The 2016 changes to the Wages Protection Act 1983 combined with an Employment Court ruling have changed the landscape for deductions.
The Wages Protection Act now requires employers to consult with an employee before they make a specific deduction from their wages and that those deductions have to be reasonable. These changes were inserted to prevent unfair wage deductions. It is now expected that before a deduction is made employers should, in writing:
- Explain the nature of any specific deduction being proposed and reasons for it; and
- Give the employee a genuine opportunity to provide feedback; and
- Consider any feedback provided
An Employment Court ruling in 2015 considered the validity of deduction clauses for failure to provide contractual notice. The question was whether this type of deduction clause was enforceable or not. A key area this decision rests on is whether the deduction is a penalty (threat of losing wages) or for liquidated damages (genuine pre-estimate of damages/financial losses). Only the latter is deemed to be legitimate and enforceable. If a case arises considerations will include the wording of the employment agreement, the requirements to consult on deductions and what evidence can be provided to support the estimate of damages/financial losses.
What does this mean?
If an employee leaves their employment without giving you their required period of notice you do not have to pay that employee for time not worked.
If you are looking to make a deduction from their final pay for damages or financial losses as a result of notice not being given or worked this will need further consideration. We would recommend you get advice first and consult with your employee where you are required to do so in this circumstance.
It is recommended that if you have not done so that you have your employment agreement template updated to so you are properly protected around the ruling and changes to the Wages Protection Act and its application.
Do contact a member of the GrowHR team on 068785454 or team@growhr.co.nz if you would like your employment agreement reviewed or you have an employee leaving without giving their notice.