The effect of the new law change
A recent addition to the Crimes Act 1961 (section 220AA) defines the intentional failure by an employer to pay any money owing to an employee in relation to their employment as ‘theft’, where there is no reasonable excuse for the non-payment.
Penalties under the new offence are not insignificant and the maximum penalty an employer may be sentenced to will depend on the scale of the offending. Where the value of the non-payment exceeds $1,000, an employer may be sentenced to imprisonment for a term of up to seven years. For non-payment of amounts between $500 -$1,000, imprisonment may be for a term of up to one year and if the value is $500 or less, imprisonment may be for a term up to three months.
Motivation for the legislative amendment
Prior to this amendment to the Crimes Act 1961 the only recourse for employees to recover unpaid wages or statutory entitlements was a civil claim through the Employment Relations Authority. This could be brought by the individual employee or by the Labour Inspector.
With wage theft being one of the more common types of migrant labour exploitation, these particularly vulnerable employees often faced barriers to recovering the funds through the civil process, such as financial constraints or difficulty understanding the process to follow.
Section 220AA now provides the additional option of a criminal process, allowing an employee victim to lay a complaint with the Police.
Requirements for Prosecution and the Defence of reasonable excuse
Where an employer is prosecuted under this section the onus will be on the prosecution to establish beyond reasonable doubt that the employer’s failure to pay the employee was intentional.
If the employer intentionally failed to pay, they will have a defence if there is a ‘reasonable excuse’ for the non-payment . Currently what amounts to a reasonable excuse is not defined and there is limited authority on what it will mean in practice.
Given that the offence is within the criminal jurisdiction it appears that a defendant will only need to provide evidence which is capable of raising the presence of a reasonable excuse, which will force the Prosecution to prove beyond reasonable doubt that no such excuse was present.
What will amount to a reasonable excuse?
Difficult questions arise as to what would amount to a reasonable excuse for deliberately failing to pay an employee their entitlements.
One potential scenario is an insolvency situation where the employee does not have the means to satisfy all their debts and a payment of all the amounts due to the employees could amount to a voidable transaction in terms of section 292 of the Companies Act. Arguably, a failure to pay in these circumstances would be reasonable.
Contentious issues could also arise if an employer claims that they didn’t pay because they genuinely thought they were not legally obliged to do so. Generally, a mistake of law would not amount to a defence under the Crimes Act, but what if the payment issue was legally complicated and the employer had taken competent legal advice? This could well amount to a reasonable excuse for non-payment. On the other hand, if an employer has simply made assumptions regarding the obligations, and failed to make proper inquiries, then they would not have a reasonable excuse.
We look forward with interest as to how the case law develops in this area.
Next Steps for Employers
The amendment to the Crimes Act does not impose any new obligations on employers. However, it is a timely reminder of the importance of good systems to ensure employees are paid correctly and no unlawful deductions are made. Employers would be wise to review (and update where necessary) any policies and procedures their business uses for payment of, and deductions from wages to reduce the risk of falling foul of the new law.
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Heather Collins, Associate at Pitt & Moore Heather specialises in employment law and has over 15 years’ experience advising corporate and individual clients on broad range of workplace matters. Heather regularly assists with raising and defending personal grievances, disciplinary and performance issues, restructuring, redundancy, incapacity, contractual disputes, health and safety, protected disclosures, privacy, holiday and leave entitlements, and restraints of trade, in addition to providing representation at mediations and in the Employment Relations Authority. Heather also regularly advises employers on overall employment law compliance, and drafts and updates employment agreements, contractor agreements and workplace policies. She has presented at a number of national conferences on the topics of employment and immigration law (which she also specialises in), and has particular experience in advising clients and other lawyers on the cross over of employment and immigration law.
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