The recent Employment Court case of Stewart v AFFCO New Zealand Ltd [2022] NZEmpC 200 looks at a common dilemma facing employers, namely working out how many weekly hours they can confidently promise to new employees. Business needs may differ from week to week, but other than casual arrangements, employers still need to agree on minimum guaranteed hours in the employment agreement.
To work around this, employers will sometimes promise a minimum of, say, 30 hours per week, but also insert an ‘availability clause’ requiring employees to be available to work up to, say, 40 hours per week. This is permitted under the Employment Relations Act 2000 (Act) but reasonable availability compensation must be provided if the employee is on an hourly wage.
Where an employer uses this ‘availability clause’ but does not provide reasonable availability compensation, the clause is unenforceable. In the past, employees have challenged unenforceable availability clauses and asked the Employment Court to grant them ‘reasonable compensation’.
Previous Approach
The Court previously declined these employee requests, arguing that setting ‘reasonable compensation’ would amount to fixing the terms of a contract, which falls outside its jurisdiction.
The Court left open the possibility of an employee framing the issue as a disadvantage grievance, seeking compensation for hurt and humiliation and/or loss of a benefit. However, in determining said compensation, the Court would inevitably be walking dangerously close to fixing the terms of a contract, albeit by a different name.
Stewart v AFFCO
In Stewart v AFFCO New Zealand Ltd an employee succeeded in challenging an unlawful availability clause and obtained an order for his employer to pay him compensation.
The key questions for the Court were:
- did the employee, Mr Stewart suffer actual disadvantage; and if so,
- could the Court award him compensation?
The Court found that: yes, Mr Stewart did suffer actual disadvantage. There was an “absolute expectation” to undertake overtime work, when called upon, due to the reality of working in a small department, where declining work would place extra stress on co-workers. This “absolute expectation” was not corrected by AFFCO and it placed constraints on Mr Stewart’s ability to plan his life away from work, i.e. it caused him disadvantage.
The Court also found that, yes, it could award him compensation. The Court considered previous case law, including concerns canvassed above regarding compensation effectively amounting to fixing of terms of a contract.
The Court got around those concerns by turning to equity and finding it could award compensation on a ‘quantum meruit’ basis, i.e. compensation for the value of a benefit lost by the employee and unjustly received by the employer.
As the compensation was for a ‘benefit’, it fell under section 123(1)(c)(ii) of the Act, meaning it was within the Court’s jurisdiction to grant compensation. The appropriate amount of compensation was left, in the first instance, for the parties to try and reach agreement, before coming back to the Court if the issue could not be resolved between them.
Lessons
The Court’s willingness to utilise equity to find a just solution, follows the Supreme Court’s judgment in FMV v TZB, where the Supreme Court made clear that the Employment Relations Authority and Court have considerably broad jurisdiction. The Supreme Court found that employment relationship problems are a “supervening class” which may encompass the rules of contract, property, tort or equity “as long as the problem relates to or arises from an employment relationship”.
We can expect the Court to turn increasingly to these above areas of law to find creative answers to employment problems.
Three lessons arise from this case, for employers to consider:
- is an availability clause actually necessary? It may be more cost-effective to rely on employees wanting to work additional hours, or even incentivising them to do so with overtime rates;
- if an availability clause is necessary, setting availability compensation for wage-based employees is critical; and
- if an availability clause is in-place in an existing agreement, but without availability compensation, employers need to either:
- make very clear to employees that it will not enforce said clause and employees can turn down additional hours without consequence; or
- negotiate availability compensation and add it to the agreement, by way of a variation.
If you would like any advice on these issues, please get in touch with our specialist Employment Law Team at Lane Neave.
Special thanks to Olivia Kemp for her assistance in writing this article.
