Manawatu Employment Law Services
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FORFEITURE OF WAGES CLAUSES IN CASES OF ABANDONMENT OF EMPLOYMENT OR FAILURE TO GIVE NOTICE

 It seems unfair – an employer cannot dismiss an employee on the spot, even for serious misconduct, and yet an employee can abandon his employment or not give the required amount of notice, seemingly without any penalty.  It makes employers feel angry and helpless.   That is why clauses began to be written into employment contracts that allowed the employer to, in such an event, withhold some or all of the employee’s final wage or holiday pay.  It’s a good start.  However, in a case before it in 2013, the Employment Court determined that such a clause does not give an employer carte blanche to withhold a sum that is disproportionate to the inconvenience caused by the employee leaving before working the notice period specified (Livingston v G L Freeman Holdings Ltd).  In other words, the forfeiture clause cannot act as a penalty against the employee;  it must simply be a reflection of any actual costs that the employer incurs, e.g.  hiring a temporary worker to cover the position until a permanent replacement is found, having to pay overtime to existing employees, or losing work due to the employee leaving in an untimely fashion.  And, before you ask, no, an employer cannot claim that the stress caused by an employee leaving thus, is an actual cost.  Companies are not recognised as human, and it is most often a company which is the employer.

Of course, at law, there is nothing to stop an employer having a forfeiture clause that allows for a penalty as well as any costs incurred, but it would have to be proportionate to the loss.  Ms Livingston was penalised just $500 by the Court under secs. 134 and 135 of the Employment Relations Act for breach of contract, while the employer had to pay the nearly $2,000 it had withheld from her.  She had worked just two weeks of a required six weeks’ notice period.

So where does this leave an employer whose employee has breached their contract?  I would suggest, to save legal costs, filing a request for a penalty themselves.  It is a very straightforward process that is done through the Employment Relations Authority.  There is a cost of around $75 to do this, and the staff at the Authority are always more than happy to walk an employer through it.  It is not difficult.  For many employers, it’s not so much the inconvenience and stress of such an event, but the unfairness of it, especially when such employees often demand that their final wage and holiday pay be given to them.   I am all for both parties being held accountable for their obligations under their contracts, so I strongly recommend employers take this course of action. 

 ABANDONMENT OF EMPLOYMENT

 This is a different animal to an employee not working a required notice period.  This is when an employee fails to show for work and fails to contact the employer.  A good employment contract would have a clause that allows for that eventuality, stating that after a specified period of time, normally 2-3 days, the contract is deemed terminated by the employee, not the employer, due to his or her unnotified absence.  It is required of the employer that it make one or more attempts to contact the missing employee; after all, he/she may be lying in a hospital bed with broken limbs, unable to fulfil the obligation of ringing in, or some such other event that is not the employee’s fault.  Then the situation changes to perhaps allowing sick leave, annual leave, or even unpaid leave to give the employee time to recover from the event.  So it is an important point for an employer to remember if an employee goes AWOL.  However, in the absence of such a situation and the employer invokes the abandonment clause, and said clause also has a forfeiture clause, then all the above stated for failure to work out a notice period also applies to this form of termination of employment.

Posted: Mon 29 Aug 2016

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