Part 3: Giving notice of termination

Inquiry into payments to chief executives of dissolving local authorities in Auckland.

Chief executives of local authorities are employed on fixed-term employment agreements. Under a fixed-term agreement, an employer and employee agree to the employment ending on a specified date or event. If employment ends because of the expiry of the fixed term, then neither the employer nor the employee is required to give additional notice. In effect, the parties have been on notice about when and how the employment relationship will end since they signed the agreement. Two of the chief executives were in this position, because their agreements expired the day before the eight local authorities dissolved. These two chief executives were not entitled to receive a payment for notice.

The remaining chief executives were on fixed-term employment agreements that expired some time during the next two years. As noted in paragraphs 2.7-2.12, in all instances but one, the fixed-term agreement allowed for early termination on the grounds of redundancy. Those employees were entitled to notice of termination and redundancy compensation, as specified in their employment agreements.

Each employment agreement sets out the contractual period of notice to be provided by an employer when an employee’s position is disestablished and the employee is made redundant. Three months’ notice is fairly standard for senior employees. An employer can require that an employee work out their notice period, or choose to pay out any unworked notice as a lump sum payment upon termination (called "payment in lieu of notice").

Which organisation provides notice of termination?

Usually in a redundancy situation, the responsibility for providing notice of termination rests with the employer. However, in this instance, a third party external to the employment relationship decided whether an employee’s employment was terminated, and was responsible for communicating that decision to the employee. In our view, the ATA (on behalf of the interim chief executive of the new Auckland Council) was responsible for providing notice, not the individual local authorities.

Under the Transitional Provisions Act, the ATA10 had the:

  • power to review the positions of people employed by existing local authorities;
  • power to decide in relation to each employee whether to off er the employee a position with a new employer or to terminate the employee’s employment as at 31 October 2010; and
  • responsibility to notify in writing each employee and the employee’s existing employer of the decision made by 30 September 2010.11

The Local Government (Tamaki Makaurau Reorganisation) Act 2009 was also relevant. That Act established the requirements for decision-making during the transitional period. Section 31 said that the chief executives of existing local authorities must ensure that certain decisions had been confirmed in writing by the ATA before being implemented. Decisions in this category included decisions to terminate a chief executive’s employment.

When was notice of termination given?

Chief executives were given notice by the ATA on or about 23 September 2010. This meant that chief executives should have worked for five weeks of their notice period (from 24 September to 31 October), and been paid the remainder in lieu when their employment ended. If, for example, a chief executive was on three months’ notice, this meant receiving payment in lieu of notice for the period 1 November to 24 December 2010.

Options for early notice of termination

Since notice was given by the ATA on or about 23 September, there was a significant amount of payments in lieu of notice for chief executives. We calculate the cost of payments in lieu of notice to be $263,722. This cost may rise to $326,354 if one of the chief executives does not take up a permanent role in the Auckland Council group.

The dissolving local authorities also incurred costs for payments in lieu of notice for other employees who do not have roles with Auckland Council and who did not receive the full notice required under their employment agreements.

If the notice of termination had been given earlier, chief executives and other employees would have worked the full notice period and no additional payments in lieu of notice would have been made. Clearly, this would have been preferable from a cost perspective. We do not see any fairness issues with this, given that local authority employees have been aware for months (or years) that their employment with their current councils would end on 31 October 2010.

One of the local authorities had legal advice that it could give its employees early notice with the approval of the ATA. That advice recommended that the chief executive in question be given notice three months ahead of 31 October 2010 (that is, on 31 July 2010) to avoid the costs of the notice period. The notice would have had to be confirmed by the ATA. Giving notice earlier instead of paying it out would have reduced the final cost to ratepayers. The advice took account of the financial prudence requirement in the Local Government Act 2002.

The ATA received different legal advice, which was that the Transitional Provisions Act overrides any contractual notice entitlements. It is the interim chief executive of the Auckland Council (or the ATA) who decides whether to terminate an employee’s employment and gives notice of that decision. The local authority would then communicate with the employee about the contractual entitlements the employee may have.

The ATA’s legal advice also considered whether conditional notice could be given in circumstances where an employee’s position had been disestablished but the ATA had not yet considered redeployment. Notice would be provided on the condition that it could be revoked if alternative roles were offered to the employee before the end of the notice period. The advantage of this approach was that notice could be given well before the statutory deadline of 30 September, which is when the ATA was to have written to employees either offering alternative employment with one of the new organisations or giving notice that their employment with their respective local authorities would be terminated. The advice on this point preferred the interpretation of section 100 of the Transitional Provisions Act as being that all employment options (including the possibility of assessing whether redeployment opportunities were available in the new organisations) should be considered before termination of employment occurred.

However, even operating within the parameters of the ATA’s advice, there was an opportunity to identify early on those employees who did not have a substantially similar option in the new organisation and who were not seeking alternative employment. The ATA emailed all chief executives on 23 July 2010 recommending that this exercise be done by chief executives for employees in their respective local authorities. Those employees could then be given notice by the ATA early under section 100(4) of the Transitional Provisions Act.

There was no reason why this assessment could not have been done for chief executives as well. Certainly, the ATA knew well before the 30 September deadline that some of the chief executives were not applying for alternative roles. Had the ATA given notice for these chief executives earlier, the payment-in-lieu costs would have been reduced further. This would have been a sensible approach.

Notice to other employees

We are concerned that Rodney District Council did not take account of the ATA’s notice of termination letters, and chose to treat notice as starting from 28 October rather than 24 September. This meant that the entire notice period for employees who do not have a role with Auckland Council was paid out in lieu, at a cost of $204,674. Holiday pay entitlements were also greater than they would have otherwise been for those employees. Rodney District Council agreed to treat the chief executive’s notice of termination as starting on 24 September but did not do so for the other employees who were given notice.

In our view, these additional payments were unnecessary, as well as inconsistent with the approach taken by other local authorities. The Council told us that it decided to give its employees notice as late as possible in order to ensure that critical functions were covered up to the point of dissolution. However, this approach does not take account of the legal effect of the ATA notice.

Transition to the new Auckland Council

Our inquiry has considered only one of the many activities that the ATA and the eight local authorities were dealing with in the transition period. We acknowledge the size and complexity of the task they faced, including the sensitive management of employment matters during that period. We note the relatively short time in which they had to deal with those employment matters. We acknowledge the efforts and achievements of the ATA and the local authorities in managing an effective transition to the new Auckland Council.

10: The responsibility rested with the chief executive of the new Auckland Council or with the ATA if the new chief executive had not yet been appointed or had not agreed to the ATA exercising those powers (section 98).

11: See section 100(1) and 100(4) of the Transitional Provisions Act.

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