Posted on: Sep 09, 2014
A company that agreed with an employee to pay him an incentive payment if he remained with it until a certain date, or was made redundant or unjustifiably dismissed prior to that date, found that it was obliged to pay holiday pay on the incentive payment when it made him redundant.
The incentive payment, to be paid as remuneration, was based on a valuation of the company’s shares at the date of termination but it only had to be paid within 30 days of valuation.
The company attempted to argue that s 25 of the Holidays Act 2003, which provides for a percentage of “gross earnings” to be paid to an employee whose employment ends before a further holiday entitlement arises, is not open-ended so that monies paid post termination are not factored into the calculation.
The Employment Court pointed to other situations analogous to the one before it: those in which the precise amount of commission or non-discretionary productivity bonus was not known at termination. The issue, it said, was whether the entitlement had accrued, not whether it had been paid.
To demonstrate the inconsistencies in the company’s arguments, the court considered various scenarios in which the employee would certainly have received holiday pay on the incentive payment. To find that he could not do so only because he had been made redundant was illogical and unfair.
The Court refused to consider s 27 of the Holidays Act as an impediment to its findings. This section requires that outstanding holiday pay be paid in a departing employee’s final pay packet, something that could not be achieved if holiday pay must be paid on post-termination payments. The Court opted for a liberal interpretation of the section saying that:
“[i]t would be illogical … that an employee is deprived of holiday pay on a commission or bonus payment simply because they cannot be calculated as at the last date of employment and can only be payable later.”
Howell v MSG Investments Limited (formerly known as Zee Tags Limited)  NZEmpC 68
This article, and any information contained on our website is necessarily brief and general in nature, and should not be substituted for professional advice. You should always seek professional advice before taking any action in relation to the matters addressed.