Journal of Business Ethics

, Volume 115, Issue 2, pp 311–325

Distributive Justice, Employment-at-Will and Just-Cause Dismissal

Authors

  • Mark Harcourt
    • Department of Strategy and Human Resource Management, Waikato Management SchoolUniversity of Waikato
  • Maureen Hannay
    • Human Resource Management, Sorrell College of BusinessTroy University
    • Human Resource Management, Centre for Innovative Management, Faculty of BusinessAthabasca University
Article

DOI: 10.1007/s10551-012-1400-9

Cite this article as:
Harcourt, M., Hannay, M. & Lam, H. J Bus Ethics (2013) 115: 311. doi:10.1007/s10551-012-1400-9

Abstract

Dismissal is a major issue for distributive justice at work, because it normally has a drastic impact on an employee’s livelihood, self-esteem and future career. This article examines distributive justice under the US’s employment-at-will (EAW) system and New Zealand’s just-cause dismissal system, focusing on the three main categories of dismissal, namely misconduct, poor performance and redundancy. Under EAW, employees have limited protection from dismissal and remedies are restricted to just a few so-called exceptions. Comparatively, New Zealand’s just-cause system delivers much more just outcomes, both in terms of remedies and punishments. Despite a few shortcomings, it should be considered as a reasonable reference for policy changes in the US.

Keywords

DismissalEmployment-at-willJust-causeDistributive justice

Introduction

Organizational justice, or fairness, significantly affects employees’ job satisfaction, organizational commitment and job performance (Greenberg 1988; Haar and Spell 2009; Tyler and Caine 1981). These, in turn, influence workplace cooperation and effective functioning at the organizational level (Greenberg 1990; Masterson et al. 2000). Expectations of fairness, though rarely part of the explicit, written agreement, ordinarily comprise part of the implicit psychological contract between employees and their employers (Rousseau 1995).

Organizational justice has two key dimensions: procedural and distributive. Procedural justice is the perceived fairness of the processes and methods of management decision making, the way decisions are made, whereas distributive justice is the perceived fairness of distribution of outcomes resulting from management decisions (Cropanzano et al. 2007; Konovsky 2000), in particular the allocation of rewards and punishments. Naturally, the importance of fairness increases as a decision’s potential impact on an employee increases. Dismissals have an especially major impact on employees, because the ensuing unemployment drastically reduces incomes and perceptions of self-worth (Leana and Feldman 1992). The distributive justice of dismissal decisions accordingly deserves much research attention.

In this article, we examine how different legal regimes influence the potential level of distributive justice employees receive in dismissal situations. For comparative purposes, we chose to study the US and New Zealand, two countries very similar in many national characteristics but polar opposites in their levels of employment protection. Both countries are developed, Anglophone nations with a diverse workforce, an English common law system, a liberal market economy1 (Hall and Sockice 2001), and, at least until the 2008 crisis, good records of employment creation (New Zealand Department of Labour 2011). As well, both have an individualistic, low power-distance and low risk avoidance type of national culture (Adler 1997; Hofstede 1984). However, in the area of employment protection, the US non-union, private-sector operates under employment-at-will (EAW), which does not require reasons for dismissal, a procedure for dismissal, or provide any kind of redress for an unjust dismissal, other than in situations involving, for example, discrimination, tort, violation of public policy or ‘bad faith’ (Roehling 2003). New Zealand, on the other hand, has a just-cause dismissal system which does require reasons for dismissal and a fair dismissal process, and provides various forms of redress if a dismissal is unjust. Comparing the two countries helps to identify potential issues with distributive justice in both systems, though particularly the US. Since the article compares the two different legal regimes, it does not focus on discretionary situations where company policies and process beyond the legal requirements apply. Public policy implications arising from the two-country comparison are explored.

Distributive Justice in Dismissals

Theories of distributive justice have been classified as either reactive or proactive (Greenberg 1987). Reactive theories focus on how employees respond to unjust decisions, once they have been made. For instance, with Adams’ Equity Theory (Adams 1965; Walster et al. 1973), employees determine how justly they have been treated by comparing their own inputs, how much they have put into the job (e.g. time, effort, knowledge, qualifications), and outcomes, what they have received in return from the employer (e.g. promotions, pay), with other employees’ inputs and outcomes. Employees who perceive that other employees have received relatively more outcomes in relation to their inputs will have a sense of injustice. Equity theory predicts that these employees will respond to this perceived injustice by reducing their own inputs (e.g. working less), seeking more outcomes (e.g. demanding a pay raise), or attempting to raise the inputs of other employees (e.g. have more work allocated to them) or lower their outcomes (e.g. removal of their special privileges). The lesson for employers and/or policy-makers is that such injustices, and the reactions to them, can be minimized by trying to ensure that employees receive outcomes (rewards and punishments) which reflect their contributions, and this applies as much to dismissal as to promotions and pay increases.

Proactive theories focus on trying to ensure that decisions are just from the very start, using appropriate decision rules. As an example, Lerner’s (1982) Justice Motive Theory outlines four types of decision rules for allocating rewards and punishments: competition, equity, parity and Marxian. Competition allocation rules are based on performance, implying that the highest rewards be allocated to those producing the most/best output. Equity allocation rules are based on contribution, so that the highest rewards are assigned to those with the highest/most inputs (e.g. qualifications, years of experience). Parity allocation rules require equal outcomes, with everyone receiving the same rewards (or punishments) (Vogelaar and Vermunt 1991). Marxian allocation rules require outcomes to be allotted on the basis of need (e.g. because of failing health or number of children). These common fairness principles, other than competition, echo those advocated by Deutsch (1975) for social justice. According to Deutsch (1973, 1985), the different allocation rules can be used to achieve different organizational goals. The equity rule can be used to motivate productivity and efficiency, the equality rule to cultivate harmonious social relations and member solidarity, and the need rule to foster individual welfare and well-being. Lerner’s (1977) theory indicates that the suitability of the allocation rule also depends on the relationship between the parties concerned. For example, for someone close, personal need is a major consideration and so a Marxian allocation rule is appropriate, whereas the competition and equity rules are relevant to more distant relationships (Greenberg 1987). Meindl (1989) argues that equity and competition rules are more appropriate in individualistic cultures, whereas parity is more appropriate when performance measurement is difficult and/or workers are highly interdependent.

Other scholars have advanced alternative but not dissimilar frameworks for examining outcomes of dismissal in the organizational justice context. For example, Minton et al. (1994) proposed a model involving two perceived principles of justice (balance and correctness) under three types of goals (performance, community and dignity). Balance pertains to comparing the dismissal act with other similar acts in similar situations. Here, the concepts of rationality and proportionality apply. Rationality requires decisions be made reasonably and consistently while proportionality requires the punishment fits the crime. The applicable rules for balanced decisions under the goals of performance, community and dignity are equity, equality and need, respectively, reflecting the justice framework discussed above. Correctness pertains to whether the decision made is accurate, follows procedural requirements, and is compatible with morals and values. Where the performance goals are important, correctness focuses on accurate and valid information used and the logic of the decision. Where a community goal is the key, community laws, traditions, established policies, norms and practices should be observed. Where a dignity goal is the priority, outcomes allocated should be commensurate with the individual’s station in the organization or community, such as an individual’s ‘rank, tenure, seniority or status’ (p. 144). In a way, one’s tenure and seniority can be considered as a measure of one’s vested interest in the organization. As Becker’s (1964) human capital theory posits, individuals learn firm-specific skills with the view of receiving higher returns in the future employment relationship. An unjust dismissal that truncates the expected yield is hence considered unfair to the employee.

