A defining case on premium – the recovery of costs associated with the recruitment of migrant labour

Many employers and recruitment companies alike, who rely in particular on migrant labour to supplement their local workforce, will likely be aware of a reasonably common practice where fees or expenses related to the recruitment process are recovered from employees in certain circumstances.In terms of section 12A(1) of the Wages Protection Act 1983 (Act) it is not permitted for an employer, or representative of an employer, to seek or receive any premium in respect of the employment of any person.

In the recent Employment Court decision of Labour Inspector v Tech 5 Recruitment Ltd [2016] NZEmpC 167, the definition of a premium was assessed in relation to employers recouping costs associated with the recruitment process of overseas applicants, and how that may be consistent with, or in breach of, this section of the Act.

In this case, Tech 5 Recruitment Limited (Tech 5), a New Zealand recruitment company supplying contracted labour associated with the Christchurch rebuild, administered a contractual mechanism which allowed, in certain circumstances, for the recovery of costs associated with the recruitment process of employees from the Philippines.

This was facilitated by the inclusion of clauses in the employment agreement requiring that costs incurred in relation to the employee’s recruitment, immigration, relocation, training, salary advance, tooling and clothing expenses were capable of recovery by the company if a an agreed term of employment was not completed by the employee.

As a part of the recruitment process representatives from Tech 5 were sent to the Philippines to carry out an interview and an introductory practical assessment of the applicants’ skills. The applicants were then required to complete a work plan test conducted by a New Zealand licensed building practitioner that involved task directions being communicated to the candidates in English, to establish their ability to work and take direction at the required level in New Zealand.

The company representatives assessed the applicants’ ability to follow the work plan and their ability to work safely under pressure, and then concluded whether they would be suitable for the role or not based on their results. For successful applicants the employment agreements provided consent for weekly deductions from the employees’ wages to cover the trade testing, and other associated costs.

An issue of concern presented to the Court was based on the inclusion of such clauses in the employment agreement essentially inferring that a job would not be offered to the applicants if they did not agree to pay the employment-related costs. The Court also found the lack of benefit to the employees in meeting the trade testing costs to be of great significance, as essentially the only benefit involved was being offered the job.

In considering whether Tech 5 had in fact attempted to charge a premium, the Court noted that there had been no previous indication through case law as to what would constitute a genuine premium and what would assist to establish an illegitimate premium. As a result of the Court’s analysis, it concluded that the act of paying to acquire a job could fall under the category of a premium.

A declaration was consequently made that Tech 5 had unlawfully sought and received a premium by including provisions providing for the recovery of trade testing costs in their employment agreements. It was stated that they had done so by deliberately drafting agreements authorising deductions from wages to achieve the required recovery.

The Court noted however, importantly, that it may be permissible for an employer to seek to arrange for the recovery of costs incurred with regards to the candidates’ airfares to New Zealand, or for advancing the purchase price of tools required to perform the role and then be repaid over time. The Court had no issue with employers seeking to recover these types of costs; however it would not be permitted if there was a provision for the employer to attempt or seek to gain a profit from the transaction, or if the employer was to attempt to bypass costs in which they would usually be legally required to pay.

It was also decided that it was not a requirement for active steps to be taken to enforce the premium clauses, as their inclusion in the employment agreement was enough to demonstrate that Tech 5 had deliberately drafted the employment agreement to achieve a recovery of such costs.

A distinction was made however between the premium described in this case and a training-related bond in terms of which costs of training could be recovered in those instances where an employer, who incurred certain training related costs on behalf of an employee, could recover those costs where the employee’s employment ceased before an agreed minimum term of employment had been achieved.

The former, being a payment which merely allowed for a potential employee to be considered for employment, would be prohibited as that would be seen as an unlawful premium and not a bond.

The Court noted for completeness that this case has been restricted to the application of premiums confined to trade testing costs; however it should also be considered where there is an intention to recover costs, by way of an employment agreement, in other employment areas.

This decision is likely to have a significant impact on the trade industry as it has established the criteria for a premium and how it may potentially be included in an employment agreement. It has also provided an indication of what may be permitted in relation to claiming back costs, such as airfares and tools required to carry out the role for the recruitment and employment of migrants.  However, please note that different rules apply in the Philippines in terms of what an employer is expected to pay (without recovery) to secure migrant labour from the Philippines and these rules are administered by the Philippines Overseas Employment Administration (POEA).  Any employer wishing to employ Filipino labour or adjust their employment agreements/recoveries in line with the guidance provided in this recent case should also make sure that such deductions/changes are consented by the POEA before implementation.

For further information or advice regarding immigration law contact the Workplace Law team at Lane Neave by calling 0800 802 800.

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