Unlawful deductions from wages...

The Employment Relations Authority has held an employer’s deductions from wages and final holiday pay to be unlawful and has ordered the amounts withheld to be paid to the employee.

The employee resigned without giving the required period of notice and the employer withheld money in accordance with clauses in the Employment Agreement permitting the withholding of money if the required notice period was not given. 

The Employment Relations Authority held that a general withholding clause, such as in this agreement, could be lawful but, before any deduction is made there has to be consultation with the employee and the amount of any deduction has to be reasonable.  In this case there was neither consultation, nor a reasonable deduction.

The ERA also held that an employer cannot use a general deduction clause to withhold money for claims related to lack of notice and any loss caused by that lack of notice.  It held that such clauses can only be used for claims where the amount is clear, for example, if there had been a loan to the employee or an advance of wages or similar.

The ERA also held that a clause that sets the amount of damage for the no notice period as equivalent to wages for that notice period, is a penalty clause, rather than a genuine pre-estimate of damage, and is therefore unenforceable.

If an employer wants to withhold wages for money owing or damage caused by lack of notice, it needs to consult with the employee and obtain a specific agreement to the withholding of those wages (unless there has been a clear agreement by the employee for repayment of an advance of wages or similar).

Alan Knowsley

Employment Lawyer Wellington