Employees working extra hours: What is reasonable?

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It is a legal requirement for individual employment agreements (‘IEAs) to contain a clause setting out the hours an employee will usually work and the days of the week these hours will be performed (with the exception of casual employees).

From April 1, 2016, the Employment Relations Act 2000 (‘Act’) was amended by the insertion of a new section designed to combat certain employment practices that greatly benefitted an employer while disadvantaging an employee. Generally known as ‘zero-hour contracts’, employers (particularly, but not limited to, those in the fast-food industry) were expecting employees to be available to work whenever the employer required them, without offering any guaranteed hours in return.

Section 67D of the Act set out the law regarding what is now known as an ‘availability provision’  and the conditions that would need to be met if an employer wants an employee to be available outside of their usual hours. While too lengthy to replicate in this article, in a nutshell, an employer can only require an employee to be available outside of their usual work hours if the IEA contains some guaranteed hours of work, there is good reason for the employer requiring the employee to be available and ‘reasonable compensation’ is offered to the employee for making themselves available.

There is no definition of the term reasonable compensation, although s 67(d)(6) does set out some factors to consider such as number of hours in addition to agreed hours, the nature of any restrictions the availability places on the employee and the hourly wage/salary.

Interestingly, in the first test case decided under the new law in 2017, Fraser v McDonald Restaurants (New Zealand) Limited, the Employment Court held that it could not set an amount as reasonable compensation, as that would effectively be determining the terms and conditions of an employee’s employment, which is outside the Court’s jurisdiction. Presumably, if an IEA does contain a specified compensation amount, the Court would have the jurisdiction to decide whether the amount is reasonable or not, should the matter be litigated.

The facts in Fraser involved two McDonald’s employees who had guaranteed hours and were also asked to indicate their potential availability for hours over and above the amount in their IEAs. The roster for each week would include their guaranteed hours and additional hours within the periods they had indicated they could be available, which they were free to decline if they gave 24 hours’ notice from the roster being published.

The Court first had to determine whether the clause in the IEA did in fact amount to an availability provision and if so, did McDonalds breach s 67D by not paying reasonable compensation. The Court held that the clause did not amount to an availability provision, as the employees could be requested to work the additional hours, but were not required to work, if they did not want to. Employers will need to check their current IEAs to ensure they are not requiring employees to make themselves available outside their usual hours, without providing reasonable compensation.

Far more common, and potentially more complex, is the situation where an employee is on a salary and the hours of work clause in their IEA states the hours and days the employee would usually be required to work, but also includes the  term that “…the employee may be required to work additional hours, from time-to-time, to meet the needs of the business”.

Ordinarily, this is not a problem if  an employee is required to work additional hours on occasion or take the odd after-hours phone call. Indeed, ss 67(D)(6) and (7) of the Act allows the employer and employee to agree that an employee’s salary can include payment for this availability, although it does note that the amount of the salary and the number of additional hours required will be a factor to consider.

However, I have had two recent cases, where there is an employee who is basically the only trouble shooter (in one case, a 24/7 business and the other a 13/7 business) and they have been expected to be available if required, throughout the entire operating  hours of the business.

In both cases, the detrimental effects this availability requirement has had on their wellbeing and freedom is significant, and with salaries well below the $100 thousand mark, it is arguable that additional compensation would need to be paid. Employers also have an obligation to ensure the health and safety of their employees, and potentially, this unrelenting requirement to be available, will put employee health at risk.

The major problems employees in this situation face are the restrictions the employee is continuously subjected to where they can never switch their phone off after hours, go to an area where there is no cell phone coverage, commit to social/recreational functions at any distance from the business or even drink an amount that might put them over the driving limit.

As more Court cases arise testing the availability provisions, we will increasingly understand what is reasonable in terms of an employee being available, and what will be considered reasonable compensation an employee can expect to receive.

In the age of mobile devices, ‘switching off’ and relaxing after hours is becoming increasingly difficult for employees. Employers should start to consider now, what is reasonable in terms of expectations and remuneration, or risk being the next test case that seeks to address this.

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About Author

Erin Burke

Employment Lawyer and Director at Practica Legal Email: erin@practicalegal.co.nz phone: 027 459 3375