Deductions from an employee's wages: When is it allowed?

The Employment Relations Authority (ERA) recently dealt with a case involving a pizza chef and a restaurant in Richmond Nelson, New Zealand.

The dispute centred around unpaid wages and guaranteed hours of work, highlighting important issues for both employers and employees in the hospitality industry.

The case discussed several key employment law considerations, including the importance of clear employment agreements, proper wage payment practices, and the rights and responsibilities of both parties during an employee's notice period.

Background of the case

The worker, a pizza chef, began his employment at the restaurant on 16 June 2023. On 1 November 2023, he gave notice of his resignation, with his last day set for 15 November 2023.

The dispute arose when the worker claimed he wasn't paid his final wages or for guaranteed hours during his last week of employment. He initially also claimed unpaid wages for his first week but later dropped this part of the claim during the ERA investigation meeting.

The employer, represented by the restaurant's sole director, acknowledged that the final pay hadn't been issued. However, he argued that the worker had missed a day of work without good reason on 12 November 2023, resulting in lost pizza sales.

The employer had attempted to negotiate a deduction of $450.00 from the final pay to cover these losses but couldn't reach an agreement with the worker.

The ERA investigation revealed that the worker's employment agreement didn't actually guarantee a specific number of hours per week, contrary to what was initially believed. This misunderstanding formed a significant part of the dispute.

Hours of work and employment agreement

The ERA examined the employment agreement closely to determine the worker's entitlements. The agreement stated:

"The employee will work Wednesday to Sunday. The hours of work will vary each day, Lunch 11am-2pm and dinner 4.30pm-9pm/10pm."

This clause was crucial in determining that there was no guarantee of 42 hours per week, as had been claimed. The ERA noted that while the worker typically worked 40 or more hours per week, as evidenced by his payslips, the agreement clearly stated that hours would vary.

The worker had initially argued that he was entitled to 42 guaranteed hours each week. However, upon examination of the unsigned employment agreement provided to the ERA, this claim was not substantiated.

This highlights the importance of clear and specific language in employment agreements. Both employers and employees should ensure they fully understand the terms of their agreements to avoid misunderstandings and potential disputes.

Deductions from wages

A key issue in this case was whether the employer could deduct money from the worker's final pay to cover lost sales. The ERA referred to the employment agreement's clause on deductions:

"The employer may take an agreed amount from an employee's pay if the employee has requested it, or agreed to it, in writing. The employee can withdraw their consent, or change the amounts, by giving written notice."

The ERA emphasised that without the worker's written consent, no deduction could be made. This aligns with the Wages Protection Act 1983, which protects employees from unreasonable deductions.

The worker had explained that he didn't attend work on 12 November 2023 because he didn't have sufficient petrol to travel from Motueka to Richmond.

He had informed the employer of his absence before the start of the lunch shift. Despite this, the employer still sought to deduct $450.00 for lost pizza sales, which the worker did not agree to.

This serves as a reminder to employers that they cannot unilaterally decide to make deductions from an employee's wages, even if they believe they have suffered a loss due to the employee's actions.

The ERA's decision

In the end, the ERA ordered the employer to pay the worker his full final pay of $3,049.18 gross ($2,415.17 net), as recorded in the final pay slip. The ERA also awarded reimbursement of the $71.55 filing fee to the worker.

This case serves as a reminder of the importance of clear communication, proper documentation, and adherence to employment law principles.

It underscores the need for employers to ensure they have robust systems in place for managing final pay and any disputes that may arise during an employee's notice period.