Most employment agreements require an employee to give a certain
amount of notice if they resign from the role. What happens if they
fail to do so? For example, an employee may be required to give
four weeks notice when they resign, but he/she walks off the job
instead, giving no notice and leaving the employer having to
scramble to find a replacement.
In this scenario there are two things to consider:
What, if anything, is an employer entitled to recover from the
employee for the inconvenience arising from a breach of contract;
If an employer is entitled to recover money from the employee,
can this be taken by way of deduction from final pay and holiday
The general rule is that an employer may not make unauthorised
deductions from an employee's wages. The Wages Protection Act
1983 allows deductions to be made only if the employee requests
them or consents to them, and has not given written notice of
withdrawal of consent.
While many employment agreements have a standard clause which
purports to give this consent, developing case law suggests that
general consent to deduction from wages will not necessarily be
enough to allow deduction for a failure to give the required notice
upon leaving a role.
Where an employer wants to deduct wages for lack of notice, the
clause in the employment agreement must be clear and specific as to
what the deduction is for and where the deduction will be made
In Smith v EZ Step Ltd t/a Pet Stop  NZERA
Auckland 442, the Employment Relations Authority held that a clause
that provided "four weeks pay shall be paid or forfeited
by the party not giving the requisite notice" was not
written consent to a deduction in terms of the Wages Protection Act
because it did not specifically make provision for deduction from
the employee's wages or final pay.
In addition, the deductions clause must be a genuine
pre-estimate of the loss that would be caused by the breach.
Whether a clause meets this requirement will be assessed at the
time the parties entered into the employment agreement, not at the
time of the alleged breach.
In Paengkam v GL Freeman Holdings Ltd  NZERA
Christchurch 235, the Employment Relations Authority held that a
clause purporting to allow deduction from the employee's wages
and/or holiday pay and final pay where the six weeks required
notice was not given, was a penalty provision rather than a genuine
pre-estimate of loss, and was not required or reasonable.
We suggest any employer should seek legal advice when wishing to
rely on a clause that purports to allow deductions from final pay
where an employee does not give the required amount of notice upon
leaving a role.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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