Employment arrangements found to constitute premium

29 Oct 19

Column written by Dunedin Partner John Farrow, published in the business section of the Otago Daily Times on Tuesday 29 October.

The Wages Protection Act prohibits an employer from seeking or receiving any premium in respect of employment of any person. That is the case whether the premium is received from the person employed or from any other person. If an employer receives money by deduction from wages or by some other form of payment, the person who paid the money can recover that from the employer as a debt due.

What is a premium? The Act does not define a premium. The plain-English definition is “a sum added to an ordinary price or charge”. The Employment Court has described “premium” as an elastic word which covers straightforward cases of payment being received to purchase a job, or more subtle or ingenious arrangements. In the employment context it is a sum of money paid as part and parcel of securing employment. There have only been a handful of cases dealing with premiums. The history and underlying intent of the legislation includes the desire to protect vulnerable employees from potential exploitation, including undermining the employee’s financial independence from their employer.

Whether or not a payment is a premium will be fact-specific. It will depend on whether the employee receives a benefit other than securing employment. A bond to cover where an employer has paid for an employee to complete a recognised course of training leading to a qualification will not necessarily amount to a premium. It will depend on whether or not the duration of the bond is reasonable and if the bond is in proportion to the commitment made by the employee.However, where there is the lack of any benefit to the employee, other than getting a job, the payment is likely to be a premium.

This year, two recent cases have dealt with the issue of premiums. The Decision of The Labour Inspector v Mittal & Son Ltd involved the employer, trading as Mobil Porchester Road, requiring its employees to pay for fuel when a customer drove off without paying. The employment agreement included a policy that a drive-off would be paid by the staff member on duty responsible for authorising the pump.The Labour Inspector argued that the term “premium” captures paying to acquire a job and that it further extends to situations where an employer recoups, or attempts to recoup, recruitment-related costs or other expenses that would normally be borne by the employer.

The general policy, when referring to drive-offs stated that if staff didn’t follow the policy then it might result in dismissal. The Labour Inspector argued that enforcement of the drive-off policy by deducting wages for drive-offs was a premium.The Employment Relations Authority found that the drive-off policy represented an employment premium because it formed part of the employment agreement to be accepted at the beginning of employment and that noncompliance might result in dismissal.

The decision of Kazemi v RightWay Ltd dealt with an argument that Ms Kazemi had paid a premium. The Court described the arrangement at issue as “unlike any other it had previously considered”. Ms Kazemi was employed as a regional partner with RightWay Ltd. Before starting with RightWay she paid $125,000 (the buy-in fee) to join RightWay’s regional partner programme.The programme that Ms Kazemi brought into was intended to enable accountants to develop a base of clients which became their client register and, according to RightWay, created a joint property right.The employment agreement referenced the buy-in fee and contained a non-solicitation clause. It prohibited involvement in any other business or employment that might compete with RightWay. It also included a restraint of trade clause.

The court found the responsibilities described in the position description for employment were intertwined with the expectations to build a client register. Ms Kazemi subsequently resigned. In her proceedings before the Court she claimed that her buy-in fee was a premium and she should recover that amount from her employer as a debt due.The Court found the employment agreement expressly provided that the employment was subject to prior placement of the buy-in fee and therefore her employment was conditional on her paying the buy-in fee.The court was required to decide whether client register benefits were separate from the benefits of employment. It found the commission payments were simply another element of Ms Kazemi’s reward for work and that she had no legal proprietary interest in the client register. There was no ongoing benefit to Ms Kazemi once her employment ended and she was constrained by the provisions of the employment agreement from working with the clients, including those in the client register.

The court found that, in essence, Ms Kazemi paid $125,000 to obtain the right to receive monetary reward for her work. Everything she received was as a result of her efforts as an employee. While the Court described this arrangement as “unlike any that it had previously considered”, it is not uncommon for employers with limited funds to look at alternative fund-raising methods. These may include the use of employees’ funds. This case certainly signals that where an employer in any way links an employee’s investment to that employee’s employment, it is at risk of that investment being found to be a premium.


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