Premiums paid for employment

9 Oct 19

The Wages Protection Act prohibits an employer from receiving payments to effectively secure employment. These payments are called ‘premiums’.

The decision of Kazemi v RightWay Limited dealt with an argument that Ms Kazemi had paid a premium in respect of her employment. 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 Limited. Prior to starting with RightWay she paid $125,000 (the buy-in fee) to join RightWay’s Regional Partner Programme. Ms Kazemi signed an Employment Agreement, the Deed Poll and the Deed of Adherence. She incorporated a company which she understood was required by the Deed.

The Programme that Ms Kazemi bought 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. When Ms Kazemi started at RightWay there were no clients in her client register except for one firm that she had previously worked with. The employment agreement referenced the buy-in fee and contained a non-solicitation clause. It prohibited involvement in any other business or employment that may compete with RightWay. It also included a restraint of trade clause.

The Deed provided that if there was an early termination event, such as the end of the employment relationship, Ms Kazemi’s rights to the client register would be suspended indefinitely and she would be taken to have given an irrevocable transfer notice that she wished to sell her interest in the client register for a purchase price equal to the lower of the client register value and the initial buy-in price. The guaranteed value of Ms Kazemi’s client register reduced over the course of her first year’s employment. Ms Kazemi claimed that the buy-in fee was a premium, contrary to the Wages Protection Act. Section 12A of the Wages Protection Act provides that ‘no employer shall seek or receive any premium in respect of the employment of any person’.

The Court found that the responsibilities described in the position description for employment were intertwined with the expectations to build a client register. Ms Kazemi subsequently resigned from her employment. During her notice period she attended to the handover of her work, including her client list, which she did professionally. She did not receive any payment for her client register or repayment of her buy-in fee. 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 that the employment agreement expressly provided that the employment was subject to prior placement of the buy-in fee and therefore that her employment was conditional on her paying the buy-in fee. RightWay argued that Ms Kazemi benefited from the payment by obtaining a share of the revenue generated and the ability to grow the client register and sell or transfer it for a capital gain. The Court was required to decide whether these benefits were separate from the benefits of employment. It found that 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 in the client register.

The Court found that, in essence, Ms Kazemi paid $125,000.00 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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The above article was included in the most recent edition of our quarterly newsletter Employment News. For this and other articles, please click on the following link:  Employment News – Edition 5