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Can I Be Banned From Hiring Staff?

June 2018

Yes, you can. But we will return to that later. Employment Agreements generally allow for Employees to resign at any point during their employment given that they provide the requisite period of notice provided for in the Employment Agreement. Generally, Employees will work out their notice period. On occasion however, an Employer may wish to place an Employee on “garden leave”. This allows for Employees to be bound by their employment obligations and be paid as normal whilst not undertaking work for the remainder of their notice period. Garden leave requires the mutual agreement of the Employee and Employer although the Employment Agreement may give specific permission for the Employer to request garden leave. Alternatively, an Employee and Employer can agree to terminate the employment during a period less than the notice period.

If, however, an Employee leaves prior to the end of their notice period without the Employer’s agreement, then the Employer may be entitled to seek damages in the Employment Relations Authority or Employment Court for costs such as hiring additional staff for the period of the notice or the loss of work opportunities due to the lack of staff available.

At the end of the notice period an Employee is entitled to request their final pay on the last day of work rather than the following pay day. An Employee’s final pay must include the following:

  1. Payment for all hours worked since the last pay until the employment period.
  2. Payment for annual holidays, Public and alternate holidays owing.
  3. Any further payments owing.
  4. Any authorised deductions can be taken from the final pay.

The issue of “authorised deductions” brings us back to the question asked in the heading of this article. Recently a Christchurch business owner was banned from hiring staff for a period of three years. This was pursuant to a Banning Order introduced into the Employment Relations Act in 2016. Under a Banning Order, the Employment Court can prohibit an Employer from:

  1. Entering into an Employment Agreement as an Employer;
  2. Being an officer of an Employer;
  3. Being involved in the hiring or employment of Employees.

The Christchurch business owner was not a stranger to the jurisdiction of the Employment Relations Authority having been in trouble in 2015 for breaches of Employment Law. In 2015 the Employment Relations Authority had ordered his company to pay more than $22,000 to staff who had been underpaid. In the latest case, the business owner had included in its Employment Agreements a forfeiture clause which provided that if Employees failed to give six weeks’ notice “then equivalent wages shall be forfeited and deducted from any final pay including holiday pay”. The Employer was entitled to require that an Employee who failed to give the requisite notice would forfeit any wages owing for the period of notice not given, however the Employer was not entitled to deduct unused holiday pay. The business owner was banned from hiring staff for three years, he was personally ordered to pay penalties of $10,000 and his company ordered to pay an additional $10,000 penalty. He was also ordered to pay the sum of $7,845 to the 23 affected staff.

Once a Banning Order is made, if a banned individual breaches the Banning Order then they are liable on conviction to a fine of up to $200,000, a term of imprisonment of up to three years, or both.

You will have seen in this article there is a reference to being allowed to deduct any “authorised deductions” from a final pay. In order to be able to do this, the Employee’s written consent must be obtained. It is usual to include this written consent in the Employment Agreement. It is doubtful however that an authorised deduction can include a payment to which an Employee is statutorily entitled such as unpaid holiday pay. If you are unsure whether your Employment Agreement complies with the legislation, or you do not have an Employment Agreement, we are able to assist.