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Issues with the Personal Grievance system in New Zealand?

Perceptions of the personal grievance system in New Zealand

The main source of research evidence on the personal grievance system comes from the work done by the Department of Labour several years ago. This work covered employment relationship problems more generally, and was reported by Woodhams in 2007. In this report, Woodhams briefly addressed some common criticisms of the personal grievance system, and found little substance to the criticisms.


Employers' representatives have suggested that the number of personal grievances is increasing (Lowe 2005, Goldsworthy 2009). Drawing on the results of several surveys of employers and employees, and the number of applications for Department of Labour mediation services, Woodhams (2007) found no evidence of the incidence of grievance claims growing. (Nor have subsequent years indicated a trend of increasing applications for mediation services (Department of Labour annual reports 2006/07 and 2007/08)). However, there is no research evidence on the number of (potential) grievances that are settled outside of formal avenues of redress.


Reviewing the effects of the Employment Relations Act 2000 in 2004, Caisley noted that in relation to personal grievances 'many of the recent awards have been rather low' and further that 'the level of remedies being awarded has resulted in there being real questions concerning the effectiveness of the law' (Caisley 2004). However, business advocacy groups periodically state that the cost of personal grievance claims is growing (Department of Labour 2007, EMA Northern 2006, Miller 2006 cited in Shulruf et al 2009). It is, though, unclear whether these increases apply to financial settlements made or other costs such as legal representation.

Both focus groups with employers carried out in 2006 (Department of Labour 2007) and case study research (with employers and employees) carried out in 2007 (Woodhams 2007) indicate that there is a prevailing belief that employment issues that may lead to personal grievance claims are expensive to settle and that it may be cheaper to 'pay out now' rather than go through a lengthy formal process that drives up costs. One estimate mentioned by some respondents was $40,000 (including legal costs and settlement values) although the focus groups suggested that the amounts of payouts were expected to be closer to $5000 (Department of Labour 2007). In addition, the unpredictability of amounts awarded has been criticised (Goldsworthy 2009).

Drawing on data from a survey of private sector employers, Woodhams (2007) found that the median direct cost of all employment relationship problem resolutions (resolved in various ways including those proceeding to litigation) was about $5000, of which $2800 represented payouts to employees. The remainder included legal representation and/or advice, investigation costs and any replacement staff used to cover for participants in the employment relationship problem. Woodhams estimates the direct cost of all employment dispute resolution for businesses in New Zealand at about 0.4 percent of annual wages and salaries paid by private sector employers (Woodhams 2007).

A survey of mediators carried out in 2006 (Woodhams & Martin 2007) (reporting on levels of settlement for a range of employment relationship problems resolved through Department of Labour mediation) found the median settlement cost was between $2000-$5000, and a quarter of all mediations resulted in no payout to the employee. While in a survey of employers (Woodhams 2007) the median direct cost to businesses of employment relationship problems resolved in Department of Labour mediation was $7,275 while the mean was $13,600.

In Woodhams' 2007 survey, there was insufficient data to describe the median costs of claims reaching the Employment Relations Authority or Employment Court due to the very few such cases in the sample. There is some data available on these costs from a Research New Zealand (2009) survey of users of all tribunals in New Zealand.[1] 'In order to get their case heard' by the tribunal, users of the Employment Relations Authority had a mean cost of $6777. In this study, 51% of Employment Relations Authority users stated legal fees were their largest cost and 56% stated that legal fees were one of their costs.

In an Australian study looking at the perception of costs and the actual costs associated with dismissal and unfair dismissal cases, Haining & Schapper (2006) found that costs were overestimated by the small business sector. They cite Freyens and Oslington who found that the cost of dismissal and responding to an unfair dismissal claim was less than had been suggested in public debate. Similarly Robbins and Voll (2004), found in their survey of small business employers that the cost of an unfair dismissal ranged between $200 and $10,000, with the average cost of defending an unfair dismissal case approximately $1000.

