ERA orders company directors to be equally liable for breaches of employment standards
The Employment Relations Authority (ERA) found that a Turkish café worker was not unjustifiably dismissed after 17 months of sick leave, but awarded him over $43,000 in unpaid wages and compensation, after finding that his employer had engaged in unfair bargaining by repeatedly reducing his pay rate while exploiting his language difficulties and vulnerable immigration status.
The worker had been employed at the café for approximately 13 years and claimed unjustified dismissal, unpaid wages for hours worked beyond 40 per week, and various disadvantage allegations.
The employers denied the claims, with proceedings delayed for years due to representation changes, communication issues, and company liquidation.
Employment history and pay reduction pattern
The worker, a Turkish national seeking long-term residency, was first employed at the Dunedin café in 2007, initially without an employment agreement at $700 per week ($14 per hour).
He worked 9:30 AM to 3:00 PM, then returned for evening shifts 5:00 PM to 10:00 PM over six days, claiming he worked on average 53 hours weekly.
The first employment agreement signed in September 2010 described the position as Assistant Chef with wages of $26,000 annually.
The ERA found two key changes occurred - the job title was changed and the hourly rate was reduced from $14 to $12.50, effectively reducing the annual salary from $36,400 to $26,000, without clear evidence that the worker understood these significant variations, given his language and comprehension issues.
A second employment agreement in September 2016 described the position as Chef with wages of $42,640 annually at $20.50 per hour for 40 hours weekly.
Problems emerged in mid-2017 when a third employment agreement signed in June 2017 reduced the hourly rate from $20.50 to $18 with flexible hours between 35-40 hours per week, with neither owner recalling the purpose of these changes.
Pay concerns and relationship breakdown
In July 2017, the worker's wife emailed, identifying concern about the hourly rate change, noting they discovered the worker had been paid approximately $120-150 less per week, and his rate had changed from $20.50 to $18.
The owner acknowledged awareness of the email but did not reply, claiming it was not until nine months later that it again became an issue.
The ERA found the change had the distinct impression of being a deliberate and opportunistic salary reduction, with the owner appearing to concede they possibly took the opportunity to make changes when the worker needed a renewed employment agreement for immigration reasons.
By early 2018, the worker's doctor reported he was struggling with the workload, causing exhaustion.
On 8 October 2018, the business was sold to a new company. The worker received a letter advising of the employer's name change, offering him a position as a kitchen hand, though noting his current role was technically being made redundant. The worker did not agree to a new employment agreement but continued working.
Personal grievances and sick leave
On 7 October 2018, two personal grievance letters were sent raising multiple concerns, including the 2017 pay rate reduction, not being paid for all hours worked, and various workplace treatment issues.
The parties attended mediation on 5 November 2018, but matters remained unresolved.
After returning to work on 19 November, the worker was given a disciplinary letter on 22 November.
The worker supplied a medical certificate on 26 November and took sick leave from 28 November, not returning to work thereafter. During 2019, the worker remained on sick leave, supplying monthly medical certificates.
In May 2019, the employer sought medical prognosis for likely return to work, stressing the business could not hold the position open indefinitely while offering to accommodate the worker on a part-time basis.
When no response was received, the employer warned in May 2019 that they would consider terminating employment by reason of incapacity. An Authority application was filed on 21 June 2019.
Medical incapacity dismissal assessment
In March 2020, the employer proposed to terminate employment on notice due to ongoing medical incapacity with no prospect of return to work in the foreseeable future.
When the worker's lawyer indicated the worker wished to return but could not until receiving medical clearance without providing a detailed prognosis, the employer confirmed the medical incapacity termination effective 16 April 2020.
The ERA examined whether the employment relationship ending occurred in a justified manner by applying seven principles regarding medical incapacity dismissals.
The Authority found the employer kept the position open for an objectively reasonable 17 months, exercising positive discretion, they were entitled not to extend further given business needs.
The ERA found the employer carefully considered the continued absence and sought updates, concluding fairly that the absence would be prolonged and of uncertain duration.
The Authority determined all fair process requirements were met, and it was not evidentially established that the employer caused the worker's health conditions to deteriorate to the extent they directly contributed to the inability to return to work.
Unpaid wages findings and director liability
The new company employer indicated that it accepted the original employer had underpaid the worker's wages between June 2013 and June 2017.
The ERA found all three employment agreements between 2013-2018 contained identical provisions that all hours worked beyond 40 hours per week would be paid at the worker's ordinary rate.
The Authority found the failure to remunerate the worker for wage entitlements was a breach of employment standards.
The ERA determined the original employer company was not able to meet arrears as it was not trading, and examined whether the company directors were involved in breaches, finding both directors each were and remain directors and 50% shareholders throughout the relevant period.
The ERA found the owner had knowledge of the worker's hours, given they were linked to restaurant opening hours, and it was plainly evident in the three employment agreements that provisions existed requiring payment for additional hours.
The Authority found the owner engaged in ongoing, intentional and purposeful breaches that denied the worker remuneration for all hours worked, exacerbated by having full knowledge of the worker's language and literacy issues and vulnerable immigration status.
Unfair bargaining and remedy orders
The ERA found that the employment relationship problems stemmed from the owner's actions in unilaterally altering the worker's terms and conditions when introducing employment agreements that reduced pay without properly resolving grievances.
The Authority found the owner had knowledge of the worker's trusting reliance on him to explain the reasoning behind the amendments, while the worker had a very limited grasp of English.
The ERA determined that no careful approach was taken, and the worker was unable to understand the provisions or implications of the changes proposed and effected due to language and literacy issues.
The Authority found the owner engaged in unfair bargaining in the knowledge that the worker was stressed and vulnerable, exploiting his situation when he needed an employment agreement for immigration purposes.
The ERA calculated that the worker should be paid additional hours worked above 40 hours for the period between June 2013 and June 2017, preferring the worker's evidence that he regularly worked 53 hours weekly, totaling $43,152, including holiday pay and unpaid public holidays.
The Authority ordered both company directors personally liable to pay this sum in equal shares plus three years' interest, and ordered the original employer company to pay $6,000 compensation for unfair bargaining.
