Two Employment Court (Court) judgments issued in the final quarter of 2019 demonstrate the trend of increased penalties for employers found to be in breach of minimum standards.

Both cases involve exploitation of migrant workers. In A Labour Inspector v. Parihar [2019] NZEmpC 145 (Parihar), the Court refused to allow any discount for a husband-wife partnership employer; instead, the Court assessed each defendant’s personal liability and ordered penalties accordingly. In A Labour Inspector v. New Zealand Fusion International Ltd [2019] NZEmpC 181 (NZ Fusion International), the Court imposed record penalties against an employer for the deliberate and sustained breach of its employees’ minimum standards.

In both cases, a key consideration in setting penalties was deterrence, indicating such increased penalties are set to continue.

No Discount for Individual Employers in Partnership

Parihar concerned a husband and wife who operated two liquor stores in partnership. The liquor stores were staffed by migrant workers from India on temporary visas. Mr. Parihar was involved in most of the operation and administration of the stores, with Mrs. Parihar generally providing oversight.

Both liquor stores were in busy locations with extended hours of operation. They were open 7 days a week, for up to 12 hours per day, including almost all of New Zealand’s 11 public holidays. The employees worked upwards of 70 hours per week and were reluctant to take sick leave, knowing that they would not be paid.

The employees were paid between NZ$8 and NZ$11 per hour (though most received $9 per hour). These rates were well below New Zealand’s minimum wage over the relevant years.

Six of the Parihars’ migrant employees complained to the Ministry of Business, Innovation and Employment about their working conditions. Upon investigation, the Labour Inspector determined that that the complainants had been grossly underpaid and overworked. The Court agreed, and considered the appropriate remedies or penalties.

The Court considered whether some allowance should be made for the fact that each defendant was in partnership. A partnership is not a distinct legal entity, but it is recognized as a particular arrangement for two or more persons carrying out business. Generally, in the case of a company employer, the Court imposes a single penalty, which reflects the actions by all of its representatives that gave rise to the complaint.

For minor breaches, penalties are limited to NZ$10,000 for an individual and NZ$20,000 for a company for each particular breach. However, the Employment Relations Act was amended in 2016 to provide for higher penalties (of up to NZ$50,000 or NZ$100,000 per breach) for more serious infringements. The Parihars were found to have committed 30 breaches in total.

The Court ordered penalties of NZ$180,000 against Mr. Parihar personally for his significant role in the offenses. Mr. Parihar’s penalty was calculated based on the significant number of breaches, but with discounts applied for Mr. Parihar’s remorse and subsequent efforts to remediate them. The defendants argued that no further penalty should be awarded against Mrs. Parihar, submitting that separate penalties would effectively amount to “double penalties” (as both would have to bear the cost of any and all penalties).

Based on Mrs. Parihar’s limited involvement in the overall offending, the Court ordered a nominal penalty of NZ$20,000. However, no discount was applied due to her being in partnership with Mr. Parihar.

An argument can be made that the Court’s approach may not have followed the totality principle, which is aimed at ensuring that the aggregation of penalties for each offence is a just and appropriate measure of the total offending involved. In other words, rather than starting from a global maximum and then apportioning to each individual according to his or her role in the offending, the Court considered each individual partner in turn. Under this approach, a partnership could be exposed to a substantially higher total penalty than a company or corporation.

Judge M E Perkins commented that “employers can expect to see a gradual increase in penalties over time” to ensure that the purpose of deterrence is met. This message is consistent with trends we have been seeing in other New Zealand decisions prior to Parihar, and is also reflected in NZ Fusion International.

Record Penalty Against Employer of Migrant Workers

A Labour Inspector v. New Zealand Fusion International Ltd [2019] NZEmpC 181 is another recent case involving migrant employees who raised complaints to the Labour Inspector about the manner in which they were being treated by Ms. Guan and her company, Fusion International. Both Ms. Guan and Fusion International were defendants to the proceedings. The defendants operated holiday accommodations nearby a popular New Zealand tourist destination.

Ms. Guan had offered each complainant employment conditional upon payment of a NZ$45,000 bond. Requiring a bond for employment is unlawful in New Zealand (and, in any event, Ms. Guan never repaid the complainant’s bonds).

Ms. Guan made arrangements for the complainants to travel from China to New Zealand under student visas. The complainants began work immediately upon arrival in New Zealand. They worked without pay, seven days a week.

Throughout this time, Ms. Guan refused to acknowledge the complainants as being employees of the company, and she kept no wage and time records for them. Being on student visas meant that the employees were prevented from working lawfully in New Zealand. On the other hand, Ms. Guan did keep wage and time records for her employees who were entitled to work in New Zealand.

The Court found that the complainants had been denied several of their minimum entitlements under the Employment Relations Act 2000, Holidays Act 2003, and Minimum Wage Act 1983. In the Court’s view, these breaches were sustained and serious.

The Court remarked on the significant power imbalances in employment relationships that migrant workers often face. Each complainant placed a high level of trust in Ms. Guan, which she leveraged to gain a commercial advantage. The Court noted the “debilitating effect” that Ms. Guan’s breaches had on each of the complainants, particularly given the level of sacrifice each employee had made to leave their home country for New Zealand. The Court considered that any penalty must communicate that the defendants’ actions were unacceptable and deter other employers from cutting corners in respect of minimum employment standards.

Given the vast number of specific breaches over such a long period of time, the Court treated the three breaches in respect of each complainant employee as one continuous breach, for a total of nine serious breaches.

For the purposes of deterrence, the Court ordered a penalty of NZ$300,000 against the first defendant and NZ$150,000 against the second defendant. Including compensation, the defendants were ordered to pay a record NZ$680,350.

As of this writing, Fusion International has entered into voluntary administration.

Further Updates on the Horizon

In other developments, the government has recently sought feedback regarding minimum working standards for contractors. Currently, New Zealand has two worker categories: employees and contractors. The government considers there to be an increasing middle ground wherein a worker is unable to enjoy the full benefit of either category and is thus worse off. The government is considering a number of proposed changes, one of which may include introducing a third category of worker for those who perform casual work but not on a regular employment basis. Workers may qualify for some, but not all, rights enjoyed by employees.

Written by Tim Clarke of Bell Gully and Roger James of Ogletree Deakins

© 2020 Bell Gully and Ogletree, Deakins, Nash, Smoak & Stewart, P.C.