Do individuals then have a property right to their job? This is a highly controversial topic as it involves conflicting interests with the employer. Although a detailed discussion is beyond the scope of the article, it suffices to say that courts generally do not expect any employee to keep a job forever. Therefore, rather than relying on individual rights to a job, it is more appropriate to adopt the fundamental values and rights of individual dignity and autonomy as the basis of unjust dismissal laws that offer a level of protection for job security (Collins 1992). Dignity involves concerns and respect for the individual while autonomy is “about creating conditions which enable people to take control of their own lives, not about freedom in the sense of free-for-all” (Pitt 1993, p. 255). Laws based on such values would constrain dismissals that are arbitrary or based on insufficient reasonable grounds. Indeed, many countries have adopted statutes providing such constraints, often in accordance with ILO recommendations (de N. Clark 1971). Specifically, Recommendation 119, Section II 2 (1), of the ILO (1963) states that “(t)ermination of employment should not take place unless there is a valid reason for such termination connected with the capacity or conduct of the worker or based on the operational requirements of the undertaking, establishment or service.”2

A broader view of distributive justice can go beyond looking simply at the individual’s situation to consider the general welfare and social cost at the societal level (Collins 1992). If employers are allowed to exercise absolute discretion in the termination of employees, who then turn to state benefits such as unemployment insurance or welfare, is it in the best interest of the society as a whole? Here again, there is a balance of interest to be considered for the various stakeholders, including not just the employer and the employee, but also the taxpayers.

Distributive Justice and Dismissal: Punishment and Remedies

With dismissals, distributive justice is relevant in two key respects. The first focuses on whether dismissal is a just outcome, especially as a punishment. The second concerns whether the remedies, afforded to unjustly dismissed employees, provide full restitution, compensating employees for earnings losses and reinstating them to former jobs.

Determining whether a dismissal is just or not is perhaps best discussed in the context of the main types of dismissal, namely misconduct, poor performance and redundancy (downsizing). For misconduct, application of the equity allocation rule, as well as the proportionality argument, demands that the employee’s misbehaviour, their negative ‘contribution’ or input, be reflected in any punishment. It follows that dismissal should be reserved for only the most serious forms of misconduct or repeat misconduct, as dismissal is a severe punishment, involving drastic income loss, major stigmatization and social disconnection. With poor performance, application of the competition allocation rule suggests that dismissal is only just, when performance is substandard because it consistently falls below some clearly prescribed minimum benchmark, and when this failure to perform truly reflects the absence of skill and/or motivation in the employee. Redundancy (downsizing) is different. Redundancies are ‘no-fault’ dismissals, involving no wrongdoing or failure to perform. As a redundant employee has, by definition, done nothing wrong, it is not appropriate to view the dismissal as a justifiable consequence for either inadequate inputs (the equity rule) or outputs (the competition rule). A redundancy occurs when the employer eliminates the employee’s job, subcontracts out the employee’s job to another firm or replaces the employee’s job, because of technological change or restructuring, with a new, materially different job. Because the job has gone, the employee who held that job must go too. A redundancy dismissal is essentially an unjust loss to the employee, and therefore deserving of some kind of remedy.

The parity rule demands that all similarly situated workers receive the same or similar consequences. For instance, workers with comparably poor performance should suffer the same fate. If one is dismissed, all should be dismissed. Likewise, workers should be treated the same way in misconduct cases. Serious misconduct should be consistently punished with dismissal, where circumstances are the same or very similar (Ewing 1977). In redundancy situations, all similar employees should be selected for dismissal using the same valid and objective decision criteria, such as seniority or qualification. Where seniority is the primary decision criterion, the most junior employees should be let go. Where performance is the main decision criterion, the worst performers (even if they still meet performance standards) should be terminated.

What happens when dismissal is not a just consequence? Distributive justice demands that the employee be restored to his or her former situation and that he or she be monetarily compensated for any unjustified losses. Where dismissal is unjustified by the degree and frequency of wrongdoing or the level of performance, reinstatement to the employee’s former position is warranted. Any earnings losses associated with unemployment should be reimbursed. More controversially, emotional losses associated with the dismissal should be compensated, however difficult it might be to assign a monetary value to such losses.

In redundancy cases, reinstatement is not practicable because the employee’s job no longer exists. Monetary compensation is especially important. As well, the employer should be obliged to help reduce the employee’s earnings losses in other ways, particularly by providing advance notice of layoff. Other forms of help include outplacement, retraining and counselling. Advance warning of a dismissal can help to attenuate the employee’s losses in earnings (Eby and Buch 1998; Hopkins and Hopkins 1999). Employees about to lose their job have an opportunity to search for work prior to being dismissed, shortening the period of unemployment and reducing the chance of ever becoming unemployed (Addison and Blackburn 1995; Swaim and Podgursky 1990). For instance, in a Canadian study, the provision of 3–6 months of advance notice cut the median length of unemployment from 37 to 15 weeks primarily by enabling some employees to shift from employment to re-employment without ever entering unemployment (Jones and Kuhn 1995, p. 600). Workers with advance notification also generally find better paying jobs (Nord and Ting 1991) and are less likely to be laid off in future (Addison and Fox 1993). This is because having the chance to find work prior to actual dismissal gives employees, especially older and white-collar workers, the opportunity to avoid the stigma of unemployment which can make re-employment more difficult (Addison and Blackburn 1995; Addison and Portugal 1992; Belzil 1996).

USA

The United States has a modified EAW dismissal system for the overwhelming majority of its non-union, private-sector workforce. EAW allows an employer to fire an employee at any time for any reason: a good reason, a bad reason or even a morally unjust reason (Grenig 1991). In other words, there need be no reason or ‘cause’ for the dismissal. Even when there is ‘cause’ to fire someone, this ‘cause’ does not have to be just, in the sense of being appropriate to the level of performance or the nature of the misconduct.

The United States remains the last major industrialized country without comprehensive just-cause protection against arbitrary dismissal. Arguments in favour of EAW have traditionally focused on right-based justifications, with particular attention to freedom of contract and property rights (Dannin 2007; Werhane 1985; Werhane and Radin 1999). Freedom of contract mandates that employers and employees should be free to negotiate whatever terms they see fit in their contracts, allowing employees to negotiate contracts that meet their needs while simultaneously allowing them some autonomy over their work lives. Moreover, if employees are allowed to terminate their employment with their employers, then under the concept of mutuality of obligations, employers should be able to do so as well (Summers 1976). On the other hand, property rights are rights “to control goods, to benefit from them, to exclude others from them etc.” (McCall 2003, p. 164). Property rights promote the owner’s autonomy by “providing a secure base of material possessions that free her from over-reliance on the decisions of others” (McCall 2003, p. 164). Private contract over property has also been supported as the most effective way to reward effort and risk taking by owners, and as a primary vehicle through which incentives are provided for people to work and invest (McCall 2003, p. 164). As a result, EAW remains the primary system governing employee dismissals for the non-union private-sector in the US, with legislatures and courts instituting some limits on what could be considered arbitrary and unfair dismissals though ‘narrowly carved out exceptions’ (Radin and Werhane 2003, p. 116). These are discussed further below.