To provide further context to this issue, in Great Britain where there have been similar concerns about costs, Gibbons' 2007 review of employment tribunals in Great Britain, noted 'The average cost to business of defending an employment tribunal claim has recently been estimated to be around £9,000.' In his response to the Gibbon review, British academic David Renton (2008) noted costs were increased by 'employers' over-litigation', but also that 'the expense of litigation is surprisingly often a worker's friend: it causes some unwilling employers to settle, when otherwise they would not.'

'No win no fee' representatives encouraging claims

Private sector employers surveyed in Woodhams' 2007 study stated that no win no fee (or contingency fee) representatives were involved in 16% of employment relationship problems. Woodhams concluded that there was no evidence that such advocates have 'dramatically changed the grievance landscape or encouraged meritless claims.' Some respondents interviewed in the case studies believed that contingency fee advocates played an important role in providing access to advice for low income employees. Regardless, Department of Labour estimates suggested there were only a small number of no win no fee advocates in the market at that time (Woodhams 2007).

In his 2007 review of employment tribunals in the Great Britain, Gibbons similarly noted the suggestion that some claims to employment tribunals are driven by 'no win no fee' representatives. Gibbons noted that the available evidence (citing a report by the Great Britain Department for Constitutional Affairs in July 2004) suggested that although conditional fee agreements may increase private settlement rates in employment tribunal cases, and may achieve higher settlement terms for claimants, there is no evidence that they create more cases.

Hammersley et al's (2007) analysis of 2003 Survey of Employment Tribunal Applications data found that 'no win no fee' arrangements do extend access to justice for those who do not have other opportunities to fund their cases without risk of loss to themselves. Contingency fee cases were much more common where claimants had no access to trade union representation or did not possess any legal insurance. Hammersley et al's research supported Gibbons' finding that contingency fee cases were most commonly used by better off claimants in high value cases. There was a tendency for contingency fee cases to be settled rather than pursued to Tribunal hearing, and the level of settlements tended to be higher because high value cases were being pursued.

Later British research[2] by Moorehead & Cummings (2009) found the impact of contingency fee agreements on the overall number of employment claims pursued to be uncertain. However, the claim that such fees lead to an increase in spurious or weak claims was not borne out by the evidence available to the authors. They further found contingency fee agreements have probably made a modest contribution to access to justice in employment tribunals ensuring that some applicants have access to advice and representation when they would otherwise not be able to afford it. However they also noted, 'any contribution to access to justice is not uniform: lower value claims and claims with high levels of risk or cost associated with them are less likely to be brought.'

Impact of stand-down requirements for Work and Income benefits

In Woodhams' research (2007) some employers suggested that a proportion of personal grievances are taken mainly to receive income support. The Ministry of Social Development imposes stand down periods before people can claim unemployment benefits. If an employee is dismissed with cause or resigns voluntarily a 13 week stand down period applies before they become eligible for the unemployment benefit. However, if the employee challenges a dismissal or loss of employment by taking a personal grievance, this 13 week stand down period does not apply (though other stand down periods may apply depending on the employee's other personal circumstances). This provision was considered to provide an incentive for dismissed employees to take a personal grievance.

In Woodhams' research Ministry of Social Development figures showed that the number of benefits granted under this provision rarely exceeded 5 per month during 2004-2006, with none at all being granted between January and April 2007. Since 2004, both the total number of benefits granted and the proportion of all benefits granted under this provision have exhibited a downward trend (Woodhams 2007). Updated data from the Ministry of Social Development shown below confirms that very few people avert the stand down period on the unemployment benefit because they are taking a personal grievance.

  Unemployment benefit granted as pursuing a personal grievance Total unemployment benefit applications granted
30 September 2007 5 60,000
30 September 2008 9 60,000
30 September 2009 27 118,000

Biases that favour one party

In Woodhams' (2007) research, he notes that the case studies and focus group research suggested that both employers and employees believed that the system favoured the other party. Many employers feared that a judgement of inadequate processes would expose them to large liabilities, while employees feared that presumed superior resources would give the employer an advantage.

