employment issue deduction of wages

An employee owes me money – what should I NOT do without advice?

Eddie Taia, Senior litigator

There was a case in the news recently where an employer was ordered to pay compensation to an employee after the employee was wrongfully dismissed. The case involved a chef in Christchurch who brought a claim against her previous employers after she felt she had been pressured to resign. The Employment Relations Authority agreed, and awarded more than $13,000.

This article focuses on deducting a loan payment from the chef’s pay. Just before Christmas 2016, she approached the employer about getting an advance of wages before the Christmas shutdown period. The employer agreed and advanced $1,000. An agreement was drawn up and signed which provided repayment of the loan interest-free by deducting $60.00 per fortnight from the chef’s pay. The agreement also had a clause that if the chef left her employment, the balance of the loan would be repaid in full and could be deducted from any wages owed, including her holiday pay.

After matters turned unpleasant, the employer gave notice of a disciplinary meeting, and deducted the loan from the employee’s pay without allowing her an opportunity to respond or rearrange her finances. The employer conceded at the Authority hearing that this was a mistake because the employee had not resigned, and the Authority treated this wrongful deduction as one of the factors in finding a constructive dismissal.

Although it was not a part of this case, the employer may have also had a problem under the Wages Protection Act 1983 had the chef withdrawn her consent to the deduction in writing. Under this Act an employer may not make an unlawful or unreasonable deduction from wages. It may be lawful if the employee and employer have agreed in writing to the deduction. However, most employers do not realise that they must consult with the employee if the right to deduct is in a general clause in an employment contract, and that an employee can vary or withdraw his or her consent to the deduction by giving written notice, which the employer must follow. So it would have been interesting had the chef given notice in writing that she no longer consented to loan payment coming out of her pay.

You should be careful if deducting money from an employee’s wages, even if the right to do so is in a contract. You should speak to one of our employment experts who can advise on whether your clause is specific enough and whether you will need to do anything else to get the employee’s consent.

The information contained in this paper is necessarily of a generalised nature and specific advice should be sought in relation to any particular situation. For further information on issues raised in this article or for assistance with a dispute, contact Franklin Law’s senior litigator Eddie Taia.