There are about 300 employment advocates in New Zealand, according to the Employment Relations Institute (ELINZ). Some operate on a No Win No Fee (NWNF) basis, and therefore need to be selective about which cases they take on, unlike lawyers who typically charge an hourly rate and rarely offer NWNF.
NWNF advocates, whose clients are mostly employees who have been dismissed, bullied or harassed, are often contacted by potential clients in the expectation that they will receive some kind of compensation for the way they were treated by their (usually) former employer. Usually this happens in mediation by way of a Record of Settlement under Section 149 of the Employment Relations Act 2000.
The financial impact of a dismissal can be severe for the employee, who may end up agreeing to settle for a quick but relatively low amount of compensation. Often the employer will deny treating the employee unfairly but then agree to a modest settlement to avoid expensive litigation. Some won’t agree to settle at all and may instruct their own lawyer or advocate to defend the employee’s claim in the Employment Relations Authority (ERA).
RISK/RETURN
The survival of the NWNF advocate’s business depends partly on their ability to quickly assess the merits of an employee’s claim, provide feedback and decide what to accept or reject. NWNF advocates who take a case, that fails to settle in mediation and is heard in the ERA, accept the risk that their client’s claim is dismissed, the consequences of which are:
The advocate, having invested many hours in an attempt to settle in mediation followed by an investigation meeting and a several months’ wait for an ERA Determination, does not get paid for that effort.
The advocate is named in publicised Determinations as having unsuccessfully represented a client (who is also named unless there’s a non-publication order).
The unsuccessful party is expected to pay some of the costs of the other party. The daily tariff is currently $4,500 for the first day and $3,500 for each subsequent day. Again, the advocate is expected to participate in costs negotiations and/or submissions, without payment for their services. I bet that’s not an enjoyable part of the job!
BAD AND DOUBTFUL DEBTS
For tax reasons, when a settlement is reached the employer usually deducts the employee’s advocate’s fee and pays it directly to the advocate on receipt of a GST invoice. The GST portion can be claimed back by the employer, and the employee pays income tax on a lesser amount than if they had to pay the advocate themselves. This is a long-established practice. However, if mediation fails and the employee is awarded compensation by the ERA, the employee is expected to pay their advocate themselves. Advocates often experience difficulty in collecting payment and it’s not uncommon for collections agencies to become involved.
Disputes can also arise where an advocate does significant preparatory work for a client, and the client withdraws their grievance and refuses to pay the advocate for the work done up to that point.
And then there’s employees who can’t, or won’t pay according to the terms of a Section 149 settlement. Enforcement may be necessary, as instructed by the client, although non-payment may indicate to the advocate that the business may already be insolvent.
Like commission-only sales, NWNF employment advocacy is not for those who need a steady income. Charge-out or percentage rates tend to reflect that.
A HORROR ENGAGEMENT
One recent ERA determination that was a very good outcome for a dismissed employee was actually lousy for her advocate Lawrence Anderson.
First, a disclosure – Anderson has blogged for Leighton Associates for over a year and we have a rule preventing bloggers from writing about cases they’ve been involved in, which is why I’m doing it. In a 2 February 2023 Determination Anderson’s employee client was awarded around $38,000. The employer’s contribution towards the employee’s costs could not be agreed so that matter went back to the same ERA Member.
And then a couple of bad things happened:
Member Dumbleton admonished Anderson for what he perceived as overcharging (33% of the amount awarded plus GST). It appears that the risks associated with the No Win No Fee business model were not factored in on this occasion. Those terms were disclosed in Anderson’s advocacy company’s Authority To Act (ATA) form which the client agreed to; in fact he extolled the virtues of the ATA (which is not compulsory) in his article Employment advocate regulation and No Win No Fee Contracts dated 18 July 2022.
For reasons we can’t disclose for privacy reasons, the case became a doubtful debt, meaning there’s a good chance Anderson won’t get paid by the client at all.
The job ain’t as easy as some people think.