The Employment Court decision of A Labour Inspector of the Ministry of Business, Innovation and Employment v Tech 5 Recruitment [2016] NZEmpC 167 has clarified the ambiguity surrounding employment premiums.

Tech 5 Recruitment ("Tech 5") is a labour hire business that began recruiting employees from the Philippines to work in New Zealand, mainly in the construction industry. The recruitment process involved a Tech 5 assessor flying to the Philippines to put applicants through a trade test to ascertain their level of competency. Once the assessor was satisfied that the applicants had the requisite skills and experience required they were offered employment with Tech 5. As part of the employment package the employees were relocated to New Zealand.

The successful applicants were asked to sign an employment agreement, which for the most part was generic but which had three addenda attached. These listed several "relocation costs and employee expenses", such as, flights, accommodation, medical costs, visa processing fees, trade testing and so on, and bound the employees to Tech 5 for three years, or those costs would be required to be repaid.

The Employment Court assessed what a "premium" was in the context of section 12A of the Wages Protection Act 1983, and determined that "premium" naturally captures paying to acquire a job (that is, consideration over and above the wage paid for the work performed in the wage/work bargain). The Court went on to say it considered a "premium" extends beyond that definition and would also apply to a situation where an employer was "recouping or attempting to recoup, recruitment related costs or expenses" that would normally be borne by the employer. Given the nature of this statement, this will be a fact specific exercise and turn on the circumstances of each individual case.

One feature of this particular case that stood out to the Court was the fact that other than the employees being offered a job, there was no other benefit to the employees in meeting the trade testing costs. The trade testing requirement was solely for Tech 5's benefit, so that it could satisfy itself that the applicant's skills and experience was at an adequate level to move straight into the workforce in New Zealand on arrival. As the Court rightly noted "the benefit of this trade testing flowed one way: to Tech 5". That left the employees with no option but to accept the associated costs.

The Court had no difficulty in determining that the trade testing costs were a premium on employment. The fact that Tech 5 did not test New Zealand applicants in the same manner and therefore did not recoup or attempt to recoup similar costs from New Zealand residents was instructive. The Court indicated that a "premium" would include situations where the employer was not only asking for a premium, but also in circumstances where the employment agreement contains an obligation on the employee to pay and includes an instrument for the employer to ensure that the costs can be recouped.

The Court did make the comment that there will undoubtedly be circumstances where reimbursement for appropriate costs will not be a premium. The Court used the example of where tools or airfares are purchased for carpenters and said that provided the employer is not profiting from the arrangement, this would be an acceptable cost to recoup as long as the employee would eventually own the tools outright. The same applies to airfares. Provided the employer is not charging more than the actual cost of the airfare to the employer, then this would be acceptable.

It is important that the benefit of whatever the employee is trying to recoup flows both ways. Without this, it is likely that the expenses or costs being claimed will be a premium.

Bonding agreements should be specific, listing costs individually, and ensuring costs are relevant and current.

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.