Dismissal as Punishment: Misconduct

EAW permits an employer to fire an employee when there is no misconduct, minor misconduct or serious misconduct; one incident of misconduct or many incidents. No substantive grounds are generally needed. An employee may even be dismissed when management or another co-worker is at fault. For example, an employee with 41 years tenure at a mid-western consumer products manufacturer was accused of stealing a telephone. Several witnesses testified to seeing the employee purchase the phone, but the company refused to back down and so he was later fired (Lin and Kleiner 2003). The American Civil Liberties Union estimates that at least 200,000 Americans are unjustly terminated every year and states that it receives more complaints from workers being mistreated by their employers than from people claiming mistreatment by the government (Baker 2010).

EAW has a lot of potential for engendering distributive injustice, where the treatment of employees fails to consistently and even approximately reflect their actual behaviour or misbehaviour. For example, employers may freely fire employees guilty of minor misconduct, or even no misconduct at all, while retaining others guilty of serious misconduct. Different managers in the same organization may treat the same types of misconduct very differently, some harshly with dismissal and others leniently with no punishment at all. Employers in the same industry may have very different disciplinary regimes, with some resorting much more to the use of dismissal. In addition, employers may choose to punish wrongdoing today but refrain from doing so tomorrow. Employers are not even obliged to have codes of conduct, specifying which rule infractions could result in dismissal. Dismissal can come as a complete surprise to the unwitting employee.

EAW can be manifestly unjust. Nevertheless, many Americans believe that employers should have good reasons for discharging their employees, with punishments better fitting the so-called crime (misconduct) (Kim 1999; Roehling 2002). Many employers have responded by establishing progressive discipline procedures, which address employee performance and behaviour problems more systematically through a series of standard steps, with increasingly more severe punishments at each step (Selden 2006). As these procedures are discretionary, the extent to which they actually deliver distributive justice is management’s prerogative. Employers have also updated rules and improved organizational structures to address workplace disputes, more generally (Lin and Kleiner 2003, pp. 242–244). These include compliance programs, where the key feature is a code of ethics clearly stating how the firm expects employees to conduct themselves; encouraging management to adopt a developmental leadership style that focuses on ethical behaviour, team-building and employee participation; implementing alternative reporting channels (e.g. an ombudsman) outside the employee’s chain of command so that employees can feel more comfortable voicing their concerns and establishing internal grievance and termination review processes designed to provide employees with a fair hearing regarding disputes with management. Colvin et al. (2006) report that >50 % of the US organizations have some sort of formal dispute resolution procedure for non-union employees. However, where there is clear misconduct, as opposed to poor performance, organizations are much more likely to take advantage of the flexibility of EAW and fire an employee on a first offence (Klaas and Dello’omo 1997).

Dismissal as Punishment: Poor Performance

In principle, dismissal for poor performance is no different under EAW than it is for misconduct. Again, no substantive grounds are needed; the dismissed employee does not have to be a poor performer, however that might be defined. He or she can be an average performer or even a top performer. Good or excellent performance does not protect one from dismissal. Nevertheless, most US employers have ‘pay for performance’ schemes, where they make some effort to measure performance and reward or punish it accordingly. Some effort is made to deliver distributive justice. In practice, the fairness of these schemes critically depends on how effectively employers use their discretion to accurately measure performance, clarify minimum performance standards in advance and communicate with employees about their performance progress.

Compensation for Wrongful Dismissal: All Causes

Under EAW, employers are not required to have cause to dismiss; no substantive grounds are necessary. It follows that fired employees do not have any general right to be compensated in statute or common law for either the way they were fired or for earnings losses suffered after the firing. Earnings losses post-dismissal can be very substantial. The average duration of unemployment in December 2011 was 40.8 weeks, with 11 % unemployed for longer than a year (Bureau of Labor Statistics 2011a, b). Even in the so-called normal times before the 2008 crisis, unemployment duration had averaged close to 17 weeks throughout 2007 (Borbely 2008). State-run unemployment insurance programs (administered within guidelines established by Federal law) cover employees for 50 % of their earnings in previous employment for a maximum duration of 46 weeks, though this had been 26 weeks in most states prior to the crisis.3 Weekly benefits are capped at, for example, a low $240 in Arizona and a high of $625 in Maryland for an unemployed person with no dependents (Department of Labor 2011, pp. 3–10, 3–13). A beneficiary unemployed for the average duration of 40.8 weeks and previously employed at an average annual salary of $50,000 would incur ~$19,615 in uncompensated, short-term earnings losses (depending upon the caps in place in the state in which the claim is made). Employees fired for misconduct are ineligible for unemployment compensation, and so their uncompensated, short-term earnings losses would be double at $39,230.

Dismissed employees also normally suffer long-term earnings losses after successfully having obtained new employment, because the new job usually pays less than the old one. Daymont (2001/2002) reports that earnings after job loss average a 15 % reduction, with larger losses for employees with longer tenure on the job. Average earnings decline by about 25 % in the year of, and in the year after, the job loss and remain 11 % lower 2 or 3 years later, with significant losses persisting even 10–12 years after the original job loss (Daymont 2001/2001, p. 47).

An unjustifiably dismissed employee cannot obtain compensation for earnings losses, unless he or she qualifies for one of four EAW exceptions. Exceptions to the at-will doctrine emerged from court cases where employees alleged that they had been unjustly treated in the dismissal process. The result is an evolution of the at-will doctrine, state-by-state, with exceptions created by both through the courts and through the legislation. Thus, the application of at-will employment varies widely across the states, with some allowing a broad range of exceptions to at-will employment and others adhering more closely to the doctrine of EAW.

The first exception involves federal anti-discrimination legislation including Title VII of 1964 Civil Rights Act, the Age Discrimination in Employment Act and the Americans with Disabilities Act. These statutes are legally binding in all 50 states and are designed to protect employees from termination based on any of the protected classes, including race, colour, religion, sex, national origin, disability and age.

