Managing year end, minimum employee entitlements and employer risk

With the first of April quickly approaching most businesses are looking at year end activities and legal changes they need to get up to speed with, such as the minimum wage increase from $17.70 to $18.90. It’s also an important time to review the broader compliance obligations of employers and ensure that these are being met. Where a breach of minimum entitlement arises, the individuals who have significant influence of running a business, have a high degree of risk for personal liability alongside the employer entity in any claim.

Employee minimum entitlements

The following are just a few examples of minimum entitlements owed to employees:

• Minimum wage paid per hour;
• Rest and meal breaks;
• Holiday leave;
• Sick leave;
• Bereavement leave;
• Legally compliant payment for working public holidays.

In addition to the above entitlements, employees must be provided with a written employment agreement and employers have a legal obligation to keep written time and wages records.

For more information about the significant risks for employers associated with non-compliance, we encourage you to read our article at www.dtilawyers.co.nz/news-item/payroll-leave-and-employee-record-compliance-employers-need-to-get-the-house-in-order .

Risks for employers

Those individuals who have significant influence over running a business, have a high degree of risk when they fall short of providing minimum entitlements. There has been a shift at the Employment Relations Authority (the Authority), with an increasing number of claims naming the employer company, as well as the directors and managers in their personal capacity, as respondents.

It is common that the claims being taken against third parties start out as breaches of the Minimum Wage Act, with breaches of the Holidays Act and the obligation for employers to keep accurate written records being included in the claim once more information (of lack thereof) comes to light.

One example is a case that was bought by the Labour Inspector against Indian Heaven Ltd (the Company [1]) where the Labour Inspector made claims against the Company, the Company’s Directors and the Manager. This is made possible under the Employment Relations Act section 142W, which defines a person involved in a breach as a director of a company, a partner or general partner, a person occupying a comparable role to that of a director, or any other person in a position to exercise significant influence over the management or administration of the entity. In the case of Indian Heaven, the Authority had to consider whether the named respondents were persons involved in the breaches of employment standards.

Indian Heaven operated two restaurants. The case involved allegations by the Labour Inspector that, in relation to seven employees, Indian Heaven breached its legal obligations, and if so, were all respondents personally liable, along with the employer Company. Ultimately, the Authority agreed with the Labour Inspector that the Company had breached its obligations by failing to pay minimum wage for all hours worked by employees, not having complete records, and by not complying with the Holidays Act.

The Authority then considered the roles of those involved in the business. This included:

• The sole director and shareholder, who was involved in hiring employees, setting their initial terms and conditions of employment, authorising payments to employees and resisting their claims for payment for actual hours worked.
• A joint shareholder, responsible for the day to day running of the restaurant operations, including directing hours of work and shift patterns. The shareholder also authorised payments to employees, and resisted their claims for payment for actual hours worked.
• A senior representative of the Company, involved in its management and day to day operations. This manager directed the hours of work and shift patterns of employees, authorised payments to employees, and resisted their claims for payment for actual hours worked. She was also responsible for maintaining the Company's payroll and business records.

The Authority held that each of the named respondents had considerable influence over the management and administration of the Company, and they were all deemed to be a person involved in the breaches of minimum employment standards.

The Authority also noted that the Company appeared to be unaware of its obligations as employers to provide employees with minimum entitlements, specifically holiday pay following the end of employment. This is a timely reminder that ignorance (real or asserted) will be no defense to a minimum entitlement claim.

All respondents in this case were held jointly or severably liable for payment of the $41,688.56 arrears of wages and holiday pay ordered by the Authority. Penalties totalling $118,799 were also imposed against the respondent parties in a subsequent judgment.

Summary

Minimum employment entitlements need to be taken seriously by employers. As illustrated by the above case, ensuring compliance is not only the right, and legally obligated thing to do, but it mitigates significant financial risk for companies as well as individuals involved with the governance and management of any business.

The specialist employment law team at DTI Lawyers welcomes the opportunity to assist businesses with a review regarding whether your business is legally compliant with minimum employment entitlements, and if not, can guide you through what to do next.