An emphasis on process over substance

Both Woodhams' & Martin's mediation survey (2007) and a small scale study of Employment Relations Authority determinations (Department of Labour 2007)[3] do not support these perceptions of bias. Woodhams' found that although the Employment Relations Act 2000 does not explicitly distinguish between substantive and procedural unfairness, the Employment Relations Authority can and does modify awards according to its assessment of the merits. For example, the review of Authority determinations (Department of Labour 2007) found two examples where the Authority found that dismissals were unacceptable in process terms, but awarded nothing to the employees because of their contributory behaviour. In around one quarter of all cases analysed in Woodhams' 2007 study the Authority reduced or rejected awards on the basis of contributory conduct.

There have been no large scale empirical analyses of Employment Relations Authority determinations in New Zealand that would enable further examination of these perceptions.[4] However, two studies of arbitration decisions have been undertaken recently in Australia. In relation to employer's fears, both of the Australian studies have found that a lack of procedural fairness by employers has not been a significant factor influencing the decision of the arbitrator (Chelliah & D'Netto, Southey 2008).

As previously noted, Knight & Latreille's (2000) British study of rates of unfair dismissal complaints using 1998 Workplace Employment Relations Survey data found that having formal discipline and dismissal procedure had no effect on the rate of unfair dismissal claims. However in a further British study (looking at small firms only) Saridakis at al (2008) analysing Survey of Employment Tribunal Applciations data found that small firms that have grievance and disciplinary procedures and follow them are more likely to win at employment tribunals than those firms that do not have any procedures.

The superior resources of employers

There is no New Zealand research available quantifying the superior resources of employers compared to employees in personal grievance claims. However Moorehead & Cumming's recent British study (2009) estimated that within their sample (of 191 employment specialists working in solicitors firms and claims consultancies) the level of specialist resources devoted to assisting and representing employers was almost five times of that devoted to employees.

There is also no New Zealand research available exploring whether, when and how during the personal grievance process superior resources give the employer an advantage. The perception of advantage conferred by employers' superior resources is perhaps impossible to counter as the proportion of dismissed employees who pursue complaints is unknown, and there is limited evidence about the proportion of employees who settle disputes without the formal involvement of a third party. In relation to this latter point, Woodhams' New Zealand survey research (2007) showed that 47% of the employment relationship problems reaching the attention of the survey respondents (employers) began with attempted individual resolution and 31% were resolved this way.

Claimants' rate of success

A Department of Labour snapshot study (2007) of 33 determinations in the Employment Relations Authority showed that 24% of the 33 cases were held to be in favour of employers, 52% were held to be in favour of employees, and in 24% of cases the Authority found in favour of the employee but either remedies were reduced because of contributory conduct or no remedies were awarded.

The Australian empirical studies cited (Southey 2008, Chelliah & D'Netto 2006) have found between 48% and 51% of employees' complaints were upheld. Similarly in Great Britain, employees making unfair dismissal claims were successful in around half of all Employment Tribunal cases (Renton 2008).

In both of the Australian studies the authors have commented that probable outcome may be assumed to be an important consideration in employees' deciding to make a claim. Similarly, Renton, commenting on whether tribunals favour employees, stated:

The cases which actually make it to tribunal get that far typically because the person bringing them has been advised that their case is unusually strong: in that context, the fact that only just over half go on to succeed is a sign that tribunals are no soft touch for the claimant (Renton 2008).

Renton also points out that claimants' success in dispute resolution agencies is only a partial view of which party is successful. 'Not visible are the failed claims in which the employee may nonetheless receive some payment from the employer to avert an appeal'.

Vexatious litigants & weak claims

There is no research evidence from New Zealand on the volume or characteristics of vexatious litigants or weak claims. In Britain, vexatious claims have been defined as those in which 'applicants who at any time during the case were advised by a professional advisor that they were likely to lose but who pressed and either went to the Employment Tribunal, or had their case disposed or dismissed in some other way, or withdrew their case within two weeks of the hearing date' (DTI 2002).

