Terranova Homes & Care Limited

The case is based on an issue between employees (plaintiffs) who work as caregivers for TerraNova Homes & Care Limited (the defendant). The employees are members of the KiwiSaver scheme and had signed an employment agreement, which states, “The employee remuneration is inclusive of any KiwSaver compulsory employer contributions”.

The Plaintiffs’ hourly rates are $13.50, which is the statutory minimum wage. From this, the employer’s compulsory KiwiSaver contribution of $0.26 is deducted and paid toward the KiwiSaver scheme (before tax). This results in a reduction in the payment received by the Plaintiffs.

This study explores the statutory interpretation issues the court had to determine the case, arguments put forward by the plaintiff and the defended, the tools used by the court in deciding the issue, the Court’s interpretation and implications to the parties.

Statutory interpretation issues and alternative arguments put forward

The Court was asked to determine whether the employer was entitled to deduct its compulsory KiwiSaver employer contribution from the employee’s wages when those employees were receiving the prescribed minimum wage. The Judge had to consider the following statues:

• The Minimum Wage Act 1983 (MWA) s 6
• The KiwiSaver Act 2006 (KSA) s 101B

The Employees’ argument is that they must contribute $0.26 toward the KiwiSaver scheme which should be contributed by the employer (KSA s101B). As the employees’ remuneration includes the employer’s contribution, once deducted, the wage is less than the minimum wage rate of $13.50; therefore the employer is in breach of the Minimum Wage Act (section 6).

The employees’ alternative argument is that S101B states compulsory contributions must be paid on top of gross salary or wages except to the extent that parties otherwise agree after 13 December 2007 under S 101B(4). The exemption clause contained within the contract does not comply with the requirement to account for the amount of compulsory contributions the employer is required to pay which is in breach of s 101B(4)(b); accordingly, in this circumstance the exemption permitted by s 101B(4) does not apply.

The employer argues the contract specifies that the employees “remuneration is inclusive of any KiwiSaver compulsory employer contributions” and under s 101(B) 4, the parties to an employment relationship are free to agree contractual terms and conditions to that effect. It contends that the employees’ payment consists of an hourly wage for their work, which is not less than statutory minimum wage. Furthermore it argues that s 101B(4) should be read as overriding or creating an exception to s 6.

The tools of statutory interpretation used by the Chief Justice and Judge

The Chief Justice and the Judge considered the following tools:

1. To define the Minimum Wage Act 1983 (MWA):

• In paragraph 13, 14 and 15, the Judge read acts by considering the importance of the minimum condition of employment and the Minimum Wage Act.
• For defining the “minimum condition” the Judges examined other acts which could be helpful for determining employees’ minimum wage. Other acts examined included: the Equal Pay Act 1972, Wages Protection Act 1983, Parental Leave and Employment Protection Act 1987, Health and Safety in Employment Act 1992, Employment Relation Act 2000 and the Holiday Act 2003.
• The MWA has been described as the “Minimum Code”. The act was formed in international conventions, in which New Zealand and many other developed countries were involved in.
• The Judges considered the purpose of the MWA in paragraph 18 and 19, which is to protect employees by providing them a base wage for their work to meet their daily living expenses; the employer who failed to provide the base wage is liable for penalty. The Judges considered whether the employees’ salary includes the employer’s contribution.
• The Judges considered items that may be deducted from the base salary including PAYE, specified rate and payment in lieu.
• The Judges noted traditions surrounding words and that the MWA had not been modified to date. It does not allow contracting out of payment of the minimum wage.

1. To define the KiwiSaver Act 2006 (KSA) the Judges:

• Defined the purpose of the KSA, its benefits to the employees, and exclusions for employer’s contribution in employee’s work, for example, Holidays.
• Defined salary with consideration of the Income Tax Act, considering exceptions in employees’ wages, and defined the purpose of employer’s contribution to employees’ salary.
• Considered s 101B(1) “Employer compulsory contribution to KiwiSaver should be paid in addition to gross salary or wages” and the exception outlined in s 101B(4).
• Considered that employee’s can choose to have all or part of their employer’s superannuation cash contributions made on their behalf treated as salary or wages under the PAYE rules.
• The Court considered the consequences of having an employment contract when an employee is getting minimum gross payment. The Judge outlined that if an employee did not have a KiwiSaver account, they might receive more than an employee with a KiwiSaver account. In this case the employees with an account had to pay their own contribution as well as the employer’s contribution.

1. Relating between Acts

• The unclear scope of minimum wage is covered by the ”Minimum Wage Fixing Machinery Convention 1928”, which is used by International Labour Organisations, clarifies the purpose of the minimum wage and defines that parties can not have individual agreements when employees are getting paid minimum wage.
• By reading “respective purposes” of s6 and 101B together, the Judge states that when an employee is being paid minimum wage, the employer is obliged to pay 2% contribution in addition to the minimum wage or the gross wage must amount to the minimum wage plus 2%.
• Before making the final decision, the Judge crosschecked their conclusion against legislative history relating to the introduction of the MWA, considered its underlying purpose which is for employees to meet their daily cost of living, and considered various materials with issues relating to the KSA.

The court’s interpretation and implications to the parties

1. The court’s interpretation is summarised below:

• To check whether the employees are getting paid for their work, the Judges considered the employer’s contribution to the KiwiSaver fund, and payment according to statutory minimum wage.
• The employer contribution is not paid directly to the employees, rather it is paid to a KiwiSaver provider and is held in a holding account. In most circumstances employees need to wait many years before he/she receives the benefit of their contribution.
• There is no guarantee that the employee will receive the benefit from the KiwiSaver scheme, and the monetary value of the employer’s contribution may never be received in full or even in part.
• S 101b states the “compulsory contribution must be paid by the employer and must be accounted for”.

The above interpretation lead to the decision that the employer contribution under the KiwiSaver Act is subject to the Minimum Wage Act. Accordingly, the employer contribution was not considered to be included in the minimum wage.

Implications to the parties included:

• The defendant was deemed to be in breach of MWA s6 and ordered to pay the plaintiff for their work.
• The employer was obliged to pay 2% (the employer’s contribution) in addition to the minimum wage.
• The parties were responsible to resolve past wages issues between themselves.