A clause in an employment agreement that the employer will be a “good employer”, looks innocuous enough and seems a nice thing to have.  However it is an enforceable contractual obligation and exposes employers to risk of a penalty for breach in certain circumstances.  Penalties are awarded as both a punishment and a deterrent and can range up to $20,000 for corporates and $10,000 for individuals per breach.  They are not something to be risked lightly.

A “good employer” is defined for the purposes of an employment agreement as one who treats employees fairly and properly in all aspects of their employment.  This imposes a positive contractual obligation and goes much further than the statutory obligation of good faith dealings.

Ms Murphy–Fukofuka was employed as a part-time Playland Assistant by KRPL which is owned by Mr and Ms Smith.  Her employment agreement contained a clause that her employer KRPL would be a “good employer” – employer risk number one. She resigned her employment on 2 October 2015, giving two weeks’ notice which she intended to work out.  Her employer did not wish her to work out all her notice period. She was placed on garden leave on 7 October 2015, despite there being no gardening leave provision in the employment agreement – employer risk number two.  

On 14 October 2015, still in her gardening leave period, Ms Murphy–Fukofuka requested a payslip.  She felt the pay she had just received seemed light.  She didn't receive a reply. She then emailed Ms Smith asking if she could come into the workplace on 15 October to collect the payslip.  This prompted an immediate emailed response in the negative from Ms Smith.  She then asked for the payslip to be left at KRFP's reception the next day so she could collect it. She was told that Ms Smith would not be at the workplace that day.  She then asked to have the payslip ready for her by Friday lunchtime.  She then received the payslip by email the following evening with an instruction from Mr Smith that if she had any queries about her pay, she was to email him only.

On reading her payslip, Ms Murphy–Fukofuka  believed she had not been paid any hours for gardening leave or for five hours of sick leave that she had claimed.  She contacted Mr Smith and told him she had been underpaid the sick leave and 11.75 hours of pay she believed was owing for gardening leave. She was unable to get a satisfactory response to her concerns. She engaged in employment advocate, who pursued the matter on her behalf.  This included requesting her wages, time, holiday and leave records; raising an unjustified disadvantage claim in respect of the non-payment of her wages; a claim for wage arrears, and an allegation that KRPL breached its statutory obligations of good faith towards her and/or its contractual "good employer" obligations towards her.  She sought wage arrears, a penalty for breach of the good employer obligation and hurt and humiliation compensation of $15,000.

The basis for the unjustified disadvantage claim was:

  • the company's response to her demand for payment of wage arrears and request for payslips;
  • being stalked harassed and assaulted by Ms Smith; and
  • Mr Smith writing to her new employer accusing her of harassing and physically abusing KRPL staff, which Ms Murphy –Fukofuka asserted was to humiliate her in her new workplace and an attempt  to have her dismissed from her new employment.

The disadvantage claim did not relate to the fact of being placed on gardening leave because Ms Murphy–Fukofuka was happy to be paid without being required to work, but had she been unhappy about being placed on gardening leave this would have been potentially another ground for an unjustified disadvantage claim. The disadvantage claims were not upheld.  The response to wage arrears and there was no evidence of stalking etc. by Ms Smith.  The disadvantage claim in respect of Mr Smith in contacting Ms Murphy–Fukofuka’s new employer was never going to fly.  It occurred two months after her employment with KRPL had terminated and so fell outside the obligations under the employment agreement and the statutory good faith obligation.  As a result Ms Murphy–Fukofuka was not entitled to any hurt and humiliation compensation.

However, it was more than a year after Ms Murphy–Fukofuka had left KRPL, and only after the proceedings had commenced,  that KRPL paid Ms Murphy–Fukofuka the $262.53 wages she was owed, together with interest. So, by the time the matter got to the Authority, no wages were owed.  However, the Authority found it was incumbent on Mr Smith to have responded to Ms Murphy–Fukofuka’s queries about her pay accurately and promptly, and he had not.  KRPL were also in breach of its statutory obligation to provide the wages, time, holidays and leave records immediately on request.  The Authority said "It is hard to avoid the conclusion that a more open and communicative approach from KRPL to Ms Murphy–Fukofuka during her notice period could have avoided the need for these proceedings entirely”.  The Authority found this constituted a breach of good faith under the Employment Relations Act 2000 and a breach of KRPL ‘s "good employer" contractual obligation towards Ms Murphy–Fukofuka to treat her fairly and properly in all aspects of her employment.  As a result, the Authority found that these breaches all warranted penalties.  

Starting with the three breaches, which all attracted potential penalties of up to $20,000 each, the Authority bundled them into a global starting point of $60,000.  The Authority said depriving someone of their wages entitlement for over a year was a serious breach, but KRPL had mitigated this by paying the arrears eventually. The Authority discounted the $60,000  by two thirds for this.  Next it considered KRPL’s means to pay a penalty.  It accepted the company was “under financial constraints” so reduced the potential penalty by another 50% before applying a proportionality test.  In monetary terms, Ms Murphy–Fukofuka was only originally owed $262.53, so the penalty was ultimately reduced to $2,000.

Recommendation: Don’t include “good employer” clauses in employment agreements however attractive on the surface they might seem.  They could come back to bite.  While the penalty in this case was not severe, it does beg the question if the employer had not eventually paid up, and/or was not under financial constraints, and/or the amount of the underpayment higher, how much greater would the penalty have been? 

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