Most individual states have, through either the common law courts or, less frequently, state statutes, forbidden dismissals with respect to three other exceptions: public policy, implied contract and good faith (Bennett-Alexander and Hartman 2009; Eger 2004), with each state defining the specifics of each exception in its own terms. The public policy exception protects employees from being fired for exercising their rights (or duties) under state law, including, for example, their rights to holidays, rest breaks, make health and safety complaints, report accounting fraud to the IRS, or claim workers’ compensation benefits. The implied contract exception prevents employers from firing employees by enforcing written and verbal promises of job security (Bennett-Alexander and Hartman 2009; Eger 2004; Muhl 2001; Selden 2006). The good faith exception requires the parties to act in good faith in fulfilling their contractual obligations. Muhl states that “…this exception…reads a covenant of good faith and fair dealing into every employment relationship. It has been interpreted to mean either that employer personnel decisions are subject to a ‘just-cause’ standard or that terminations made in bad faith or motivated by malice are prohibited” (2001, p. 10). Forty-three states have the public policy exception, 42 the implied contract exception and only 20 the good faith and fair dealing exception. Three states, Florida, Georgia and Rhode Island, make no allowance for any exceptions.4 In response to well-publicized and expensive rulings against employers during the late 1970s and 1980s, ten states proposed legislation which would have required employers to have just-cause in dismissing employees (Krueger 1991, p. 650). However, only Montana was successful in passing its bill, enacting the Wrongful Discharge from Employment Act in 1987 (Krueger 1991; Selden 2006). In the remaining 49 states, EAW continues to be the default rule in the non-union, private-sector.

The four exceptions provide a relatively narrow range of reasons for obtaining redress for an unjust dismissal. However, about 70 % of the US workers could argue that they belong to one or more protected classes with respect to discrimination (Malos et al. 2003, p. 153). It follows that a high proportion of dismissed employees could claim that they have a prima facie case for at least initiating litigation under the first exception. The threat of such lawsuits compels many employers to be procedurally and distributively fairer than a pure, unmodified EAW system with no exceptions would have otherwise required.

The majority of cases, involving an EAW exception, are pursued through the courts, though EEOC’s administrative process may be used in dismissal cases involving alleged discrimination. The court system provides what some have called ‘jackpot justice’, combining low chances of plaintiff success with potentially enormous awards of damages. Orey (2007, p. 60) indicates that, of 10,000 wrongful termination suits, 7,000 are settled out of court (to avoid the time, money and negative publicity of going to court), 2,400 are resolved by summary judgment and other pretrial rulings, 600 proceed to trial and 186 are won by the plaintiffs but only 13 plaintiff victories survive on appeal. Thus, <1 % of wrongful termination suits result in the plaintiff remaining victorious on appeal (Orey 2007, p. 60).

Even when employee plaintiffs win, the awards can vary widely. Erickson and Mirsky (2009) have found that the average compensatory award in all federal court employment cases (excluding punitive damages or attorney fees) was >$490,000, a 45 % increase since 2000. Chen and Kleiner (2002) have reported that 16 % of such federal court awards, excluding attorney fees or punitive damages, exceeded $1 million, but 67 % were less than $100,000. Eger (2004, p. 396), using evidence furnished by Beck, has noted that California has especially high jury awards, with the highest ever recorded at $69.5 million, a mean award of $500,000, but a median award of just $60,000. Furthermore, the average cost of settling an employment lawsuit out of court has been estimated at $300,000, triple what it was in the early 2000s (Erickson and Mirsky 2009; Orey 2007). This ‘jackpot justice’ of outcomes in dismissal cases produces almost random, sometimes excessive, though more usually miserly, awards for unjust treatment by employers. For example, at the higher end, the 41-year veteran of the consumer products company, who was wrongly accused of stealing a telephone, was awarded $1.6 million in damages and the company forced to pay an additional $14 million in punitive damages (Lin and Kleiner 2003, p. 241).

Some awards are undoubtedly large, but it must be remembered that a high proportion, usually about 40 % (Eger 2004; Nielsen 1999), is paid to a lawyer or lawyers working on a contingency basis. Contingent legal fees create a further potential distributive injustice, in making it more attractive for lawyers to take cases for richer clients whose previous pay levels portend higher expected awards (Eger 2004). As such, workers in the lower ranks, who comprise the overwhelming majority of dismissals, are rarely in the position to bring suits or get large awards (Stieber and Block 1992). Thus, even though everyone is supposedly equal before the law, highly paid employees have easier access to justice than poorly paid employees.

Advance Notice of Dismissal: All Causes

Under the EAW system, US employers are generally not required to provide employees with any advance notice of a dismissal or any pay in lieu of notice, whatever the reason for the dismissal. Severance pay is not common and remains a matter of negotiation between employer and employee (Avraam et al. 2004, p. 225). Federal law does provide additional protection to workers for a large-scale downsizing event. Specifically, the 1988 Worker Adjustment and Retraining Notification (WARN) Act requires that employees be provided 60 days advance notice of a ‘plant closing’ or ‘mass layoff’ (Bennett-Alexander and Hartman 2009, pp. 55–56).5 A plant closing triggers a notice requirement only if it results in the losses of 50 or more jobs over 30 days. A mass layoff occurs if 500 or more employees at one location lose their jobs over a 30-day period, or if 50–499 employees are let go and they comprise at least one-third of the active workforce. Employees who have worked less than 6 months of the prior 12 or who work <20 h a week are excluded from both computations. Coverage extends only to employers with 100 or more full-time employees or 100 or more employees who, in the aggregate, work at least 4,000 h per week. Failure to follow these requirements means employees can recover pay and benefits for the period for which notice was not given, up to 60 days. Public employers are not covered by this Act.

New Zealand

New Zealand employers must have ‘just-cause’, under Section 103A of the 2000 Employment Relations Act, to dismiss their employees.6 Dismissing an employee ‘for cause’ means that there must be substantive grounds. For instance, an employer must be prepared to prove, on the balance of probability, that an employee is guilty of some kind of misconduct against the employer’s interests. You cannot simply fire someone for no reason or a bad reason. In this fundamental sense, all New Zealand dismissals for misconduct must be just.

Dismissal as Punishment: Misconduct

Traditional forms of misconduct include dishonesty (e.g. theft and fraud), disobedience of a superior, disloyalty towards the organization and/or its management (e.g. giving secrets to rival firms, operating in competition), violence on the job (e.g. assaults, threats and harassment) and breaches of work rules (Brown 2005, pp. 752–762). Misconduct can include any wilful wrongdoing, which fundamentally undermines the employer’s trust and confidence in the employee (Brown 2005, pp. 751–752). It also includes negligence, where the employee should reasonably have known that his or her actions were likely to cause harm or damage to persons or property (Brown 2005, p. 752). Misconduct normally only relates to work behaviour, but, on some occasions, what happens outside of work can be fundamentally relevant to the employer’s trust and confidence in the employee (Brown 2005, pp. 762–766). For example, an employer is perfectly within its rights to fire a bank teller who is a weekend safe-cracker.

