The Employment Specialists from Cullen Law joined Mahony Horner Lawyers from 1 November 2021 and we welcome them to the MHL team.

Bonuses and the Calculation of Holiday Pay

Employers sometimes use bonuses to incentivise employees, usually to assist businesses achieve their goals and objectives.  Bonuses are regularly categorised as being discretionary, which has implications as to whether they should be included in holiday pay calculations.

The recent Court of Appeal decision of Metropolitan Glass and Glazing Ltd v MBIE  has reversed the decision of the Full Bench of the Employment Court on the issue of what is a discretionary bonus for the purposes of holiday pay calculations.


Metropolitan implemented discretionary bonus schemes for its employees in 2016 and 2017. The schemes were   called Short Term Incentive Bonus schemes (STIB schemes).

The terms of the STIB schemes were contained in letters Metropolitan sent to certain senior employees inviting them to participate in what the letter described as a discretionary bonus scheme. The terms the STIB stated that “[a]ny payments made under this Scheme are totally at the discretion of [Metropolitan] and there is no guarantee of any payment in any year…” and that Metropolitan had the “sole discretion not to make any payment even where the criteria in this Scheme are met.”  Further, it was able to amend, revoke or discontinue the Scheme at any time including during a fiscal year.

Metropolitan considered payments made under its STIB schemes were discretionary payments and were not required to be taken into account when calculating holiday pay.

The Holidays Act

The Holidays Act differentiates between “gross earnings” and a “discretionary payment”. If the payments made by Metropolitan under the STIB schemes came within the definition of “gross earnings” then they should have formed part of the holiday pay calculation. But if they were within the definition of “discretionary payments” then Metropolitan was correct in not taking them into account.

“Gross earnings” excludes any payments that the employer is not bound, by the terms of the employee’s employment agreement, to pay the employee, for example, any discretionary payments.

Conversely a “discretionary payment” is defined as a payment that the employer is not bound, by the employee’s employment agreement, to pay the employee. It does not include a payment that the employer is required under that employment agreement to make only if certain conditions are met.

The Court of Appeal decision

The Court of Appeal affirmed the well-established principle that a contract of employment between employer and employee may comprise terms arising from a number of different sources. The formal written employment agreement is never the entire contract of employment (though often the main source) of contractually binding terms.

The Court then stated that a discretionary payment, and what distinguishes it from gross earnings, is that it is a payment the employer is not contractually bound to make. If the employer was contractually bound to make the payment, then subject to a limited number of specified exceptions, it is gross earnings. The source of the employer’s contractual obligation is irrelevant.

The Court found it important that Metropolitan did more than just label its scheme as discretionary. It included an express term that even if all of the conditions were met, it retained the discretion not to make any payment. In doing so, the Court found that the STIB schemes retained the character of a discretionary payment for the purposes of calculating holiday pay.

Is this the end

While this is currently good news for employers, MBIE still has time to appeal the decision. Further, employers should bear in mind that the Holidays Act Taskforce recommendation (which has been accepted by the Government) is to define “gross earnings” to include all payments other than direct reimbursements. This means that, if enacted, it would have the effect of reversing the Metropolitan decision.

Watch this space for updates!

Can you lose your job for publicly criticising your employer

Two recent reports from the United States deal with the dismissal of modern-day activists who were publicly critical of the policies and practices of Netflix and Apple. New Zealand also has its modern-day activists.

Netflix fired a trans-activist for allegedly leaking internal documents because of their opposition to a Netflix show. The new Dave Chappelle show has the comedian making a series of anti-trans jokes about gender-neutral pronouns and about the genitalia of transgender people.

The worker has been a lead figure in encouraging trans employees and allies to walk out of work in protest. Apparently leaked documents show that the show in question brought in less money than it cost to make.

Netflix said: “We understand this employee may have been motivated by disappointment and hurt with Netflix, but maintaining a culture of trust and transparency is core to our company.”

There has been a backlash. There have been unprecedented leaks. The company suspended a trans-worker who printed criticism of the special, but later reversed the suspension (Netflix denies the suspension related to the worker’s tweets).

At least a thousand employees have planned a virtual walkout in response. The public has also responded. People are cancelling their subscriptions. In the past few days both Netflix and the comedian have backed off and given expressions of regret.

Around the same time Apple fired employee Janneke Parrish, who apparently was the leader of the #AppleToo movement. This is an employee movement organised in response to alleged patterns of discrimination, racism and sexism at Apple.

Parrish had deleted personal files from her work device during an internal investigation. The company had told her she was under investigation for leaking information to the media. As part of the investigation, Apple confiscated her devices.

Apple encouraged workers to use work devices as personal devices, Parrish said. Before handing over her devices, she deleted files that contained personal information.

She said the company had a culture of secrecy and loyalty to the company: “Speaking out … is seen as fundamentally disloyal.”

She had worked for Apple for five years and said she believed she was fired for speaking out publicly about issues within the company as leader of the #AppleToo movement.

She said she had been very vocal and very public and was unafraid to put her name and face to #AppleToo. “This feels very like retaliation for having the courage to speak out,” she said.

So what rights does each party have.

In New Zealand, both parties to an employment relationship are expected to conduct themselves in a way that enhances trust and confidence. The worker has a duty of fidelity to their employer. Both parties have good-faith obligations. This means they must be responsive and communicative and not engage in conduct which is misleading or deceptive.

It is hard to escape the conclusion that both of these activists would have risked losing their jobs under New Zealand employment law.

