Strengthening enforcement of employment standards

The Employment Standards Legislation Bill included a package of measures to strengthen enforcement of employment standards.

Employment standards are requirements such as the minimum wage, annual holidays and written employment agreements. They protect vulnerable workers and help to ensure workplaces are fair and competitive. 

The measures came into force on 1 April 2016. They target the worst transgressions of employers without imposing unnecessary compliance costs on employers in general. They include:

Tougher sanctions

  • For the most serious breaches, such as exploitation, cases will now be heard at the Employment Court and carry maximum penalties of $50,000 for an individual and the greater of $100,000 or three times the financial gain for a company. Previously the maximum fine was $10,000 for an individual and $20,000 for a company.
  • Employers will be publically named if the Employment Relations Authority or Employment Court finds they have breached minimum standards.
  • Individuals also face the possibility of being banned as a manager if they commit serious or persistent breaches of employment standards, or are convicted of exploitation of migrant workers under the Immigration Act.
  • Persons other than the employer – such as directors, senior managers, legal advisors and other corporate entities – will now also be held accountable for breaches of employment standards if they are knowingly and intentionally involved when an employer breaks the law. These cases can be pursued even if the employer ceases to exist.

Who other than the employer will be held accountable for breaches of employment standards?

  • These provisions only apply to ‘officers’ of the company, being directors and other individuals who occupy positions where they exercise significant influence over the management or administration of the business.
  • Persons other than the primary contravener will only be accountable if they are knowingly and intentionally involved in a contravention of the employment standards provisions.
  • A person would not be liable if they took reasonable and proper steps to ensure the employer complied or if they reasonably relied on information supplied by another person.
  • For example, a senior payroll manager, under direction from the company’s director, who has set up the payroll system in such a way that employees do not receive their full holiday entitlements, could be caught by these provisions because they could meet the definition of an ‘officer’ of the company. However, a more junior payroll clerk would not be covered.
  • The accountability provisions can also potentially cover individuals or other companies in a contractual relationship with the employer (for example, a legal advisor who aids the employer to manipulate corporate structures to avoid paying entitlements).

Are there costs for employers to comply with the new requirements?

  • For most businesses there will not be any increase in compliance costs resulting from these changes.
  • The focus of the changes is on businesses that are not currently meeting their obligations. They will face minor compliance costs to become compliant and risk facing financial penalties if they don’t (with serious breaches resulting in significantly higher penalties).

How do you determine what breaches are serious?

The new law also provides an indicative list of factors for the Employment Court to consider when determining whether a breach of minimum standards is serious, such as the amount of money involved, how long the breach has gone on for and whether it was intentional or reckless.

What are the penalties for less serious breaches?

The penalties at the Employment Relations Authority for minor to moderate breaches would remain at $10,000 for an individual and $20,000 for a company.

Clearer-record keeping requirements

  • Record-keeping requirements for wages, time, holidays and leave have been made consistent across all employment legislation.
  • There is flexibility around the format for records, so long as they can show compliance with the law.
  • Infringement notices have been introduced for clear-cut breaches of these obligations with a penalty of $1,000 per breach with a cap of $20,000 if there are multiple breaches in a three month period.

Why were changes to record keeping requirements needed?

  • The past requirements did not ensure that compliance with minimum entitlements could be assessed in all circumstances and was, in some places, inconsistent across the legislation. For example, the Employment Relations Act and Minimum Wage Act had different requirements for recording time worked and this has led to difficulties in assessing whether low salaried and piece workers (workers who are paid by the number of products they create or tasks they complete) were receiving adequate pay.
  • The changes require all employers to have a record of the hours their employees work each day and the pay they receive for those hours.
  • For employees who work regular hours each day for regular pay, to which they already agreed to with the employer, a statement of the regular hours and pay is all that is needed to comply. It could be set out in the employment agreement, for example.
  • However, if employees do not work these usual hours (or have no usual hours) an accurate record of the hours worked each day and the pay received for those hours will be required.
  • Additional hours worked by employees on salaries do not generally need to be recorded, as long as they are in accordance with the employment agreement. However, employers will still need to record additional hours worked by salaried employees if this is needed to show that minimum employment entitlements are being met.

