Significant penalties ordered against employers for breach of employment obligations

There is now a body of case law where employers, and persons who are involved in employment law breaches are ordered to pay penalties. In this article, we review recent determinations and considerations of the Employment Relations Authority when ordering penalties. 

Penalties for breaching statutory employment obligations 

In November 2021, the Employment Relations Authority ordered a bakery owner to pay: 

• $139,000 penalties to the Crown and $19,000 to three employees; and 
• $141,038.24 to the three employees for arrears of minimum wage, annual and public holiday entitlements and sick leave. 

Penalties were ordered after the employer breached minimum entitlement provisions contained within the Employment Relations Act, the Minimum Wage Act and the Holidays Act.[1] 

Workers were paid wages for 40 hours/week, when the Authority held that in reality, they were working in excess of 80 hours per week. Consequentially, they were not being paid the statutory minimum wage. The employers did not maintain timesheets, and had asked one employee to provide false and misleading information to the Labour Inspectorate and Immigration New Zealand. Workers were repeatedly threatened to stop pursuing their claim.  

While an aggravating feature in this case included the exploitation of workers, when considering the matter of ordering penalties, the Authority noted the overwhelming public interest in compliance with and enforcement of minimum employment standards.  

In a subsequent decision, the Authority ordered the joining of an owner of the business (P) who was directly and intimately involved in the business to be liable for the penalties. It also ordered the owner personally, to pay $38,000 of penalties for her involvement in the contravention of minimum employment standards to be paid by her.[2]  While each owner was held to be separately responsible for their own conduct, to the extent that the first owner (S) was unable to pay the arrears ordered to be recovered by the Authority, the Authority made clear in its determination that these could be recovered personally from the second owner (P). 

This is not the only significant award of penalties against employers, company directors and persons involved for breaching minimum employment standards. In June 2022, the Authority issued its determination against an employer which operated multiple stores providing beauty, cosmetic and personal care.[3]  In relation to three employees, the employer was found liable for breaches including: failing to provide compliant wage and time records; failing to provide individual employment agreements; failing to pay minimum wage; breaching the Holidays Act regarding the failure to pay holiday pay time and a half; failing to provide alternative holidays and sick leave entitlements; and failing to maintain compliant records.  

In determining the quantum of penalties ordered, the Authority highlighted the vulnerable immigration status of two of the affected employees, which exacerbated the employer’s conduct. The breaches were of a systemic and deliberate nature spanning over nearly four years. The Authority also took into consideration factors including the employer had in place an (unlawful) ‘cash back scheme’ which required an employee to pay back certain amounts of their wages. The need for deterrence was again highlighted in the issuing of penalties, with the Authority ordering: 

• $54,000 to be paid by the employer for breaches of minimum employment standards; 
• $20,000 to be paid by the director; 
• $9,000 to be paid by the brother of the director for his involvement in the breaches. 

These cases are a reminder to employers of the need for compliance with New Zealand employment laws and the possibility of personal liability that can attach to penalty orders for breaches. 

Penalties for breaching a confidential Record of Settlement 

The Employment Relations Authority has ordered an employer to pay penalties of $12,000, of which $4,000 was to be paid to a former employee.[4] 

The CEO breached a Record of Settlement with a former employee by having a conversation, which was claimed to be confidential, about the former employee, with an HR advisor of the former employee’s new employer. 

The CEO engaged in a “wide ranging conversation” about the employee in which he gave his “unfettered opinion” of their “management style and character traits” that were conveyed “in a way that can be described as prejudicial”. The employer’s defence was that absence of a non-disparagement clause and the assertion that the discussion was confidential meant that the CEO thought that he could speak freely.  

Records of Settlement are the form in which an employer and employee may reach agreement about a workplace disputes. Settlement terms may be with or without mediation assistance, to resolve the issue. A settlement agreement is legally binding and enforceable on the parties.    

Companies may be liable for a $20,000 fine for breaches under the Employment Relations Act, making significant, this penalty of $12,000 for a breach of the confidentiality terms of a Record of Settlement. The Authority noted the following was considered in making its order: 

• There were continuing consequences for the employee, as the disclosures raised questions about the employee’s honesty and integrity. 
• Information that was disclosed could not be taken back and had serious consequences for the employee. 
• The breaches took place seven months after the employee commenced new employment. 
• The breaches were not inadvertent and were close to being deliberate. 
• The employer did not take any steps to mitigate any adverse consequences of the breaches. 
• The breaches undermined the integrity of confidential settlement agreements. 

Recommendations

We recommend that employers take care to proactively and regularly review their workplace practices to ensure compliance with New Zealand employment law. For example, this will include a review of compliance with holidays, wage and leave records and payments. The consequence of breaching employment obligations is costly, not solely in penalties, but also the resources involved in defending a claim, together with the reputational harm and harm to workers arising from the breach. 

The team of specialist employment lawyers at DTI Lawyers are experts in these areas and can assist you with these reviews. Please don’t hesitate to contact us on 07 282 0174, or [email protected]