for genuine reasons of redundancy but the process was found to be unfair, and compensation awarded must focus on the impact of the unfair process, not the loss of the job itself.
The other misconception is that compensation is awarded to punish the employer, and therefore the worse the employer’s conduct, the bigger the award should be. This is not necessarily the case. Compensation for humiliation and distress is based solely on the impact on the applicant employee, regardless of the employer’s conduct, although it generally follows that a person may suffer greater distress the more poorly they are treated.
Since 2017/2018, and based on the banding approach endorsed by the Employment Court, we have seen an increase in awards of compensation. It is not unusual now for compensatory awards of more than $20 000 or $30 000 to be awarded.
By way of example, in a case involving New Zealand Fusion International, the company was found to have breached minimum employment standards and was ordered to pay $50 000 in compensation to three employees.
The company runs Reporoa Holiday Park and was found to have effectively forced three migrant workers to work without pay and required them to pay a “bond” in order to work and stay at the facility. One employee described feeling as though she would die if she did not leave New Zealand and referred to the great spiritual and physical pressure of working for Fusion, whilst another said that he felt like he was in a prison and that he could not leave the park.
In a recent case Murray Cousens was awarded $25 000 in compensation when his employer Star Holdings Limited refused to pass on the wage subsidy to him during lockdown and then asked him to sign an illegal zero hours contract. The Authority described the employer’s actions as “crude and opportunistic”.
Whilst there is a strong case for increasing awards of compensation to employees to ensure that awards are meaningful, this needs to be balanced against the impact on employers, particularly smaller businesses. It does not help anyone if employers are driven into bankruptcy and out of business by being ordered to pay massive awards of damages when they get it wrong.
For this reason, the Court of Appeal has talked about the need for “moderation” in setting awards, and that the impact on the employer and other employees, as well as the current economic climate, are relevant factors.
The loss of employment is one of the most stressful situations that most people will experience. Most employers do not deliberately set out to treat people poorly, yet employment casebooks are full of horror stories of employees who have suffered significant emotional distress and health impacts directly as a result of how they have been treated.
Ending an employment relationship is sometimes necessary and appropriate, but employers can choose how they go about it. It does not cost employers to take a sensitive and human approach, but it may well cost them in compensation if they don’t. It is also the right thing to do.