Resigning without Notice, Forfeiture of Wages, Penalties and the Risks
Most employment agreements say the employer can pay an employee in lieu of notice – basically saying to the employee that they are willing to pay them not to work out the notice period. However the employee does not have the same right and should the employee resign immediately either without notice or with notice but refuses to work it out, the employment agreement probably says they will forfeit pay equivalent to the notice period: But both parties should be clear about their rights and responsibilities if this kind of situation arises, for the devil is in the details.
The Wages Protection Act 1983 prevents an employer from making any deduction from an employee’s pay without the employee’s written consent. By putting a clause into the employment agreement that allows for wages to be docked when the employee doesn’t work out their notice period or worse give notice, the employer is in effect getting this written consent – but this consent does not mean the employer has unlimited power to make the deduction; the amount deducted must be appropriate to the damage done to the business. What “appropriate” means is a little unclear however.
No Notice No Pay – If You Get It Wrong There Could Be Pain
Kirsten Brown was employed as a caregiver by Ashwood Park, a rest home. Ms Brown handed in her four weeks’ notice in early October 2010, meaning her employment ended 30th October. Ms Brown had provided the company medical certificates which excused her from work until the 25th of October, at which point she was meant to return to work for those last few days – she never did. On this basis the company deducted from her final pay the equivalent of two weeks’ wages – which the employment agreement apparently authorised them to do.
Now, the Employment Relations Authority adjudged the clause in the contract authorising this deduction to be illegal, concluding that it was not truly meant to be a “pre-estimation of the damages” to the company caused by the employee not working out the notice, rather, its purpose was to ensure the employee works out the notice by threatening a penalty otherwise.
The Authority concluded this clause was a penalty rather than a fair deduction because the value of two weeks wages was way beyond the real cost of the employee not working out the notice, and because the deduction was made regardless of whether the full four weeks was not worked out or just a day. In other words the deduction bore no relation to the damage to the company. The Authority basically said that this kind of penalty is not okay because employers do not have the right or power to impose penalties: The Court and the Authority alone have this power and have been known to penalise employees for not giving notice or working the notice out.
So employers need to be careful: they can’t contract their way around the Wages Protection Act; they need to keep any contracted deductions appropriate. A deduction is not an opportunity to profit or punish.
On the other hand it would be a mistake for an employee to just blow off working out their notice period without fear of any consequences. One Robyn Jones, former staff member at Caltex Waiuku, discovered this the hard way. When Ms Jones’ employer Peter Hemi called her aside over a $12 shortfall on her till she took offence. Things escalated quickly to the point where Ms Jones quit in a fit of emotion – she did not work out her two weeks’ notice. Again there was a clause in the contract permitting the employer to deduct two weeks’ wages for quitting without notice. Apparently out of compassion Mr Hemi deducted only one week’s wages from her final pay. As Ms Jones made no attempt to work out any of her notice the Authority ruled that the deduction was contractually justifiable.
There seems to be some inconsistency here: Why the deduction from Ms Brown’s wages bore no relation to the damage to the business, but the deduction from Ms Jones’ wages did is a bit murky. In any case, the thing to take away from all this is that no matter the acrimony between you and your employer or employee you need to keep things civil if you can – If only to avoid the risk of costly litigation.
As an employer you should not use the forfeiture clause to stick it to a bad employee. Nor as an employee should you think you can just leave your employer in the lurch – no matter how much you might think they deserve it.
Blog by Joe Potter-Butler