Posted on: Mar 23, 2017

The Wages Protection Amendment Act 2016 has added the statutory requirement to consult before making deductions from employees’ wages.

In accordance with the Wages Protection Act 1983, an employer may make deductions from wages payable to an employee for any lawful purpose with the employee’s written consent.  Written consent includes consent in a general deductions clause in the relevant employment agreement, or on the employee’s written request.  Under s 5A of the Act, an employer must not make a deduction, however, if that deduction is unreasonable.

If a deduction is made from wages paid, or that would have been paid but for the deduction, and there was no written consent or request from the employee, then the amount deducted is recoverable by an action in the Employment Relations Authority.

The Wages Protection Amendment Act 2016 brought about changes to the way that deductions can be made from employees’ pay.  The changes were inserted to prevent examples where unfair wage deductions had been made for losses to the employer over which the employee had no control.

In the Amendment, s 5(1A) was inserted, adding that “an employer must not make a specific deduction in accordance with a general deductions clause in a worker’s employment agreement without first consulting the worker.”  This is consistent with the good faith obligations of s4 of the Employment Relations Act 2000.

This can be seen from a case that was decided before the 2016 Amendment.  In Jonas v Menefy Trucking Ltd [2013] NZEmpC 200, the employee’s agreement provided in a general clause for deductions for damage caused by negligence. The employee accepted that he had negligently damaged a gate while driving a truck but contended that the amount of the deduction should have been discussed with him in accordance with the good faith obligations of the Employment Relations Act.

Judge Ford agreed, saying:

[62] … The provisions of the Wages Protection Act 1983 are mandatory. Under those provisions, an employer must pay the entire amount of wages payable to a worker without deduction unless the worker otherwise consents or in certain circumstances where there has been an overpayment. In cases such as the present, however, where a general deductions clause in an employment agreement is relied upon rather than an individualised written consent then, consistently with its good faith obligations under the Act, an employer must, at a minimum, consult with the worker before making any deduction. Without such a safeguard, the protection intended to be afforded by the Wages Protection Act 1983 would be illusory.

So while the good faith requirements of the Employment Relations Act already required the employer to consult before making deductions, this Amendment adds an express statutory requirement to consult in accordance with the Wages Protection Act.

How does this impact employers?

  • We are recommending our clients update the general deductions clause of their employment agreement templates, to provide for deductions to be made following consultation with the employee.
  • For existing employment agreements, these don’t necessarily need to be updated to reflect this Amendment, however just make sure you don’t actually make any deductions without first consulting with the employee about it.


Disclaimer

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.