What are the costs for complying with record keeping requirements?

  • For most employers there will not be any costs associated with complying with the new record keeping requirements. This is because compliant employers will already be recording the necessary information.
  • The key requirement is that employers can produce a record of the number of hours worked each day in a pay period, and the pay for those hours, in an easily accessible form on request from the employee or from a Labour Inspector.

What is the aim of the infringement notices for failure to keep records?

  • Infringement fees are an additional tool for Labour Inspectors and commonly used in other sanction regimes.
  • Labour Inspectors will use infringement fees for clear-cut breaches of the obligations to keep employment agreements and the prescribed records.
  • This will reduce the need for proceedings at the Employment Relations Authority or Employment Court.

Increased tools for Labour Inspectors

  • Information sharing: The new law sets out a framework for how information will be shared with other regulators such as Immigration New Zealand, the Companies Office and Inland Revenue to improve the ability of Labour Inspectors to identify and investigate alleged breaches.
  • Information requests: Labour Inspectors will now able to request any record or document from employers that they consider will help them determine whether a breach has occurred – for instance financial records or bank statements.

What protections will accompany the new information sharing powers for Labour Inspectors?

  • All information shared (both business and personal) will continue to be subject to the protections of the Privacy Act. Memoranda of Understanding and Approved Information Sharing Agreements (AISAs) will outline the necessary checks and balances for how Labour Inspectors and other regulatory parties with whom they share information are required to handle both business and personal information.
  • Only in very specific circumstances in which there is an Approved Information Sharing Agreement (AISA) between Labour Inspectors and another regulator, would the Privacy Act’s information sharing principles be modified or overridden to allow for specific personal information to be used or disclosed. However, an AISA must specify the safeguards to ensure that any interference with an individual’s privacy is minimised. The Office of the Privacy Commissioner will work with MBIE on the development of AISAs.

Why do Labour Inspectors need more information from employers?

  • Labour Inspectors may request further records and documents from employers when they need to obtain supporting evidence to substantiate an alleged breach – for example, when the required wages and time records are incomplete or not evident.
  • Labour Inspectors will need to have a reasonable belief that the records and documents they request will assist in determining whether or not a breach of employment legislation has occurred.

Changes to Employment Relations Authority’s approach to employment standards cases

  • More employment standards cases, particularly those that involve more serious and systemic and/or intentional breaches of employment standards will be resolved at the Employment Relations Authority or Court, rather than being automatically directed to mediation services in the first instance as was previously the case.
  • If it wishes, the Authority will continue to be able to send standards cases to mediation if they are mixed up with other employment relationship problems, or if it considers that mediation will contribute constructively to addressing the problem (for example, through clarifying the facts of the case).
  • Employees are now able to seek penalties at the Employment Relations Authority for any minimum entitlement breach – previously this was only possible for breaches of the Wages Protection Act.

Why has the role of mediation been reduced for standards cases?

  • For many employment standards cases, particularly those that involve more serious and systemic and/or intentional breaches, mediation is not appropriate because:
    • alleged standards breaches are matters of fact to be determined, as opposed to other employment relationship problems for which mediation between the employer and employee is more suitable
    • it cannot provide the enforcement outcomes sought (i.e. sanction/deterrence)
    • it can result in the case being prolonged if mediation cannot determine the breach as the case will end up back at the Authority
  • The statutory obligation to direct standards cases has been removed and instead the Authority is now required to consider them.
  • However, the Authority retains discretion to send standards cases to mediation if they are mixed up with other employment relationship problems, or if it considers that mediation will contribute constructively to addressing the problem (for example, through clarifying the facts of the case).

Why can employees seek their own penalties at the Employment Relations Authority?

  • Employees have already been able to seek penalties under the Wages Protection Act. Extending this right to the Minimum Wage Act and Holidays Act is consistent with the ‘self-enforcement’ nature of the employment legislation.
  • Employees are also able to seek penalties relating to the employer’s obligations regarding individual employment agreements.
  • It means that the opportunity for the Authority to penalise employers is no longer dependent on who brings the case (i.e. an employee or a Labour Inspector).