Unpaid overtime and availability provisions

A report published in 2020 by a leading recruitment agency in New Zealand revealed that of the approximately 7,800 workers who responded to its survey, two-thirds who work overtime each month do not get paid for it.

This report illustrates that overtime culture continues to be a relevant issue in New Zealand workplaces. From a legal perspective, employers who require employees to work overtime must be careful about how they approach this requirement. There is often an ‘understanding’ between the parties that overtime is unavoidable during busy periods, or that overtime is simply an expectation of the role. However, there are legal ramifications for employers if the employment agreement is not drafted correctly to capture this ‘understanding’.

From 1 April 2017, all employment agreements were required to comply with new standards under the Employment Relations Act 2000 (“the Act”). Under the changes, and pursuant to section 67D of the Act, if an employer requires an employee to be available to accept work outside of their guaranteed hours, then the employment agreement must contain an availability provision. An availability provision that is not compliant with the Act is unenforceable against an employee, and he or she can refuse to work additional hours under the Act.

In order to include an availability provision, employers must provide guaranteed hours and ‘reasonable compensation’ to the employee for their availability.

The Employment Court in Postal Workers Union of Aotearoa Inc v New Zealand Post [2019] made it clear that section 67D of the Act was not intended to be limited to waged employees on ‘zero hour’ contracts, but rather that it was to ensure that employers pay reasonable compensation to employees who are required to make themselves available for the employer’s benefit. The Court emphasised that the legislation reflected a statutory recognition that an employee’s time is a commodity which has a value.

At this stage, there is not yet any definitive guidance on what constitutes ‘reasonable compensation’ for the purposes of an availability provision. Factors that employers are obligated to consider include:

a. The number of hours for which the employee is required to be available;
b. The proportion of hours referred to in (a) to the agreed hours of work;
c. The nature of any restrictions resulting from the availability provision;
d. The rate of payment under the employment agreement for the work for which the employee is available;
e. If the employee is remunerated by way of salary, the amount of salary.

With respect to salaried workers, the Act allows employers and employees to agree that salary includes compensation for availability. In setting an employee’s salary that is inclusive of ‘reasonable compensation’, employers must be mindful that even salaried employees must be paid at least the minimum wage for each hour worked. The same approach cannot be taken with waged employees. If waged employees are required to be available, an additional payment of reasonable compensation must be provided for the employee’s availability. If the employee is then required perform work during their availability period, he or she must be paid at least the minimum wage for working. This cannot be offset against the amount that is paid to the employee for their availability.

Furthermore, an availability provision can only be included in an employment agreement if the employer has genuine reasons based on reasonable grounds for doing so. Under the Act, employers must have regard to:

a. Whether it is practicable for the employer to meet business demands for the work to be performed by the employee without including an availability provision;
b. The number of hours for which the employee would be required to be available;
c. The proportion of hours referred to in (b) to the agreed hours of work.

There are yet to be any cases illustrating how the Courts would consider the factors above. However, it is likely that any litigation risk associated with availability increases in situations where an employer provides few guaranteed hours, but requires employees to be available for the majority of their employment.

Availability remains a new and developing area of law. As such, it is important for employers to review their overtime arrangements with their employees, to ensure their employment agreements comply with legislative requirements with respect to availability. Contact our AdviceLine team for more information, or to obtain a copy of cases discussed above. EMA legal can provide more formal legal advice if required.

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