The main problem with New Zealand’s dismissal system with respect to misconduct, at least from a distributive justice viewpoint, is the lack of proportionality: the punishment does not always fit the so-called crime (e.g. the misconduct). This can occur in one of several ways. First, the Employment Relations Act does not define any of the various forms of misconduct or specify any associated punishments, including dismissal, in either the main sections of the Act or any regulations associated with the Act. Dismissal rules emanate from a number of decisions made by the Employment Court and the Court of Appeal (Brown 2005). Most of these rules are laid out as general principles rather than specific directives, allowing employers some degree of latitude in how they approach disciplinary issues (Brown 2005). However, the myriad cases and the context-related nature of the principles can create ambiguity for employers: what is expected is not always clear. May the employer discipline the employee or not? What sort of discipline is permitted? Given this uncertainty, there’s plenty of scope for distributive injustice, with employees in the same occupation, industry or even workplace punished very differently for the same misconduct. Parliament could establish more consistent treatment by adding a default schedule to the Act, which categorizes misconduct by degree of seriousness and specifies appropriate punishment for each category, with discounts for mitigating circumstances which assuage employee guilt. A default, discipline schedule would have the further virtue of preserving employer flexibility, because employers (or unions) could always contract out of it by developing their own discipline schedule as part of the employment agreement.

A second problem with proportionality arises because the common law only provides for three types of employer responses to misconduct: a warning the employee could be dismissed in future (or warned a second time), dismissal with notice and summary dismissal (Kiely 2008, pp. 18–24). A warning is not really a punishment. It is simply a notification that the employee’s misconduct is unacceptable (e.g. because it breaches company policy) and that, if the same or similar misconduct occurs again, the employee could be dismissed (or, for more minor misconduct, warned a second time) (Kiely 2008, pp. 139–141). Warnings typically expire after 3–12 months, except for some of the more serious forms of misconduct like sexual harassment or bullying (Kiely 2008, p. 141), and so misconduct which occurs after the expiry date must be treated as a first-time incident.

A dismissal with notice involves giving the employee forewarning, as per his or her employment agreement, of a future termination date (Kiely 2008, p. 19). If no notice period is mentioned in the agreement, the period of notice is whatever is reasonable at common law, taking into account such factors as the employee’s pay period, rank and seniority (Kiely 2008, p. 20). If the employee’s agreement permits it or the employee agrees, the employer may also dismiss the employee with pay in lieu of notice (Kiely 2008, p. 19). Employees are normally dismissed with notice for a second or third incident of misconduct, following either one or two previous unexpired warnings (Kiely 2008, p. 19). For example, if an employee has been late for no good reason on three occasions and warned not to be late on the first two of these, the employer can normally dismiss the employee after the third incident, once the steps associated with due process have been completed.

Summary dismissal is the dismissal of the employee without giving notice, but again only after following the steps associated with due process. As the most draconian punishment available, summary dismissal is justifiably reserved for the most serious misconduct: for example, theft/fraud, gross negligence, assault and breaches of safety rules (Brown 2005, p. 751). However, summary dismissal is not an option, if there are factors which mitigate employee guilt (e.g. provocation in a fight). In these cases, the employer has to resort either to a dismissal with notice, which may be still too harsh, or just a warning, which may be too lenient. These distributive consequences are potentially unjust.

There are ordinarily no intermediate punishments available between the relatively inconsequential warning and the potentially calamitous dismissal (Geare 2003). Demotions, unless provided for in the contract, are also not normally permitted as a halfway punishment between the warning and dismissal. The main reason is that “[d]emotion of an employee is generally viewed at law as the termination of an employee’s existing employment agreement and the offer of a new agreement” (Kiely 2008, p. 143). It follows that, if the employee does not accept the demotion and resigns in protest, he or she can file a personal grievance for constructive dismissal (Kiely 2008).

Some collective agreements also allow suspensions without pay, often for first-time, serious misconduct or serious misconduct where factors mitigate the employee’s guilt (e.g. provocation in a fight with a co-worker). However, in the absence of a suspension clause in the contract, the New Zealand courts have traditionally disallowed suspensions for misconduct as a violation of the employer’s common law duty to provide the employee with paid work. The courts generally only permit temporary suspensions of employees, and only then on full pay, while they are being investigated for serious misconduct and when their continued presence in the workplace is reasonably seen as a potential threat to the integrity of any investigation (Geare 2003; Kiely 2008, p. 144).

Parliament could address this proportionality issue in a schedule to the Act, as described earlier, by specifying unpaid suspensions of different lengths as punishments for the various categories of misconduct. For instance, there could be one-day suspensions for minor misconduct (e.g. breach of an anti-swearing work rule), one-week suspensions for more middle-level misconduct (e.g. verbally abusing the boss) and one-month suspensions for more serious misconduct where a dismissal is not warranted (e.g. negligence causing $1,000 worth of damage). The schedule could also specify appropriate discounts for common mitigating factors. Again, employers (or unions) that wanted a harsher (more lenient) discipline regime could contract out of the default statutory framework by specifying their own discipline-related contract terms. These contract terms would still have to be subjected to a reasonableness test under Section 103A, as they are now, which would prevent the employer from adopting a de facto EAW system.

Dismissal as Punishment: Poor Performance

Just as with misconduct, New Zealand employers must also have substantive grounds to lawfully sack someone for poor performance. They may not summarily and arbitrarily define poor performance and sack poor performers accordingly. On the contrary, Section 103A obliges an employer to do what is reasonable in the circumstances,7 with reasonableness defined more specifically in the common law. For example, case law has determined that minimum performance standards must be established and clearly communicated sufficiently in advance to afford employees a reasonable opportunity to meet them.8 The standards must be consistent with what a reasonable employer could/would set, having regard for what most employees in the relevant occupation or industry can realistically produce/do and/or for what the particular employee has produced/done in the past (Beck and Swarbrick 2009, p. 149). The employee must be performing consistently poorly relative to the minimum standards to be classified as a poor performer; one or two incidents of poor performance are generally not enough. Furthermore, the employer must be reasonably confident, on the balance of probability, that this poor performance reflects either the employee’s lack of motivation (e.g. drive, desire) or competence (e.g. skills, abilities). For this reason, it remains especially important that an employer take all reasonable steps to train, advise, mentor, instruct and otherwise assist an employee to ensure that management is not to blame for any shortfall in performance.9 In a broad sense, then, dismissals for poor performance must reflect principles of distributive justice, in which releasing someone from their employment only occurs because the evidence suggests that they cannot (competence) or will not (motivation) perform their duties to a reasonable standard.

The overall approach to poor performance is remedial rather than punitive. The emphasis is on providing help and, if that does not work, a couple of warnings with opportunities to improve between each, followed finally by dismissal with notice as a last resort. This is a reasonable approach as poor performing employees are normally innocent of any deliberate wrongdoing. In particular, incompetent employees are, by definition, unable to achieve at the expected level, even when they strongly wish to do so. Moreover, many performance problems reflect the shortcomings of others, including managers (e.g. poor instructions, training) and co-workers (e.g. poor teamwork), rather than of the ostensibly poor performing individual, and so a remedial, problem-solving approach is both just and efficient. Punishment of poor performers by, for example, suspending them would be inappropriate.

