Employer faces significant penalty after abruptly changing work conditions
The Employment Relations Authority (ERA) recently dealt with a case involving a worker who claimed unfair dismissal and multiple employment breaches against a small business where she had worked for nearly a year.
The worker alleged she had been constructively dismissed after her employment conditions deteriorated following a trip abroad. She claimed her hourly rate was reduced without agreement, she wasn't paid for all hours worked, and she was required to work additional days without proper consultation.
After experiencing health issues that she attributed to workplace stress, the worker eventually resigned. The case raised important questions about employment status, wage entitlements, and employer obligations during changes to working arrangements.
The worker began working for a Thai massage business in November 2022 as the company's first employee. The business had been incorporated less than a month earlier, on 27 October 2022, and the business owner, who was also the sole director, had met the worker through Thai massage circles.
The worker signed an employment agreement specifying her role as a masseur working 30 hours weekly at $35 per hour. In practice, she worked from 9:00 am to 7:00 pm Monday to Friday and 8:30 am to 7:00 pm on Saturdays.
Her duties extended beyond providing massages to include changing signage, checking bookings, setting up rooms, tidying between clients, restocking supplies, and carrying out light cleaning at the end of each day.
The business used three different systems to record the worker's time: a handwritten "Logbook" noting client details and massage information, an electronic "Appointment Schedule" for booking massages, and "Timesheets" recording massage hours and days off. Critically, none of these systems recorded hours the worker spent in the shop performing tasks other than massages.
Before taking a holiday to Thailand in April 2023, an incident occurred involving a client the worker no longer wanted to massage. This led to tension between the worker and owner.
The owner claimed this resulted in the worker's resignation, which the worker firmly denied. While in Thailand, the worker unexpectedly received holiday pay of $1,593.20 plus two hours of alternative holiday pay, which she immediately questioned.
Upon returning to work in June 2023, the worker discovered her pay had been reduced from $35 to $30 per hour without her agreement.
She was also expected to work Sundays when the shop had previously been closed, and no longer had guaranteed hours of work. The owner claimed these changes had been discussed while the worker was in Thailand, which the worker denied.
The relationship deteriorated significantly in late July when the business owner asked the worker to manage the business during her planned absence from 1 to 5 August. The worker felt uncomfortable with this responsibility due to language barriers and workload concerns.
During the owner's absence in early August, the worker reported working extended hours that led to stress-induced health problems. According to the ERA decision:
"While [the business owner] was away, [the worker] says she worked 10- to 12-hour days, developed headaches from stress, had a migraine and vomited. She ended up being off work on sick leave for several days from 4 August."
When the business owner returned on 6 August, she questioned why the worker still couldn't work and suggested she should find a new job. The worker wrote a resignation letter on 7 August but didn't submit it immediately, reflecting her reluctance to leave despite the deteriorating situation.
On 10 August when returning to work, the worker claimed the owner told her: "if you can't work you must find a new job because I need someone to do the work." The worker then submitted her resignation letter, agreeing to work a one-month notice period at the owner's request, despite her letter specifying a two-week notice period.
Near the end of her notice period, the worker submitted a second resignation letter outlining her reasons for leaving, including poor treatment causing illness requiring medical assistance and unpaid wages for hours worked. She found new employment starting 11 September 2023, just days after her employment ended on 7 September.
A critical issue was determining the worker's employment status. The business claimed the worker was both an employee for 30 hours weekly and an independent contractor for additional hours, becoming a casual employee after returning from Thailand.
The ERA rejected these arguments, finding the worker was a permanent employee throughout her employment. The Authority found no evidence supporting a contracting arrangement, noting that the employment agreement even anticipated work beyond 30 hours to be performed by the employee on reasonable notice.
"Based on the evidence before the Authority, I find [the worker] was an employee of [the employer] and was not an independent contractor for part of her employment as [the employer] submits. The real nature of the relationship was one of employment, and there is insufficient evidence to support [the employer's] contention that [the worker] worked in a 'mixed status' capacity," the ERA determined.
The ERA also rejected the claim that the worker had resigned before her Thailand trip. The Authority noted this was inconsistent with communications between the parties while she was abroad, the absence of any written resignation, and the fact that she was paid sick pay for absences in August, which she wouldn't have been entitled to had she resigned in March and been re-employed in June.
The Authority concluded there was no break in the employment relationship when the worker went to Thailand, meaning her employment status and conditions should have remained unchanged upon her return.
The ERA concluded that the worker was constructively dismissed, finding that the employer's actions amounted to repudiation of the employment contract through unilateral changes to employment terms.
"I find [the employer's] conduct was repudiation of the contract because [the employer] changed the terms of conditions of [the worker's] employment, firstly by reducing her hourly rate from $35.00 to $30.00 between 2 June and 23 July 2023; secondly by requiring her to be available to work Sundays when previously she had worked Monday to Saturday; and thirdly, by not guaranteeing her 30 hours of paid employment per week," the ERA stated.
The ERA found the business owner's reaction to the worker's illness "were not the actions of a fair and reasonable employer." The ERA determined that the business had breached its statutory duty of good faith under section 4(1A)(a) of the Employment Relations Act 2000 by failing to be "active and constructive in maintaining a relationship in which the parties are responsive and communicative."
"[The worker's] motivation for her decision to resign from her employment with [the employer] was the way she was treated. After returning from Thailand, her hourly rate had been reduced without her agreement. She had no guaranteed hours of work. [The employer] changed her regular day off while the business was trialling Sunday operations. She had not been paid for all hours she had worked since the beginning of her employment," the ERA concluded.
The ERA upheld multiple disadvantage claims, finding the worker wasn't paid for all hours worked, had pay deducted without authorisation, had her hourly rate reduced without agreement, and wasn't paid correctly for working on public holidays.
The worker claimed she was at the shop for 9.5 hours daily Monday to Thursday and 10 hours on Saturdays, but was only paid for hours spent actively massaging clients. The ERA rejected the business's argument that any other work was done voluntarily to "help the business," finding instead that the worker expected to be paid for all work performed.
"I therefore accept [the worker's] evidence that she did not receive cash payments from [the employer]... I conclude [the worker] was unjustifiably disadvantaged by [the employer] not paying her for all hours worked," the ERA found.
After reviewing the evidence, the ERA ordered the business to pay the worker $30,735 in unpaid wages, $2,135 for alternative holidays, and $2,496.70 in holiday pay. Additionally, the worker was awarded $17,000 as compensation for humiliation, loss of dignity, and injury to feelings under section 123(1)(c)(i) of the Employment Relations Act 2000, bringing the total award to over $52,000.
The ERA also granted leave under section 142Y(2)(a) of the Employment Relations Act 2000 for the worker to seek recovery personally from the business owner if the company was unable to pay the ordered amounts. This was because the owner was found to be a "person involved" in breaches of employment standards with direct knowledge of the wage and holiday pay issues.