The incidence of such claims was a minor theme in the recent British reforms (Gibbons 2007) but there is no evidence that such claims are anything but a very small minority, for example, maybe 4% of claims in Great Britain (DTI 2002). Note that of the cases defined as vexatious in the 1998 Survey of Employment Tribunal Applications, in 11 of the 35 cases so classified, the applicant went on to win at a full Employment Tribunal hearing. Similarly, Latreille (2009) found in his 2006 survey of rejected claims (using 2003 Survey of Employment Tribunal Applications data), that initial rejection did not seem to weaken the final outcome of resubmitted claims.

Differences for small businesses

In New Zealand, Woodhams' survey of mediation cases found that the proportion of applicants for mediation who came from small and particularly medium sized firms was higher than their proportion in the population. Similarly, Woodhams' survey of employers (2007) found that employees are more likely to experience an employment relationship problem if they work for a small business compared to a large one. These findings are echoed in British research in which applications to the employment tribunal are disproportionally from smaller firms (defined as those with fewer than 50 staff (Saridakis et al 2008, Hayward et al 2004).

Both focus groups carried out by the Department of Labour (2007) and Woodhams' survey (2007) found that SMEs have a more negative view of the impact of employment relationship problem resolution provisions than larger firms. However, it was businesses employing between 10-19 FTEs who were the 'least satisfied with resolution processes and outcomes and the most likely to provide negative comments about the Employment Relations Act.' Woodhams speculates that their greater dissatisfaction 'of firms of this size may arise from being 'squeezed' between a much higher incidence of problems and (thus) higher cost than smaller businesses and a relative lack of resources to deal with them.' Again, British research similarly finds that 'medium-sized organisations are effectively caught between two posts, being disadvantaged by the absence of the close working relationships that characterise small firms yet at the same time not benefiting from the full formality of the larger organisation' (Dix et al 2008).

Looking at the actual costs faced by SMEs, Woodhams found that the median direct cost of resolving employment relationship problems for small businesses (irrespective of how they were resolved) was between $3,000 and $3,900, compared to $9,700 for the largest businesses; thus indicating that small businesses did not face higher absolute costs than their larger counterparts (although costs in the range of $3,000-4,000 could still have a large impact on a small business).

A number of Australian researchers have looked at the experience of SMEs with unfair dismissals. Robbins' & Voll's (2005) analysis of the impact of unfair dismissal law on SMEs in Australia, the authors examine the effects of employment protection laws on job growth, the incidence of claims for unfair dismissal and the attitude of SMEs to unfair dismissal legislation, and conclude that there is no evidence to justify the exemption of SMEs from employment protection laws.

Freyens and Oslington (2005) provided the first large-scale direct estimates of firing costs for Australia (a study which appears to be unreplicated elsewhere). This quantitative study distinguished between the costs of retrenchment and the cost of dismissals. The study did 'not find much evidence' of variation by firm size... suggesting that unfair dismissal provisions do not impose a higher burden on small business.'

In another Australian study, Southey (2008) found that business size was associated with arbitration outcome: employees in firms of fewer than 50 staff were relatively unsuccessful in defending unfair dismissal claims. Southey considered this finding indicative of arbitrators' empathy for the informal practices of small businesses. However, Southey also found 'it appears that once a business employs over 50 staff the empathy of the arbitrator for the limited HR expertise and resources' [in] smaller businesses, gives way to expectations that formality should be adopted, [as] in larger organisations.'


[1] Note that in this study, in 65% of Employment Relations Authority hearings using respondents were acting as a representative, advocate or lawyer for someone else.

[2] The research drew on a survey of legal practitioners, analysis of 2003 Survey of Employment Tribunal Application data and reference to the broader literature on contingency fees.

[3] The study analysed all determinations concerning personal grievances made by the Employment Relations Authority for the period 17 July to 18 August 2006 - a total of 43 separate personal grievance claims.

[4] Chelliah & D’Netto (2006) note that Boon (1992) looked at arbitration and court decisions in New Zealand over the 1987-1991 period and Chelliah (1998) examined court decisions over a seven year period in New Zealand. Both of these studies looked at procedural fairness and substantive aspects but excluded remedies awarded.