Remedies

Employees who have been unjustifiably dismissed may file a personal grievance under Section 102 of the Employment Relations Act10 within 90 days of having been dismissed.11 If, after discussions with the employer, an employee is unable to resolve the grievance, he or she may refer the dispute to the Department of Labour’s free and confidential mediation service.12 If mediation, as an essential first step,13 is unsuccessful, an employee may then apply to have the case adjudicated by the Employment Relations Authority, a specialist employment tribunal under the Department of Labour.14 If either party is dissatisfied with the Authority’s decision, it can be appealed to the Employment Court for a de novo hearing.15 The employee has no other avenue (e.g. district court) for challenging an unjust dismissal.16

Of course, mediation allows the parties to mutually agree to virtually any remedy not prohibited by law. Remedies available through the Authority and Court are generally limited to reinstatement, reimbursement of lost earnings, and compensation for humiliation, loss of dignity, injury to feelings, and loss of a benefit.17 Restitution for the employee is the guiding philosophy underlying remedies, one very much in keeping with distributive justice. As such, the focus is on restoring the unjustifiably dismissed employee to the situation he or she would have been in, had he or she not been unjustifiably dismissed.18

Reinstatement: Misconduct and Poor Performance

Section 123 states that “(w)here the Authority or the Court determines that an employee has a personal grievance…”, it can reinstate “…the employee in the employee’s former position or…in a position no less advantageous to the employee.”19 Section 125 adds that, if the employee does have a legitimate personal grievance and seeks reinstatement, “(t)he Authority may…provide for reinstatement if it is practicable and reasonable to do so.”20 Reinstatement is a relatively uncommon remedy, despite being the ‘primary remedy’ for unjust dismissal in the original wording of Section 125. The Authority ordered just 8 reinstatements in 2001, 5 in 2002, 8 in 2003, 12 in 2004, 16 in 2005 and 4 in 2006 (Beck 2006, p. 319). “Whether this is due to a reluctance to order reinstatement, or a disinclination to seek it, is unclear” (Brown 2005, p. 878). Although few employees normally seek reinstatement, this could reflect a realistic assessment of the Authority’s (and Court’s) unwillingness to grant it.

The key issue in determining whether an employee is reinstated under Section 125 is practicability. Several inter-related factors are ordinarily considered in assessing this, including: “the anticipated level of tension or animosity within the workplace, the employee's behaviour (to the employer, co-workers, or customers), the appointment of another person into the position, the time elapsed since the dismissal, the influence of and effect on third parties, and the viability of the ongoing working relationship” (Beck 2006, p. 315). The chief concern, underlying most of these factors, is whether the employment relationship can be successfully re-imposed on the parties.21 In other words, can the parties still work together? Does the employer still trust and have confidence in the employee? Some decisions even go so far as to suggest a re-employment test: “…would the worker be a harmonious and effective member of…(the) employer’s team”?22 In this extreme form, practicability can require the employee to be entirely innocent of any misconduct or poor performance, a model employee the employer would be quite happy to re-hire a second time. In other words, to qualify for reinstatement, there would have to have been no substantive grounds for disciplining, let alone dismissing, the employee. This approach effectively denies restitution, in the form of reinstatement, to all but the most blameless of employees. Even in a modified version, allowing reinstatement of employees guilty of one or two incidents of minor misconduct, it is potentially unfair in its distributive consequences. The stresses and strains of losing ones job make dismissal too harsh a punishment.

The Authority and Court’s aversion to reinstatement might reflect the absence of any intermediate punishments, like suspension without pay, between getting a warning and being dismissed. Obviously, if employees are guilty of something, distributive justice demands that they be punished in some way. Full reinstatement sends out an inappropriate message about potential tolerance of wayward behaviour. A default, disciplinary schedule, along the lines suggested earlier, would provide guidance to all parties, clearing up some ambiguities about when and where reinstatement might be expected and/or deserved. It would also legitimise and encourage the use of unpaid suspensions, and give the Authority and Court a mandate to reinstate employees after they have served a designated period of unpaid suspension. Less than blameless employees would be punished for wrongdoing, but get their jobs back when they do not deserve to be fired.

Reinstatement: Redundancy

A genuine redundancy involves contracting out the job, replacing the job with a materially different new job, or eliminating the job altogether (Kiely 2008). In all three cases, the old job no longer exists inside the firm. Reinstatement is not therefore normally appropriate. Nonetheless, not all redundancies are substantively justified: sometimes the job is recreated soon after the employee has left; sometimes a new job is not actually materially different from the old job it has replaced. If these situations apply, reinstatement remains a highly appropriate remedy, even more so than with other types of dismissal because the employee is competent and innocent of any wrongdoing. So, restoring the employment relationship in such redundancy situations should be comparatively straightforward.

Reimbursement of Lost Remuneration: Misconduct and Poor Performance

Section 123 states that “(w)here the Authority or the Court determines that an employee has a personal grievance, it may…” provide “for the reimbursement…of a sum equal to the whole or any part of the wages or other money lost by the employee as a result of the grievance.”23 In such cases, Section 128 states that “the Authority…must order the employer to pay…the lesser of a sum equal to that lost remuneration or to 3 months’ ordinary time remuneration”, at the very least, but has the discretion to award more.

Reimbursement of lost earnings is generally calculated in one of two ways. First, lost earnings “can be actual, whereby the Court considers what the grievant would have received had he or she not been dismissed, based on knowledge of what has eventuated since dismissal” (Colgan and Drake 2010, p. 253). For instance, the Authority or Court could compensate an employee for the actual time unemployed prior to the hearing, based on the ordinary time salary or wages he or she would normally have been paid over this period. Second, lost earnings “can be projected, whereby the Court considers what a grievant may have expected to receive, but for the dismissal, where these events are speculative” (Colgan and Drake 2010, p. 253). As an example, if the employee is still unemployed as of the hearing, the Authority (and Court) may try to estimate lost, future earnings. However, an unjustly dismissed employee is not automatically entitled to ‘full’ reimbursement, reflecting what he or she would have earned over the remainder of his or her working life. The Court advocates a more moderate approach to compensation, recognizing, in particular, the financial burden on business (and job creation), the desirability and potentiality of the grievant’s eventual re-employment and proportionality of the compensation to the misconduct.24 Other contingencies which would have clearly affected the duration of employment, and the extent of lost remuneration, should also be considered. For instance, one grievant would have suffered redundancy, along with his co-workers, 58 weeks after he was originally unjustifiably dismissed, and so was compensated for only this period of lost remuneration.25 Likewise, if a grievant did not attempt to mitigate his or her losses by searching for new employment or by accepting a suitable job offer, the Authority and Court are also entitled to allow for this in their reimbursement calculations. With these factors in mind, the Court has declared that an award of more than 18 months remuneration would be at the higher end.26

As has been indicated already, reinstatement should be the primary remedy for unjust dismissal, with reimbursement of lost earnings for the intervening period of unemployment. However, not everyone seeks reinstatement. How should compensation be determined? In particular, is the current ad hoc approach to reimbursing lost remuneration one that delivers distributive justice? Data for the 50 unjustified dismissal (and disadvantage) cases, decided by the Auckland Authority January 1 to May 28, 2008, show that reimbursements awarded exceeded 6 months lost wages in just five cases and more than 1 year lost wages in none (Beck and Churchman 2008, pp. 36–38). At the same time, employees normally spend NZ $10,000 on legal fees, roughly 2 months pay, for a personal grievance pursued through the Authority. As such, obtaining redress comes at a relatively high fixed cost (for employees and employers) in return for uncertain, but usually low compensation for economic loss. Even an employee who technically wins in the Authority can still lose overall, once legal fees are considered. A new, fairer approach is therefore justified. A statutory compensation scheme could require employers to pay unjustifiably dismissed employees 4 or 5 months lost wages, reflecting how long the median unemployed worker is typically without work.27 Alternatively, and more affordably for employers, a statutory notice scheme could require longer, minimum periods of notice (or pay in lieu of notice), again reflecting median or mean unemployment durations of 4 or 5 months. A hybrid statutory scheme could offer elements of both: for example, 2 months compensation for economic loss combined with a minimum of 3 months advance notice. Both schemes could be linked to seniority or any other non-prohibited factor28 likely to be linked with long-term unemployment. For instance, notice periods could be made longer for high unemployment communities.

