Danske Mobler v A Labour Inspector of the Ministry of Business Innovation and Employment

Danske Møbler Limited operates a factory in Auckland employing skilled furniture makers, upholsterers, apprentices, and factory hands. Most are full-time, paid hourly, and work regular hours, with voluntary overtime offered when the factory operates extended hours.

After a complaint, a Labour Inspector audited Danske Møbler’s payroll and leave records. Although the complaint was not upheld, the Inspector found issues with how leave pay was calculated, particularly for FBAPS leave. Danske Møbler paid employees for their contracted hours only, not including overtime. The Inspector issued an Improvement Notice requiring a review of records, recalculation of leave pay, and payment of arrears. Danske Møbler objected, arguing the notice was too broad and unclear.

The Employment Court examined whether Danske Møbler’s calculation of leave pay for FBAPS leave complied with the Holidays Act. The Court confirmed that relevant daily pay must include non-contractual overtime, not just contracted hours. The Improvement Notice was found to be sufficiently clear, as it instructed Danske Møbler to base calculations on what employees would have earned if they had worked the day in question.

However, the Court varied the Improvement Notice, limiting its scope to current and past hourly wage manufacturing employees and restricting the review period to six years prior to the notice. This clarified that improvement notices must be specific and not overly broad.

If you employ hourly wage staff, especially in manufacturing or retail, ensure your leave pay calculations comply with the Holidays Act. This means including all earnings, such as overtime, in relevant daily pay for FBAPS leave. Payroll systems should be set up to capture and calculate these amounts accurately.

If you receive an Improvement Notice from a Labour Inspector, check that it applies only to relevant employee groups and does not require a review beyond six years. Seek advice if the notice is unclear or seems too broad.

To comply with the Holidays Act and avoid disputes, follow these practical steps:

The Holidays Act 2003 sets out how employers must calculate leave pay, including relevant daily pay and average daily pay. Sections 9 and 9A define relevant daily pay, requiring inclusion of overtime and other earnings. Improvement Notices are issued under the Employment Relations Act 2000, allowing Labour Inspectors to require employers to remedy breaches.

Employers should also be aware of record-keeping requirements and time limits for reviewing and correcting payroll errors.