The court found the deduction was based on assumption, not contract interpretation
NZ employer deducted a worker's pay during lockdown without checking what he actually did. The Court of Appeal ruling says that process matters.
Kevin Breen joined Prime Resources Company Limited in April 2021 as general manager and head of sales and marketing on an annual salary of $150,000. The Auckland property developer tasked him with selling 92 apartments off a plan, and his employment agreement expected about 50 hours a week. That agreement also contained a clause allowing the company to deduct pay for hours not worked due to "personal matter or ACC etc."
Four months in, Auckland entered COVID-19 lockdown. On 17 August 2021, Breen notified managing director Mr Chung that he would keep working from home – handling client calls, emails and inquiries. But on 1 September 2021, Chung emailed him with different news: he was deducting $4,326.75 from Breen's August pay for an estimated 75 hours of missed work, citing that contract clause. The email also mentioned the company had been unable to obtain a government wage subsidy.
Chung never asked Breen what work he had actually completed during August before making that calculation. He later admitted it was a "best guess" based on the number of emails Breen appeared to be responding to, and that he had simply assumed all of Breen's work was captured by those emails.
Breen objected immediately and said he expected his full salary. The company paid him the reduced amount anyway. His wife was terminally ill at the time, and his salary was their only source of income. The deduction forced him into a hardship application with his bank to pause loan repayments. After mediation on 30 September 2021, Prime Resources agreed to repay the shortfall and restore his full salary. Breen filed a personal grievance claim on 1 November 2021 and shortly afterwards resigned.
The Employment Relations Authority upheld his claim and awarded $2,000 in compensation for hurt and humiliation. But the Employment Court overturned that decision, treating the matter as a contract interpretation issue rather than a personal grievance – which meant compensation was no longer available to Breen.
On 24 February 2026, the Court of Appeal reversed that ruling. The three-judge bench found that the Employment Court had failed to give proper effect to a single word in the Employment Relations Act 2000: "solely." A personal grievance is only barred when the employer's action derives solely from interpreting a contract clause. Here, the court found something more was going on.
The court stated: "The payment of wages or salary is one of the most fundamental aspects of an employment contract." It went on to find that "the calculation was extraneous to the clause. It was a unilateral decision made without consultation on the basis of a factual assumption, not an assumption about the meaning of the clause."
Counsel for Breen and the New Zealand Council of Trade Unions, which intervened in the case, also raised the possibility that the company was partly motivated by financial pressures, the failed wage subsidy and concerns about Breen's work performance – rather than a genuine reading of the contract. The court acknowledged those arguments but accepted the Employment Court's finding that there was insufficient evidence that Mr Chung's understanding of clause 4 was anything other than genuinely held, and that at the time of the events in issue he was not being deliberately disingenuous.
A potential breach of the Wages Protection Act 1983 was also raised, given the lack of consultation before the deduction, but the court declined to address it on procedural grounds.
The case has been sent back to the Employment Court for a full hearing on the personal grievance.
The message for people and culture teams is clear. A contractual clause permitting deductions does not, on its own, shield an employer from a personal grievance claim. What the court scrutinised was the process: whether the employer genuinely consulted the employee, whether the decision was based on evidence rather than assumption, and whether the employee received any advance notice. When an employer's conduct goes beyond what a clause actually requires – through arbitrary calculations, absent consultation, or motivations shaped by other business pressures – the personal grievance jurisdiction remains open.
