Cases of interest: June 2020

A summary of interesting or topical employment cases.

Dollar King Ltd v Jun [2020] NZEmpC 91

Employment Court – Penalties – Employment Relations Act 2000 s 134A – Holidays Act 2003 s 76 – Jurisdiction for Authority to order penalties on its own motion

At issue was whether the Employment Relations Authority (Authority) could impose a penalty for a breach of the Holidays Act 2003 on its own motion.

The Authority imposed a penalty on the employer for a breach of the Holidays Act 2003 (HA). At the time of the investigation meeting, the employee had withdrawn its claim for a penalty for a breach of the HA.

The Court found that, given the Authority is a creature of statute, Parliament likely intended that the jurisdiction to act on its own motion is limited to s 134A (external link) of the Act. Section 134A expressly provides for the Authority to award penalties on its own motion in particular circumstances (see para 13). Additionally, the well-established principle that penal provisions should be given a restrictive reading supports the conclusion that there is no jurisdiction for the Authority to order penalties on its own motion (see para 14).

To reinforce its conclusion, the Court ruled out s 160(3) (external link) of the Act and the Authority’s equity and good conscience jurisdiction as sources of power to order own-motion penalties (see paras 17 and 18). Section 160(3) is a general provision that the Authority is not bound to treat a matter as being the type described by the parties, and may concentrate on resolving the employment relationship problem however described. However, s 76 (external link) of the HA is more specific and recent, and therefore overrides the general provision of s 160 (see para 17). In regard to the Authority’s equity and good conscience jurisdiction, the Court held that the Authority cannot do something in equity and good conscience that would be inconsistent with the Act (see para 18). Finally, s 173(1)(a) (external link) of the Act imposes a requirement to comply with the principles of natural justice, and imposing a penalty without a hearing was an error of law (see para 19).

The Authority has no jurisdiction to order penalties on its own motion unless provided for in s 134A of the Act. It may not order a penalty for a breach of the HA on its own motion (see para 5).

Dollar King Ltd v Jun [2020] NZEmpC 91 [PDF 230KB] (external link)

McKay v Wanaka Pharmacy Ltd [2020] NZERA 230

Employment Relations Authority – Employee status – Family relationships

At issue was whether the applicant was an employee when she was in a relationship and then marriage with the sole director of companies she was working for.

The applicant (Ms McKay) was in a relationship with the director and shareholder of the respondent companies (Mr Heath). In 2005 Ms McKay began working at one of Mr Heath’s companies. In 2007 she married the director. Over the course of the marriage she worked at another of her husband’s companies as well. She was paid a salary and had a company car and fuel card.

In 2018 Ms McKay separated from Mr Heath.  Shortly after the separation she went to work at one of her Mr Heath’s companies and was advised that someone else had taken over the role. The next day she received communication from a law firm telling her she was no longer working for either of the two companies.

The issue was whether the applicant was an employee within the definition of employee under s 6 (external link) of the Employment Relations Act 2000. The Authority re-iterated Employment Court authority in Dillon v Tullycrine Ltd [2020] NZEmpC 52 [PDF 220KB] (external link)  which stated that a family context does not preclude a finding of employment, and that there are circumstances where one member of a family is vulnerable to exploitation by others by virtue of the family relationship (see para 21).

The Authority considered the intention of the parties (see paras 22–37). The applicant had been paid an allowance from Mr Heath’s shareholder account for a few months before being put on the payroll. Mr Heath claimed that salary was paid for the purpose of income splitting, for more effective tax management (see para 23). The respondent which paid Ms McKay’s salary was also named as her employer in a paid parental leave application (see para 28). The Authority did not find any of these factors determinative of intention to create legal relations, especially as care needs to be taken when finding employment in familial contexts (see paras 36–37).

The Authority considered the practical nature of the work, and concluded that this was not a case of income splitting for reduction of tax liabilities with no or minimal work undertaken in exchange (see para 56). Under the control test, the Authority considered evidence that Ms McKay “answered to no one”, and had significant autonomy and flexibility aside from certain tasks that required precise timing (uploading newspapers on the website on a particular day and time) (see paras 61–66).

