Posted on: Mar 02, 2015
A clause in an employment agreement that provided a commonly used clause did not entitle an employer to deduct four weeks pay from an employee’s pay when the employee left without giving the requisite notice. The clause stated:
“four weeks pay shall be paid or forfeited by the party not giving the requisite notice”
The Employment Relations Authority said a deduction made in reliance on the clause breached section 5 of the Wages Protection Act 1983. For a forfeiture clause to be effective, there needs to be a real and identifiable cost that the employer has incurred as a direct result of the employee failing to provide adequate notice.
Smith v EZ Step Ltd t/a Pet Stop [2014] NZERA Auckland 442
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