Breach of contract? Employer suddenly shuts down business

The Employment Relations Authority recently dealt with a case involving a work visa holder who claimed breach of contract against his former employer, a restaurant/nightclub in Auckland.

The decision shed light on the employer's failure to pay the worker's wages and provide the agreed-upon hours of work and on the consequences of the employer's lack of engagement with the Authority's investigation.

Mustafa Palut, a work visa holder from Turkey, started working at Artworks Management Limited (AML) in early May 2023 as a duty manager at the Morocana Club.

His employment agreement stated that he was to work 40 hours per week, be paid $32 per hour, and receive two weeks' written notice if AML terminated his employment.

Unpaid wages for hours worked

Palut said that he repeatedly asked his employer, Mr. Chtouk, for payslips as payment of his wages was sporadic and often less than his actual hours worked. Despite an increase in his hourly rate to $35 per week in July 2023, no payslips were provided.

According to records, as duty manager, Palut was responsible for about 20 other hospitality and security staff, some of whom he hired himself via a recruitment agency.

He said that he "regrets doing so," as the staff he recruited left their employment shortly afterward because their wages had not been paid.

When staff started to complain to him that they had not received their wages, he said that "he was not able to help them because he was in the same position himself."

Employer closes down

The ERA found that "this was in spite of Morocana’s bank account statements that showed it was a busy nightclub" that was “making good money” which included making over $60,000 on one night.

The Authority said that it was "for this reason" that Palut "decided to stay on in the hope that he would eventually be paid his outstanding wages."

However, in mid-September 2023, Morocana "closed its doors without explanation and stopped trading, leaving Palut and several other staff and creditors out of pocket."

Under oath, Palut stated that he had not been paid for 150 hours of work, including his last two weeks of employment. He also claimed that AML failed to provide him with the agreed-upon 40 hours of work per week, resulting in a shortfall of 52.42 hours.

ERA rules on breach of contract

Given AML's lack of response to the Authority's investigation, the Authority ordered AML to pay Palut "$12,833.68 in wage arrears no later than 12 pm Friday 15 March 2024."

The Authority also ordered AML to pay interest on this amount from 1 October 2023 until the date payment was made in full, as well as reimburse Palut for the filing fee.

The Authority further reminded employers that they must adhere to their contractual obligations and ensure that employees are paid correctly and in a timely manner.