The Authority considered how integral to the business Ms McKay’s work was. The Authority concluded that Ms McKay’s work for Wanaka Pharmacy and the Wanaka Sun was integral to their businesses — preparing work rosters, processing paying staff and applications for leave, and recruitment, putting the newspaper online, social media and photography (see paras 69–70). Other factors also pointed away from a contractor relationship, including a steady salary and the fact that Mr Heath could recall the reason for a pay rise (see para 71).

The Authority considered that the fundamental test of whether or not Ms McKay was in business on her own account would clearly point to an employment relationship because there was no indication of her being in business on her own account, but in this context the familial relationship needed to be considered (see para 76). Finally, the Authority considered that if Mr Heath claimed salary was paid to lower tax liability, the companies should bear the consequences in employment law. It also took into account the fact that the parties had a history of considering Ms McKay’s employment status (during the paid parental leave application) (see paras 78–79). The Authority found that an employment relationship indeed existed, despite the familial context (see para 81).

Having determined that Ms McKay was an employee, the Authority found unjustified dismissal and awarded remedies accordingly. For holiday pay arrears, the Authority had to approximate the entitlement due to the nature of the relationship (see para 100).

McKay v Wanaka Pharmacy Ltd [2020] NZERA 230 [PDF 250KB] (external link)  

Sandhu v Gate Gourmet New Zealand Ltd [2020] NZERA 259

Employment Relations Authority – COVID-19 lockdown – Essential service – Government wage subsidy – Contract law – Ready and willing – Minimum Wage Act 1983

At issue was whether there is an obligation to pay wages to non-working employees where an essential service employer partially shuts down operations in response to the COVID-19 pandemic, and whether reducing non-working employees’ pay to 80 per cent where they are on the minimum wage breaches the Minimum Wage Act 1983 (MWA).

The employer was a business providing inflight catering services to passenger aircraft. It was an “essential service” for the purposes of the COVID-19 lockdown that commenced on 26 March 2020. This case involved a number of employees who were not part of either of the two collective agreements that covered the worksite, but were part of a union — the Aviation Workers United Incorporated Union (AWU) which was involved in collective bargaining at the time of the determination (see para 3).

The parties had an agreed statement of relevant facts. As an essential service, the employer remained open for business during the COVID-19 lockdown. The employer advised that as a result of having very little work to offer employees, it proposed a partial shutdown of operations, and three options for pay (see para 4):

  1. using annual leave until exhausted and then moving to option (2);
  2. being paid 80 per cent of normal pay, conditional on the employer receiving the government wage subsidy; or
  3. using annual leave to top up the 80 per cent of normal pay by using one day a week.

The AWU agreed to options (2) and (3). The applicant employees were on the minimum wage which increased to $18.90 per hour on 1 April 2020. The employer, however, believed that only employees who were working would be paid at the new minimum wage, and that those employees who were not rostered would continue to be paid at 80 per cent of normal pay calculated at the date of the commencement of the partial closedown (i.e. 80 per cent of the old minimum wage of $17.70 per hour). The employer applied the new minimum wage after objection from AWU but still only paid 80 per cent of the new minimum wage for the employees who were not working.

The employees claimed that the employer took unilateral action threatening to cease paying the employees without proper consultation, and that the employer failed to pay the employees a minimum wage (see paras 6 and 7). The employer defended its position in reliance on the slogans “no work, no pay” and “partial performance, partial remuneration” (see para 14).

The employees claimed that they were entitled to their normal wage since the employer was an essential service, and its partial closedown was a unilateral decision made without any final arrangement with employees regarding pay (see paras 15 and 16). The employees argued that the common law proposition of “no work, no pay” applies only when an employee refuses or fails to perform their part of the contract, and not in this case as the employees were ready and willing to work (see para 18). The issue was also raised as to whether the employer had to pay at least the minimum wage whether or not employees were working, and whether paying the employees 80 per cent of their normal wage where this would reduce their pay to 80 per cent of the minimum wage is a breach of the MWA.

