Posted by Tony Sung on February 27 2020 in News

A recent decision of the Employment Court has demonstrated that new enforcement provisions in the Employment Relations Act 2000 (the Act), have real teeth – and should strike fear in any employer not correctly paying their staff for their work.

Under the ERA, employers are liable for penalties of up to $10,000 (for individuals) or $20,000 (for companies) for breaches of the minimum entitlement provisions in the legislation. Examples of minimum entitlement provisions include the requirement to pay the minimum wage, or to provide four weeks’ paid annual holiday to employees.

In order to promote the more effective enforcement of these employment standards (especially the minimum entitlement provisions), amendments to the ERA were made in 2016 to enable the Labour Inspector to apply for pecuniary penalty orders for serious breaches of minimum entitlement provisions. If the Employment Court determines that an employer has committed a serious breach of the minimum entitlement provisions, the penalty is increased to $50,000 for each breach in the case of an individual, and the greater of $100,000 or 3 times the amount of the financial gain made from the breach in the case of a body corporate.

In the recent case Labour Inspector v Parihar [2019] NZEmpC 145, the owners (Mr and Mrs Parihar) of two Super Liquor stores in Hamilton were ordered to pay, for minimum wage and holiday pay arrears a record $200,000 in penalties for serious employment law breaches. This was in addition to $250,470 the owners had already repaid to six former employees.

In the Parihar case, the six employees worked at the Super Liquor stores between 2010 and 2017. They were paid between $8 and $11 an hour, well below the minimum wage. Further, they had not been provided with any sick leave, holiday pay or public holiday entitlements. Mr and Mrs Parihar also failed to keep accurate employment records, and attempted to conceal underpayments by giving the employees employment agreements stating they were to be paid wages of $16-$20 per hour.

One factor that led to the significant amount of the penalty was the clarity that in this case the breaches were intentional. Another factor the Court considered was that the breaches occurred over a lengthy period and also that Mr and Mrs Parihar took advantage of vulnerable migration workers for their own financial gain. The Court was also mindful of the need to make sure the penalties are were not set at such a low level that other employers would be encouraged to take the risk of committing breaches where the financial gain was significant and the financial consequences might be treated as a merely inconvenient business overhead.

Since the amendments strengthening the enforcement of employment standards were introduced, the amount of penalties awarded by the Employment Court have continued to increase. It is worth noting that the maximum penalties Mr and Mrs Parihar could have been liable for were more than $2 million. Cases like Parihar remind employers of the importance of regularly reviewing their current systems and documents to ensure they are fully compliant with the minimum entitlement provisions.

If you would like more information regarding the above, or have any questions, please contact us.

Shelley Eden, Partner – Shieff Angland
+64 9 300 8756

Tony Sung, Solicitor – Shieff Angland
+64 9 300 8766

Dew James, Solicitor – Shieff Angland
+64 9 379 0655

This paper gives a general overview of the topics covered and is not intended to be relied upon as legal advice.