Akin to the principle of contributory negligence, the Authority and Court must also reduce the “…nature and extent of the (employee’s) remedies…”, including any lost remuneration, after considering “the extent to which the actions of the employee contributed towards the situation that gave rise to the personal grievance.”29 How does an employee contribute to “the situation that gave rise to the personal grievance”? First, the employer could have substantive grounds to dismiss the employee, but did not properly follow the rules of due process (e.g. by holding a hearing).30 The appropriate remedy in such situations is compensation, as discussed later in the article, rather than a decrease in reimbursed remuneration. Second, and most importantly, the employer could have substantive grounds to discipline, but not to dismiss, the employee. Some punishment is therefore warranted, and this is achieved by decreasing the employee’s reimbursed earnings by between 10 and 75 %, with 50 % considered a ‘heavy allowance’, though there have been cases of even 100 % reduction (Beck 2006, p. 322).

If an employee were reinstated, a reduction in reimbursed wages (e.g. of 3 months wages) under Section 124 would be inherently equivalent to an unpaid suspension (e.g. of 3 months). Why not make this more explicit, in the manner already suggested, through a default, disciplinary schedule which includes unpaid suspensions as punishment? Leaving it implicit, and at the discretion of the Authority and Court, helps to create ambiguity and confusion and some potential for varying, and therefore, unjust outcomes for similar misconduct or poor performance. It also means that, in the absence of a right to suspend, punishments meted out by employers will not mirror those meted out by the Authority and Court, representing a further distributive injustice.

Reimbursement of Lost Remuneration: Redundancy

With redundancy, the reimbursed remuneration remedy is only available to employees dismissed without substantive grounds. For instance, in one case, remuneration was reimbursed because the employee had been wrongly selected for redundancy.31 The employee’s job technically still existed, even if someone else’s did not. On the other hand, if the redundancy is genuine, the employee is not entitled to any form of compensation for the job loss.32 This is clearly an injustice. Redundant employees are not poor performers or wrongdoers. Despite this lack of any fault, they can be seemingly ‘punished’ as severely as co-workers summarily dismissed for thieving, fighting or fraud. They deserve access to statutory compensation, equivalent to 4 or 5 months lost remuneration, minimum notice periods of 4 or 5 months, or a blend of these two, in the manner described earlier.

Compensation for Humiliation, Loss of Dignity and Injury to Feelings: Misconduct, Poor Performance and Redundancy

The Act also provides for compensation for humiliation, loss of dignity and injury to the feelings of the employee, together with compensation for loss of any benefit, such as a pension or share option scheme, “…which the employee might reasonably have been expected to obtain if the personal grievance had not arisen.”33 The latter type of compensation is similar to reimbursement for lost remuneration and so is not discussed further. The former relates to the emotional suffering of the employee, but not to his or her family.34 Neither may the suffering relate to the employee’s unemployment or sudden and dramatic loss of income, following dismissal.35 It must have been caused by the unlawful actions of the employer in handling the dismissal, especially the procedural injustices of the case.36 Several questions are potentially relevant here, including the following. Did the employee receive a hearing? Did he or she have a reasonable opportunity to obtain representation? Did management consider the employee’s responses to any allegations (of poor performance or misconduct)? Did the employer give reasons for the dismissal? In redundancy cases, where the employee is innocent of any blameworthy behaviour, the employer is particularly obliged to treat the employee with sensitivity and respect. Sharing information and consulting the employee throughout the process are imperative.

The most important consideration is the employee’s reaction to the employer’s unlawful behaviour.37 There must be proof, on the balance of probability, that the employee really was distressed. Assessing this distress is inevitably a very subjective exercise for the Authority and Court. Moreover, disentangling the distress caused by the job loss from that caused by the employer’s unlawful (as opposed to lawful) behaviour can be virtually impossible (Kiely 2006, p. 305). Nevertheless, the quantum of compensation should reflect the degree and duration of distress experienced by the employee.38

Compensation awards are generally low. Figures for 2007 indicate that ~85 % of awards were for amounts <$10,000.39 However, compensation for humiliation etc. is a much more common remedy than either reimbursement of lost remuneration or reinstatement. Figures for 50 unjustified dismissal/disadvantage cases decided by the Auckland Authority in the first 5 months of 2008 indicate that compensation for humiliation etc. was awarded in 45 cases, lost remuneration in 33 and reinstatement in just 2 (Beck and Churchman 2008, pp. 36–37). These outcomes suggest that procedural fairness is a major issue; employees are being dismissed without due process having been followed, at least in part. Given the difficulty of placing a monetary value on distress, ex post facto, a more effective and fairer approach would focus a lot more on a priori compliance with due process. Anecdotally, many managers complain that they would prefer to follow proper procedure, but are so often unsure of what to do. Clarifying what’s expected, and thereby indirectly encouraging compliance, could be achieved simply by incorporating a formal disciplinary procedure or procedures (one for each type of dismissal) directly into the legislation. Failure to comply with this procedure or procedures would then attract penalties available under the Act. Right now, penalties for breaching the legislation are currently very infrequent (Beck and Churchman 2008, pp. 36–37), because so little dismissal law is codified in the Act. However, the prospect of making penalties contingent on not following certain elements of procedure promises to be more predictable and therefore more distributively just than the vagaries of providing compensation for intangible and unquantifiable distress.