The Authority found that the nature of the payments made were not a gratuitous payment but a payment made on the basis of the employment agreement. This meant that if the employees were ready, willing and able to work in an essential service, the employer was required to pay them at least the minimum wage (see paras 35 and 36). This was reinforced by the fact that the government wage subsidy was meant to “support workers to stay connected to their employer, even if they [were] unable to work” (see para 37).

The Authority found that the workers were ready, willing and able to work, and that employees are entitled to be paid both for work performed, contracted for, and work for which the employee is ready and willing to perform (see para 40). In this case, the employer was an essential service and directed employees not to work. The employees’ lack of work was not due to the COVID-19 lockdown (see para 41). The Authority found that the employer breached the MWA by paying 80 per cent of wages and ordered the employer to pay the employees at least the minimum wage for 40 hours of work (see para 43).

Sandhu v Gate Gourmet New Zealand Ltd [2020] NZERA 259 [PDF 230KB] (external link)  

Raggett v Eastern Bays Hospice Trust t/a Dove Hospice [2020] NZERA 266 

Employment Relations Authority – COVID-19 lockdown – Contract law – Ready and willing – Government wage subsidy – Wages Protection Act 1983

At issue was whether government wage subsidy introduced in response to the COVID-19 lockdown releases an employer from the obligation to pay wages under the Wages Protection Act 1983 (WPA) and the definition of “wages” under s 2 (external link) of the WPA.

The employer provided hospice services, and the applicant employees worked in retail shops that were closed by the COVID-19 lockdown. The employer applied for the government wage subsidy. The employer, on 30 and 31 March and 17 April sent letters proposing restructuring of the employees’ positions, and invited feedback on the proposal, which the employees gave. The employer then sent letters to the employees individually on 7, 9, 14, 15 April and 1 May saying (see para 9):

  • their positions would be disestablished effective at date of letter;
  • eight weeks’ notice of termination of employment would be given;
    • the first four weeks of notice would be paid at 80 per cent of their salary or wages;
    • the second four weeks of notice would be paid at the government wage subsidy rate of $585.80;
  • the employees were not required to undertake any work during the notice period;
  • their final pay would be calculated on the last day of the notice period, and stated how it would be calculated.

The employees said they did not agree to be paid anything short of their normal wages and salary and therefore the employer breached the WPA. The employer said that due to the COVID-19 lockdown, the employees were not ready, willing and able to work, therefore the WPA did not apply (see paras 11 and 12).

The Authority determined that the employment agreements did not contain a deduction clause which provided for deductions to be made in the circumstances faced by the employer during the COVID-19 lockdown (see para 18). Additionally, although the employer extended the notice period by four weeks (paying just the amount of the government wage subsidy), it did so unilaterally, and therefore had no right to vary the remuneration rate provided for in the agreed instrument for redundancy notice contained in the employment agreement (see para 27). The employer could have consulted the workers about the proposal to extend the notice period and to pay that extended notice at a different rate to contractual wages or salary and then sought agreement to that effect (see para 29).

The employer said that what they have paid is not “wages” under s 2 (Interpretation) of the WPA, since the payments were not “for the performance of services or work” (see para 31). The Authority rejected this reading of the WPA, saying that it would create the result that any non-performance of service or work would release the employer from contractual obligation to pay wages. This was because the employer could not isolate the words “for the performance of services or work” from the “wages” definition as a whole in s 2 of the WPA. Finally, the workers were at all times, ready and willing to work, and were able to fulfil their obligations under the employment agreements, but for the COVID-19 lockdown and/or the employer’s decision to not require them to attend work during the notice period (see para 32).

The Authority adjourned the issue of penalties for breaches of the WPA (see para 35).

Raggett v Eastern Bays Hospice Trust t/a Dove Hospice [2020] NZERA 266 [PDF 270KB] (external link)

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Page last revised: 10 July 2020

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