Smiths City ruling opens floodgates

The recent ruling in the Employment Court -  [2018] NZEmpC 43 - against retailer Smiths City, has opened the floodgates as hundreds of employees have complained about unpaid work in New Zealand. 

It all began when the Labour Inspectorate of MBIE investigated one of Smiths City’s practices*  that every morning before it opened its stores to customers, it conducted a short 15 minute meeting with sales staff. Attendance at these meetings was expected, but no wage and time records are kept. The sales staff who attended were not paid for their time.

Smiths City argued its sales staff were not working during these meetings and therefore it was not required to keep records or to pay staff who attended. As an alternative it argued that even if those employees attending were working, it satisfied the Minimum Wage Act by taking into account commission and incentive payments earned in the relevant pay period.

The Inspector considered the Smiths City’s sales staff who attended these meetings were working, so the company had to keep records of the time its employees attended and pay them for doing so. Deeming Smiths City had breached the Minimum Wage Act 1983, the Inspector issued an improvement notice to the company pursuant to s 223D of the Employment Relations Act 2000 (the Act). The company objected and the Employment Relations Authority issued a determination rescinding the notice. The Inspector challenged that determination.

So what is "work?"

Section 6 of the Minimum Wage Act 1983 requires payment for work at not less than the minimum rate but does not define what “work” means. That section reads:

6     Payment of minimum wages 

Notwithstanding anything to the contrary in any enactment, award, collective agreement, determination, or contract of service, but subject to sections 7 to 9 of this Act, every worker who belongs to a class of workers in respect of whom a minimum rate of wages has been prescribed under this Act, shall be entitled to receive from his employer payment for his work at not less than that minimum rate.

The Employment Court approved the previous test as set out in the Court of Appeal Idea Services Ltd v Dickson [2009] ERNZ 116 (sleepover case) that determining whether or not an activity amounts to “work” is case specific looked at through the headings of :

(a)Constraints on the employee 

(b)Responsibilities of the employee

(c)Benefit to the employer.

Applying the headings to the Smiths' facts, the Employment Court ruled that the morning meetings conducted by Smiths Citybefore it opened its stores constituted work within the meaning of s 6 of the Minimum Wage Act. The Employment Court further ruled that Smiths City must pay its staff to attend them, as in each meeting the employees made a 15-minute commitment to it, during which they had no opportunity to earn commission or incentive payments. That would take their total remuneration below the minimum wage threshold, making the practice illegal. The court estimated on average a minimum wage worker had missed out on $800 a year and ordered Smiths City to work out how much it owed affected employees, and back-pay them by 8 August this year.

So who does this ruling in include?

The order was limited to those employees who were paid at, or near, the minimum wage, as employees on minimum wage have to be paid minimum wage for each and every hour worked.  Employees paid a salary might have formal hours of 40 a week, but often they have contracts which provide that for "any reasonable, additional hours" required to undertake the job, they won't receive additional remuneration.

The impact

Smiths City Group shares fell 4.6 per cent after the electronic retailer was ordered to pay staff for their attendance at 'voluntary' sales meetings over the past six years. With 20% - 1500 workers - in the retail working population in New Zealand, and many of them are on minimum wage, it's particularly important to get this issue right. Several other retailers have been identified in the media as possibly failing in their wage obligations; it is imperative that employers who have waged staff paid at or near the minimum wage reconcile their records for the previous 6 years, to avoid being the next in the Inspectorate's line of fire.

"It's just become almost a norm, a practise, that's slipped in. And certainly something we want to put a halt to and get back to people being paid for the hours they work," said Labour Inspectorate Stu Lumsden.

Workplace Relations and Safety Minister Iain Lees-Galloway said he was concerned about the number of businesses being accused of underpaying minimum wage workers.

"This practice is not acceptable, and [I hope] they will quickly change their business practices to get themselves in line with the law," Mr Lees-Galloway said.

* Smiths City objected to the Court considering anything other than the morning meetings because the other situations mentioned were not raised in the case. The Employment Court confined its consideration to the morning meetings only.