In Sandhu v Gate Gourmet New Zealand Limited the Court of Appeal considered whether the protection to certain employees provided by the Minimum Wage Act 1983 (MWA) applies only in respect of time actually worked by those employees, or also in respect of hours that those employees have agreed to work, and are available to work, but do not work at the direction of their employer.
Gate Gourmet New Zealand Limited (Gate Gourmet) is an airline catering service provider. During the 2020 level 4 lockdown, Gate Gourmet decided to partially shut down due to the limited work available. It offered employees different options for pay, one of which was that employees would be paid 80% of their normal pay during this time, conditional on the wage subsidy application being approved.
Some of Gate Gourmet’s employees were paid the minimum wage and had 40 hours of guaranteed work per week under their employment agreements. Accordingly, paying only 80% of their normal pay resulted in these employees being paid less than the minimum wage. The employees’ union brought claims on behalf of its members.
The Employment Relations Authority (Authority) held that Gate Gourmet had breached the MWA as employees were ready, willing and able to perform the work but were only not working at the direction of Gate Gourmet. The parties were prevented by law from agreeing to an arrangement whereby less than the minimum wage was paid for hours of work that were guaranteed.
The Employment Court overturned this decision on the basis that the MWA guarantees the minimum wage in exchange for work performed. As the employees were not working, the MWA did not apply. However, Chief Judge Inglis disagreed with the majority as she considered that their finding ignored the common law rule that, where there are agreed hours of work cancelled by the employer, wages remain “payable” provided that the employee was ready and willing to work those hours.
Further information on these previous rulings can be found in our article: The impact of the lockdown on the Minimum Wage Act: the Employment Court judgment in Gate Gourmet.
The Employment Court’s decision was appealed to the Court of Appeal.
Court of Appeal Decision
The Court of Appeal agreed with the Authority, and the dissenting judgment of Chief Judge Inglis in the Employment Court. It found that it was it is not lawful to make deductions from wages for lost time not worked as a result of the employer’s direction. The minimum wage is payable for the hours of work that an employee has agreed to perform, but does not perform because of such a direction.
The Court of Appeal set aside the orders made in the Employment Court and restored the decision of the Authority. It referred the proceeding back to the Authority to determine any outstanding matters in light of its decision.
In reaching this decision, the Court of Appeal focused on:
- Section 6 of the MWA, which provides that an employee is entitled to receive payment for his work at not less than the minimum rate, and that parties cannot contract out of this obligation; and
- Section 7(2) of the MWA, which allows for deductions from the wages payable in certain circumstances.
The Court of Appeal’s reasoning can be summarised as follows:
- If section 6 of the MWA is read in isolation, the reference to “payment for his work” could plausibly be read either as a reference to work actually performed by the employee, or as a reference to work that the employee has agreed to perform under their contract of employment, whether or not it is actually performed. However, the section of the MWA under consideration must be read in light of the MWA as a whole.
- Section 7(2) of the MWA only allows for the deduction of wages payable under section 6 for time lost as a result of default by the employee, illness or injury. Outside those prescribed circumstances, deductions for time lost are not permitted: the minimum wage prescribed by section 6 must be paid.
- The minimum wage prescribed by section 6 must be read coherently with section 7(2). The only consistent reading is that the minimum payment applies to all hours an employee has agreed to work, regardless of whether or not those hours are actually worked, unless one of the exclusions (default, illness, injury) apply.
- The above interpretation is further supported by the purpose of the MWA, which “sets a floor below which employers and employees cannot go: they cannot contract out of this basic protection”. The MWA is intended to prevent the exploitation of workers and recognises the diminished bargaining power of those in low paid employment.
- The Court of Appeal accepted that an employee can agree with their employer to take leave without pay, or to reduce the agreed hours to be worked. If agreement is reached to take leave without pay, the MWA does not require any payment during the agreed period of leave. If an agreement is reached to reduce working hours, the MWA applies only to the reduced hours. In this case, the Court of Appeal found that there was no evidence of any such agreement between the parties.
What does this mean for employers?
Subject to any further appeal, this decision makes clear that it is unlawful to make deductions from wages where time has been lost as the result of an employer’s direction or an inability of the employer to provide work. The minimum wage is therefore payable for the hours of work that an employee has agreed to perform regardless of whether the work is actually performed in such circumstances. The situation is different where an employee agrees to take leave without pay or reduce the hours worked; the MWA does not require any payment during the agreed period of leave, and the MWA only applies to the agreed reduced hours.
If you have any questions about the Minimum Wage Act 1983 or payment obligations during lockdowns, please get in touch with our Employment Team or your usual contact at Hesketh Henry.
Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where required.