Conclusion

This article has examined the distributive justice of the US’s EAW system and New Zealand’s just-cause dismissal system, focusing on the three main categories of dismissal, namely misconduct, poor performance and redundancy. It has clearly demonstrated that the latter system delivers much more just outcomes, both in terms of remedies and punishments, than the former. Under EAW, the US provides very limited protection against dismissal in cases where there is no employee fault or where employee fault is too minor to justify the extreme punishment of dismissal. Legal protections generally apply only to exception situations, involving, for example, discrimination, tort, public policy violation, breach of contract or bad faith. In addition, litigation costs can be extremely high and the outcomes very unpredictable, resulting in so-called jackpot justice. Some employers do provide a degree of employment protection to cultivate loyalty and commitment or defend against dismissal lawsuits under one of the exceptions. However, the addition of alternative dispute resolution (ADR) processes like mediation, arbitration, ombudspersons and peer review (Colvin et al. 2006) are voluntary and without easily accessible external appeals mechanisms (McCall 2003, p. 152). Management still retains ultimate control over how these processes operate and the outcomes they produce. Even though third-party mediators or arbitrators appear neutral, their impartiality is often in doubt because they are generally hired, fired and compensated by the employer. In many cases, it is the organization’s own senior managers who make the final decision regarding an individual’s suitability for continued employment (Colvin 2003, p. 714). These protections, while certainly a step in the right direction, are provided at the discretion of the employer, and can be discontinued as easily as they are introduced. Colvin (2006) argues that the cost of litigation in the US has perhaps unintentionally interjected a level of fairness into the process of management decision making. However, the downside to this is “…that efforts to reign in the litigious nature of the US legal system, if taken too far, may serve to undermine the key strength of the American legal environment in promoting fairness in employment practices” (p. 92). If the perceived costs of wrongful termination litigation diminish, employers may be less likely to introduce or maintain employment practices designed to establish procedural and distributive justice in the workplace. As long as these protections provided by employers remain voluntary in nature, and not required by state or federal statute, the majority of US workers remain vulnerable to being dismissed, whether there is just-cause or not.

New Zealand, by contrast, affords a much higher and fairer level of protection. Dismissals must be predicated on appropriate, substantive grounds, with, for instance, poor performance, misconduct or redundancy established through due process. Where dismissals are unjustified, restitution is available through remedies like reinstatement, reimbursement of lost earnings and compensation for humiliation etc. Of course, New Zealand’s system is not perfect. Employees are not reimbursed for earnings losses when made redundant, despite having done nothing wrong. Employers have limited punishment options in misconduct cases. They can only warn or dismiss employees for misconduct, unless the contract allows otherwise. Warnings are potentially too lenient and dismissals too harsh to produce distributive justice. More intermediate-level misconduct requires a more intermediate-level punishment like suspension without pay, which could be prescribed through a default punishment schedule in the Employment Relations Act. A default schedule has other virtues. It would clarify expectations for both employers and employees, while allowing both parties to contract out by specifying a different, potentially more lenient (for unions) or harsher (for employers) disciplinary regime. Due process requirements could also be more fully articulated in the statute, clarifying the dismissal process, and reducing the need for compensation for procedural injustices.

As the purpose of this article is to compare the dismissal protection under the EAW and just-cause regimes, rather than the overall outcomes of all dismissal situations in the two countries, protections offered by discretionary employer policies or voluntarily entered-into collective agreements are not the key concerns here as these only apply to those fortunate to be covered. Only the legal requirements ensure everyone, especially the vulnerable, receive the needed protection. American workers certainly do not deserve any less legal dismissal protection than their New Zealand counterparts. Distributive justice is obviously an important cultural value in the United States, especially with the emphasis on equality of opportunity. One study indicates that the overwhelming majority of American workers already erroneously believe that they actually have employment protection in law (Kim 1999). Many at least expect job security as a reciprocal employer obligation under the psychological contract. With a fairer dismissal system warranted, the US should at least consider the New Zealand model, even though it has a few shortcomings. New Zealand’s experience demonstrates that a country can have just-cause dismissal rules for a modest cost and maintain a good job creation record.

Footnotes
1

Liberal means ‘free market’ in the European sense of the term (Hall and Sockice 2001).

 
3

The Department of Labor indicates that Extended Benefits are available to workers who have exhausted regular unemployment insurance benefits during periods of high unemployment. The basic Extended Benefits program provides up to 13 additional weeks of benefits when a state is experiencing high unemployment. Some states have also enacted a voluntary program to pay up to 7 additional weeks (20 weeks maximum) of Extended Benefits during periods of extremely high unemployment (www.workforcesecurity.doleta.gov/unemploy/extenben.asp).

 
5

There are exceptions provided to this notice period including the faltering company exception (where a company is, in good faith, seeking a capital infusion and fears that providing employees notice may harm attempts to secure that capital), the sudden, dramatic and unexpected business circumstance exception (not reasonably foreseen and beyond the employer’s control), and the natural disaster exception.

 
6

Section 103A, 2000 Employment Relations Act (Section 15, 2011 Employment Relations Amendment Act).

 
7

Section 103A, Employment Relations Act.

 
8

Trotter v Telecom Corporation of New Zealand Limited (1994) 4 NZELC (digest) 98,243; (1993) 659 (EC).

 
9

Trotter v Telecom Corporation of New Zealand Limited (1994) 4 NZELC (digest) 98,243; (1993) 659 (EC).

 
10

Section 102, Employment Relations Act.

 
11

Section 114, Employment Relations Act.

 
12

Sections 145 and 148, Employment Relations Act.

 
13

Section 159, Employment Relations Act.

 
14

Section 157, Employment Relations Act.

 
15

Section 179, Employment Relations Act.

 
16

Section 113, Employment Relations Act.

 
17

Section 123, Employment Relations Act.

 
18

Telecom New Zealand Ltd. V Nutter (2004) 7 NZELC 97,563.

 
19

Section 123, Employment Relations Act.

 
20

Section 125, Employment Relations Act.

 
21

South Taranaki Free Kindergarten Association v McLennan (2006) 1 ERNZ 1019.

 
22

Northern Hotel IUOW v Rotorua RSA (1989) 3 NZILR 497.

 
23

Section 123, Employment Relations Act.

 
24

Telecom New Zealand v Nutter (2004) 1 ERNZ 315 (CA).

 
25

Carter Holt Harvey Limited v Yukich (2005) ERNZ 300.

 
26

Telecom New Zealand v Nutter (2004) 1 ERNZ 315 (CA).

 
28

Prohibited grounds are those listed in the 1993 Human Rights Act and 2000 Employment Relations Act 2000 (e.g. age, gender, nationality and religion).

 
29

Section 124, Employment Relations Act.

 
30

Waitakere City Council v Ioane (2004) 2 ERNZ 194; Morris v Christchurch International Airport (CC 13/04, 24 June 2004).

 
31

EDS (New Zealand) Ltd v Shaddox (unrep, EC, WC 9/04, 24 June 2004).

 
32

Aoraki Corporation Ltd v McGavin (1998) 5 NZELC 95,767; (1998) 1 ERNZ 601 (CA).

 
33

Section 123, Employment Relations Act.

 
34

Tawhiwhirangi v Attorney General (1994) 1 ERNZ 459.

 
35

Aoraki Corporation Ltd v McGavin (1998) 5 NZELC 95,767; (1998) 1 ERNZ 601 (CA).

 
36

Tawhiwhirangi v Attorney General (1994) 1 ERNZ 459.

 
37

Telecom New Zealand Ltd v Nutter (2004) 7 NZELC 97, 563; (2004) 1 ERNZ 315 (CA).

 
38

Telecom New Zealand Ltd v Nutter (2004) 7 NZELC 97, 563; (2004) 1 ERNZ 315 (CA).

 

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© Springer Science+Business Media B.V. 2012