Enhanced protection and benefits for employees and stronger enforcement New Zealand employment law amendments mean sweeping changes for employers

The Employment Standards Legislation Act 2016 (Act) came into force in New Zealand on 1 April this year. The Act introduced changes which apply to all employers in New Zealand, strengthening the enforcement of employment standards, with the aim of promoting a fairer and more productive workplace for employers and employees. In this article we outline the significant changes that are essential reading for all New Zealand employers. Parental Leave The Act makes significant amendments to current parental leave laws with the aim of creating legislation that reflects modern family arrangements. Eligibility for paid parental leave has been extended to include employees who have recently changed jobs and seasonal workers, who were previously ineligible. In addition, the phrase ‘maternity leave’ has been changed to ‘primary carer leave’, given that parental leave entitlements are available to not only those who give birth or adopt, but those who become the primary caregiver. Those individuals who have permanent primary responsibility for the care, development and upbringing of a child up to the age of 6 are now expressly covered by the legislation.

Furthermore, the introduction of ‘keeping in touch days’ aligns New Zealand laws somewhat with those in the UK. Keeping in touch days allow employees to work up to 40 paid hours during parental leave (with the employer’s agreement) without officially ‘returning to work’. This way, employees can retain their paid parental leave and other entitlements while still staying in touch with their workplace and colleagues. Other jurisdictions, like the UK, have shown that keeping in touch days can be an effective way to ensure employees are kept involved in the workplace (should they choose) despite their absence on leave.

Unfair employment practices

In 2014, there was significant negative media coverage in New Zealand about ‘zero-hour contracts’. Zero hour contracts are employment contracts where the employer is not obliged to provide any minimum working hours, but the employee is required to be available to accept any work that the employer makes available. These practices often create an unfair balance of power between the employer and the employee as they essentially undermine the obligation of mutuality in in the employment relationship. 

The Act goes some way to regulating the use of zero hour contracts.

If an employer provides a zero hour contract, (where the employee is essentially on-call), they must now include an ‘availability’ provision in the agreement. The availability provision must state agreed and guaranteed hours of work, which relate to the period for which the employee is required to be available. The provision must provide for payment of reasonable compensation to the employee for making himself or herself available to perform work under the on call arrangement.

Changes have also been made to prevent employers making unreasonable deductions from employees. The Act introduces a requirement that no unreasonable deductions are to be made from employees pay, even where the employee consents to such a deduction. In addition, although an employer may have a general deductions clause in an individual employment agreement (for example a clause that states the employer may deduct overpayments made to the employee from their final salary payment on termination), they may not make a specific deduction without first consulting with the employee. Consultation does not necessarily mean agreement – it is about allowing the employee to make any comments should they wish. 

Tougher penalties and strengthening enforcement

Prior to the Act, there was growing concern that a large number of New Zealand employers were not complying with minimum employment standards – for example in relation to wages and leave. This was attributed to a lack of understanding by employers and employees as to their rights and responsibilities, inadequate sanctions to deter the widespread non-compliance with the law, confusing requirements for keeping records, and an inability for labour inspectors to access sufficient information to investigate potential breaches of employment standards.

New provisions to deal with these issues include:

A requirement that all employers keep records in sufficient detail to demonstrate that they have complied with minimum entitlement provisions. This includes entitlements under the Holidays Act 2003, Minimum Wage Act 1983, and the Wages Protection Act 1983. In particular, all employers are now required to keep a wages and time record in written form, or in a manner that allows the information to be easily accessed and converted into a written form, including the number of hours worked each day in a pay period and the pay for those hours.

The Act has also increased the powers of labour inspectors to enforce penalties, share information with other regulators, and to request any record or document from employers that they consider will help them determine whether a breach has occurred. These increased powers mean all employers are at risk of audit/inspection by labour inspectors to ensure they are compliant with the new standards. Employers can be issued an infringement notice for a breach for failure to comply with the minimum entitlement provisions of $1,000 per breach with a cap of $20,000 if there are multiple breaches. Most importantly, the Act increases the maximum penalty for serious breaches in the Employment Court up to $50,000 for an individual and $100,000, or three times the financial gain made by the breach, for a company. 

What does this mean for employers?

In September this year, Statistics New Zealand gathered data which showed that almost one in 10 employees did not have a written employment agreement, despite this being a statutory requirement. Whilst only some of these breaches are intentional, it is crucial that employers keep written employment agreements and clear records, bearing in mind that labour inspectors appear readily inclined to impose fines.In two recent cases, the Employment Relations Authority imposed heavy penalties on employers for long-standing non-compliance with the Act.

Marx

Following an investigation by a labour inspector, Allan Marx was ordered to pay a penalty of $23,000 and reparations of $64,000 for multiple breaches of basic legal employment requirements on his dairy farm. These included a failure to pay employees minimum wage and for work on public holidays, failure to keep adequate records for hours worked by employees, and failure to keep copies of employment agreements.1

Food City Limited

Even more significant was the order that Food City Limited pay a penalty of $37,500 and reparations of $126,897 after forcing cleaners, who were Chinese migrants, to work at a North Shore food court for 20 extra hours a week without any additional pay.2 This, coupled with non-compliance with sick leave and holiday pay requirements, meant that the Employment Relations Authority took a hard line in imposing this large fine and reparation.

Both of these cases highlighted that ignorance is no excuse for failing to provide employees with minimum wage, holiday pay, and written employment agreements. Employers are therefore taking on a huge risk when they don’t comply with their legal obligations under the Act.

It is likely that New Zealand employers haven’t felt the full force of the Act yet. All employers would be prudent to audit their minimum code compliance (wages, holidays, records) as a priority to ensure that when the inspector does call, their house is in order.