Being helpful comes back to bite employer

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Time and again the generous actions of employers are taken advantage of by their workers, often by people who have been good friends in the past.

This is a local example of an employee trying to rip off their employer.

Online Contractors works in the construction of roads and related services in the new developments around Hamilton.

Mr Wetere was a good friend and long time worker with Mr Bawden, the owner of Online. He had a good salary and was provided with a vehicle.

In 2012 Mr Wetere was trying to raise the finance to purchase a new home and was unable to provide the deposit he needed.

He approached Mr Bawden and asked if he would lend him $44,000 which was the balance he needed for the deposit. Mr Bawden agreed to this and then Mr Wetere advised that it could not be recorded as a loan otherwise the Bank would not lend him the amount he required. Mr Wetere asked Mr Bawden to write a letter to the bank confirming the arrangement. The letter advised that the $44,000 comprised back pay of $15,000 and a salary advance of $29,000. Mr Bawden admitted the letter was misleading to the bank.

Mr Wetere received the money in April 2012 and, after six years with Online, resigned in July of the same year, without any warning. Mr Wetere told Mr Bawden that he would repay the loan as soon as he was able to refinance and secure additional borrowings from the bank.

Mr Wetere never made any repayments on the loan and then denied that it was a loan. The employer withheld his holiday pay to offset some of the loan and an overpayment that had been made but not noticed at the time he left.

The employer initiated action though the Employment Relations Authority to recover the money.

The justification for this was a clause in Mr Wetere’s employment agreement that the employee consents to the employer deducting from any money owing to the employee during or on his termination of employment any sum …which may be owed by the employee to the employer…

Mr Wetere denied having signed the employment agreement, but the authority concluded that more than likely he had signed it.

The authority takes its role seriously and delved into the details, asking Mr Bawden to provide evidence of the transaction on his bank accounts, financial records and requested an email from the bank describing the amount and the names and numbers of accounts the funds moved between.

The transaction was coded in such a way that neither Mr Wetere nor Mr Bawden paid tax on it.

The authority concluded that the $44,000 was not salary but was a loan that should be repaid.

With respect to withholding of the holiday pay, the authority found that to do this, the holidays need to be treated as ‘annual leave paid out’.

The Holidays Act requires requests for annual leave to be paid out to be in writing and that no more than one week per annum can be paid out. As Mr Wetere had not made this request in writing, the employer couldn’t withhold the holiday pay.

The section of the Wages Protection Act that permits deductions from a worker’s pay requires that the employer consult a worker before making the deduction, which reflects the duty of good faith provision of the Employment Relations Act.

As Online didn’t consult with Mr Wetere, they were not entitled to withhold the holiday pay.

However, Mr Wetere was not entitled to keep the money.

Not only did the authority order Mr Wetere to repay the $44,000, he was ordered to pay interest at 5 percent per annum from the date of the decision. He was also ordered to repay the overpayment.

Online was ordered to pay Mr Wetere his holiday pay, and again was ordered to pay interest at 5 percent from the date of the determination.

The sting in the tail was the authority sent a copy of the decision to the IRD to look into the tax issues.

This case is a useful reminder of the need for some formality when lending money to staff. If you agreed to a personal loan to an employee, draw up an agreement and include an arrangement for how it will be repaid.

Secondly, be aware that the authority is increasingly forwarding in cases to other government agencies (particularly IRD and Immigration) if they find the parties have been bending the rules.

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About Author

Anne Aitken

Anne Aitken is a highly experienced Human Resources professional who focuses on helping employers strengthen their organisations through working with their people. email: anne@anneaitken.co.nz | www.anneaitken.co.nz

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