A recent case in the Employment Court is causing some concern and controversy, especially among industries paying piece rates.

"Ordinary Hourly Rate"
Labour Inspector v Greenlea Premier Meats Limited (unreported, AEC80/01, 7 May 2002), concerned an action brought by the Labour Inspector for arrears of holiday pay owing to three employees of Greenlea Premier Meats Limited ("Greenlea"). Greenlea is an export beef processing company operating two plants in the Waikato.

The employees were covered by a collective employment agreement, which provided for two rates of pay. The first was a piece rate; whereby the employee was paid according to the grade of the position he or she was working on at any particular time and the number of bodies processed. It is a payment reliant on productivity. The second rate of pay was referred to as the "ordinary hourly rate" and was set at $9.50 per hour. The contract provided for the "ordinary hourly rate" to be paid when the employee has taken specified leave or when production work is delayed or stopped. The contract provided that employees who are normally employed on the day on which a public holiday occurs shall, if their services are not required by their employer on such a holiday, be paid their ordinary rates of pay at the hourly rate of $9.50 for that day."

The Employment Court, on appeal from the Employment Tribunal, had to decide whether Greenlea’s specification of the ordinary hourly rate was in breach of the Holidays Act 1981.

The Holidays Act 1981
The Holidays Act provides that every employer shall grant to its employees 11 whole holidays which shall, where they fall on days that would otherwise be working days for the employee, be holidays on pay. The Court of Appeal in Ports of Auckland Limited v New Zealand Waterfront Workers Union Incorporated [1996] 2 ERNZ 25 found that the purpose of this section in the Act is to:

"enable workers observing statutory holidays falling on what would otherwise be working days to have the pay that they would have earned on an ordinary working day....They are entitled to observe public holidays without loss of what they habitually receive for ordinary working days. Any lesser remuneration is something less than "pay" using that word in its ordinary sense."

What Does "On Pay" Mean?
The definition of what is a holiday "on pay" was determined by the Court of Appeal to mean "the ordinary...natural meaning" of "pay" the remuneration received for a working day. It is payment for labour or service."

The Employment Court in Greenlea found that the Collective Agreement’s specification of $9.50 as the ordinary rate of pay was an attempt to contract out of section 7A of the Holidays Act 1981. The Court held that:
"The rate of $9.50 per hour does not reflect the ordinary pay received by employees in this case. The Court of Appeal held that employees are entitled to observe public holidays without loss of what they habitually receive for ordinary working days. The facts show that during the season the employees ordinarily and habitually receive wages considerably in excess of the minimum rate."

The Court accepted that the averaging of four weeks’ payment prior to the holiday was a "rational and predictable" formula and reflected the ordinary rates of pay for the employees at the relevant time.

The decision has drawn criticism from the Meat Industry Association which has suggested that the decision in Greenlea could cost the industry more than $1 million for each of the 11 public holidays every year.

The Future
We understand the decision is being appealed, so watch this space! We also understand that the much-awaited amendments to the Holidays Act are in the pipeline and, depending on the results of the election, we may see the Government’s proposed changes this year. Again, we will keep you posted.

The contents of this article are for information purposes only and should not be acted upon without specific legal advice. KPMG Legal does not accept any liability other than to its clients and only then in relation to specific requests for advice. KPMG Legal is an independent law firm.

If you would like more information or would like to speak to one of our employment team please contact
Peter Churchman: pchurchman@kpmg.co.nz,
Jane Latimer: jelatimer@kpmg.co.nz or
Clayton Kimpton: clkimpton@kpmg.co.nz.

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