Other residential care services will struggle to survive, says IHC after two of its companies were put into statutory management after saying they could not afford to pay workers for sleep shifts in their houses.
Commerce Minister Simon Power announced this morning that the Government had put Idea Services and Timata Hou, wholly-owned subsidiaries of IHC New Zealand and registered charities funded by the health and social development ministries, into statutory management.
They asked for the move, saying they could not afford the potential $176 million liability of paying overnight staff which arose from a court case last year and wanted to ensure the companies could continue to operate until an appeal is heard.
However, the Service and Food Workers Union says the problem is not the requirement for staff to be properly paid but the Government under-funding services.
Labour leader Phil Goff agreed funding needed to increase now the court had made its decision and if in Government he would do that.
Idea cares for almost 5000 people, of whom 3000 are in residential care. Timata Hou, a residential rehabilitation service, cares for 67 people.
Last July, a benchmark Employment Court ruling found against IHC, which had opposed paying for sleep-over hours. Instead of a shift allowance of about $30 staff would get at least the minimum hourly wage.
The Court of Appeal will hear an appeal on October 28.
IHC New Zealand chief executive Ralph Jones said the problem was wider than his organisation.
"While Idea Services is currently in the spotlight, all service providers will be considering whether they can continue to operate in the face of such a huge liability for back pay and ongoing costs," he said.
The Health Ministry said that last year it funded $378m of community residential disability contracts. Sleepovers were estimated to cost between $400m and $500m in five years of back pay for all providers -- there are about 100 caring for 7000 people.
In addition the ruling was estimated to increase the cost of these services by an extra $60m to $70m per year.
Service and Food Workers Union national secretary John Ryall said the Government should drop the court appeal.
"The Government, as the funder, has sat on its hands and refused to acknowledge that disability support workers have been ripped off for the last 20 years," he said.
"It is time the Government fronted up and took responsibility for this situation."
Mr Goff said in power Labour would increase the funding to meet the sleepover costs.
"If you've got the money to pay out big sums of money to the very wealthy in New Zealand why don't you have the money to make sure we can look after our most vulnerable."
