Minimum Employment Standards

3 May 2017

2016 saw legislative changes introduced to give greater protection to important minimum employment standards. The change of approach from a ‘slap on the wrist’ to hefty penalties is evident through the Employment Relations Authority ordering an Auckland car valet company to pay $241,450 for failing to pay minimum wage and holiday pay.

In September 2015 the Labour Inspectorate received a complaint about Manukau Auto Valet Limited’s (“MAVL”) employment practices. The Labour Inspector’s investigation uncovered that a total of $96,451.66 had not been paid in minimum wages and holiday pay across 221 employees.

MAVL was paying staff $25 to clean most vehicles, meaning that if workers did not complete a job within an hour and a half, they would not have earned the minimum wage of $15.75 per hour.

Dharmesh Kumar, the Director and majority shareholder for MAVL, said “I wasn’t aware they were supposed to do it within minimum wage time frame, so my understanding was I’m paying $25 per car, they can take their time and if they want to do it within half an hour that’s fine, if they take two and a half hours that’s fine as long as the car was done and they were paid”.

MAVL co-operated with the Labour Inspector’s investigation and arrears owed to employees were repaid. Despite this, the breaches of minimum standards were so shocking that the Labour Inspector continued the claim and sought penalties against MAVL.

The Labour Inspectorate regional manager, Loua Ward, has said that these matters are taken very seriously as it not only breaches the rights of the employees but attempts to gain an unfair advantage over law-abiding competitors.

A breach of the Minimum Wage Act and the Holidays Act by an employer attracts a penalty of up to $20,000. Given the vast number of MAVL’s breaches, the company could have been liable for up to $6,140,000 in penalties.

At the employment Relations Authority Mr Kumar attributed the failure to pay minimum standards correctly to a misunderstanding of the statutory requirements and mistakes in applying them. However the Authority refused to see this as a mitigating factor.

The Authority Member did give credit to MAVL for the steps taken to remedy the breaches and the immediate payment of the outstanding arrears. With this taken into account, the provisional penalty remaining was $1,837,800. As the amount the employer failed to pay was approximately 5.24% of this amount, the Authority Member decided that penalty would be disproportionate.

The Authority Member then considered the breaches for which penalties could legitimately be sought and held that a penalty of $140,000 was appropriate and consistent with similar cases.

MAVL is now compelled to pay $140,000 in penalties for its 322 breaches of basic employment standards, arguably resulting from misunderstanding how to correctly apply the statutory requirements.

The Labour Inspectorate has stated that it “will not hesitate to pursue employers who fail to provide such long standing requirements of New Zealand law for penalties which reflect the seriousness of their failures”.

‘Minimum employment standards’ include entitlements to annual holidays, public holidays, sick leave, bereavement leave, entitlement to minimum wage, and the entitlement not to have your employer make undue deductions from your pay. Although the claim against MAVL was brought under the Holidays Act, the Employment Relations Act now allows labour inspectors to bring claims against employers for up to $100,000 or three times the financial gain, for each individual breach of minimum standards. Legislation now provides for a more punitive approach to breaches of these standards and places greater pressure on employers to treat their employees well, in accordance with basic standards.

The minimum wage was increased to $15.75 on 1 March 2017. These types of legislative updates occur fairly regularly and often without significant media attention, making them easy to miss. Non-compliance with these updates, especially for an extended period of time, can leave employers liable for significant financial penalties.

The Authority’s decision sends a firm message that ignorance or incompetence will not be an excuse for non-compliance with minimum employment standards and that hefty penalties will result. This is a valuable lesson to all employers to ensure they stay on top of legislative updates and they are applying the law correctly.