Unlawful premiums on employment: Case Summary
General / 25 February 2017
A recent Employment Court decision has determined that a recruitment agency breached the Wages Protection Act 1983 (WPA) by charging premiums for job offers.
Section 12A of the WPA prohibits premiums being charged for employment. The section states that where an employer receives any money by way of a premium, such as a deduction from wages, then the employee may recover that amount from the employer.
Tech 5 Recruitment Ltd (Tech 5) advertised for qualified carpenters in the Philippines to help with the rebuild in Christchurch. Tech 5 had been advised by other recruitment agencies that standard practice in the Philippines was to conduct trade testing with candidates and candidates would pay for their own testing. It arranged for its prospective recruits to undertake trade testing in the Philippines involving interviews and practical tests of carpentry skills by a New Zealand licensed builder.
Accordingly, 25 carpenters successfully passed the testing and were recruited to work in New Zealand, each being told that they had to pay $586 for their testing. This sum was subsequently deducted from their wages pursuant to bond clauses and the trade testing clauses in their employment agreements.
The Labour Inspector sought recovery of the $586 in the Employment Relations Authority. The Authority determined that that the charges Tech 5 had sought against the Filipino workers were training bonds and therefore not premiums.
The Labour Inspector argued against the Authority’s decision in the Employment Court with the Court determining that the word “premium” includes ‘paying to acquire a job’. The Court held that a bond ordinarily has mutual benefits to both employee and employer. In this case the Filipino workers derived no benefit from the trade testing, other than getting a job. Tech 5 gained all the benefit from the testing.
The Court also recognised that if trade testing was conducted for candidates in New Zealand, Tech 5 would normally have taken on those recruitment costs. Therefore the obligation to repay the trade testing did not arise from a bond.
The Court declared both the bond clauses and the trade testing clauses in the employment agreement were unlawful premiums.
What impact could this decision have on you?
When drafting employment agreements you should be mindful that a “premium” not only includes ‘paying to acquire a job’ but applies to an employer recouping, or attempting to recoup, recruitment-related costs or other expenses that would ordinarily be borne by an employer.
If you want to ‘bond’ an employee, ensure you are getting mutual benefit from work done in exchange for the support you provide the employee. A proper connection between the job and the reason for the bond is required to avoid breaching s 12A of the WPA.
If you are concerned that your recruitment practices or the wording of your employment agreements could potentially result in a breach of the WPA, please contact us.
21 February 2017
Disclaimer: We remind you that while this article provides commentary on employment law and health and safety topics, it should not be used as a substitute for legal or professional advice for specific situations. Please seek legal advice from your lawyer for any questions specific to your workplace.