We do, however, have a Protected Disclosures Act that provides employees with some protection for releasing defined information in certain ways. But the coverage of this legislation is narrow.

Some years ago, a former employee at Richmond Services Limited took the company to the Employment Court.

The worker was a community support worker who provided health services under contract to various district health boards and the Ministry of Health.

The worker was concerned that a client was being permitted by Richmond staff and the relevant district health board to engage in abusive prostitution which had the potential to cause her harm.

The worker resigned from her employment with Richmond, taking copies of the client’s clinical records with her. Her intention was to use the data to bring complaints against certain staff members. She believed she had a need to retain and use the documents to advance her concerns.

Litigation followed, with Richmond seeking the return of the records. The court ordered the return to Richmond of its documents. The court considered the Protected Disclosures Act and said that some disclosures were protected but others were not. For example, disclosures to the worker’s family and the news media were not protected.

More generally it is important to understand that the Protected Disclosures Act applies when a worker wants to disclose serious wrongdoing within an employer.

A serious wrongdoing is rather narrowly defined in the legislation. For example, it includes an act or omission or course of conduct that constitutes a serious risk to public health or public safety or the environment. It includes an act or omission or course of conduct that constitutes an offence.

What is important is that anyone wanting to rely on the Protected Disclosures Act must first make sure the conduct they are concerned about is covered by the definition of a serious wrongdoing.

The worker has to believe on reasonable grounds that the disclosure is true or likely to be true. If an organisation has a protected disclosure policy, you must comply with it.

If the worker is concerned that the disclosure involves a director of the board, then there are appropriate authorities the disclosure can be made to. These include the police commissioner, the auditor general, the director of the Serious Fraud Office and others.

In conclusion, activists risk their job if they go public and attack their employer. If they believe that conduct which is captured by the Protected Disclosures Act has taken place, then there are processes to be followed to make a complaint, which do not include taking it to the media.

Following the example of the Netflix or Apple employees, making a public attack on the employer in New Zealand is likely to end in tears for the worker.

Employees must tread cautiously before publicly attacking their employer, or they may end up without a job.

Truck driver sued for more than $27,000 after being paid eight months’ wages despite leaving job

LongChill Limited, a trucking company, sued one of its former drivers for more than $27,000 claiming the truck driver continued to be paid his wages for eight months after he had left. In addition, it had overlooked paying him his accrued holiday pay of just under $900 net.

Should LongChill be able to recover the money? Would it matter if the driver thought he was entitled to the money and if he had already spent it and changed his life accordingly?

In this case, LongChill wrote to the driver, told him of the payroll error and apologised for the mistake. LongChill told him it wanted to recover the money and was willing to negotiate a payment plan. If a repayment plan could not be agreed LongChill proposed going to mediation in a subsequent letter. Finally, LongChill said it would file an application to the Employment Relations Authority to recover the money “as a last resort”.

Nothing was settled. A claim was filed in the authority. The driver was served with a claim. He was obliged to file a defence.

Nothing was heard from the driver. A notice of direction was sent by the authority to the driver urging him to provide a response to the claim. Several methods by which the authority’s investigation might be undertaken were mentioned in the direction including a face-to-face meeting.

The only communication the authority received from the driver was a single email. In the email he “expressed his dissatisfaction with LongChill as an employer” but he did not address the substance of the company’s claim.

The authority sought such a response but got none. Accordingly, the authority told the driver that if a response on the issue was not received within 24 hours the investigation meeting would be cancelled, and a determination would be made based on the material before the authority. Again, the driver did not communicate further with the authority.

This case serves as a stark warning to anybody served with legal proceedings that it is crucial to get legal advice and put forward your defence.

Here, the worker’s failure to engage made it almost inevitable that judgment would be entered against him for the $27,000 he received in error.

The authority summarised the position before it in its determination. The overpayments were a consequence of a genuine error. The driver was not entitled to the money and had been unjustly enriched by the error.

The employer had taken reasonable steps to resolve the matter, but the driver had not engaged and made no plan to repay. He had not put forward any reasons as to why he had not repaid the overpayment.

Accordingly, judgment was entered against him for the amount of the overpayment.

There are occasions when a person who is overpaid money by their employer can successfully argue the employer should not get the money back. The problem has arisen many times over the years and there are many cases going back over the decades dealing with these issues.

An 1841 English case held that an insurance company which paid out on a life insurance policy that had lapsed could recover the money, although the widow of the deceased was unaware the policy had lapsed and received the payment in good faith. The balance has shifted in favour of the recipient of mistaken payments as the years have passed.

Much more recently a case involving Air New Zealand gave the opposite answer.

Air New Zealand overpaid one of its staff by $70,000 and sought to recover the net amount of the overpayment. It won in the Employment Relations Authority but lost in the Employment Court.

The worker did not dispute the overpayment but maintained he received his wages in good faith. He altered his position in reliance on the validity of the wages he was paid. The worker relied on the defence of change of position and on a statutory defence that was then available under the old Judicature Act.

The onus of proof to establish a change of position was on the worker. He had to establish that he changed his position and that in all the circumstances it would be inequitable to require him to make restitution. The court accepted that the worker lived beyond his real means for about 16 months, spending the overpayment on various new expenditure.

The worker said he was “living the dream” before being brought down to earth rather spectacularly by being dismissed on accusations which included the allegation that he had not been proactive enough in querying the overpayments.

The judge was satisfied “that the injustice that would result from compelling [the worker] to repay the money in question would significantly outweigh the potential injustice to Air New Zealand if it is denied recovery and for that reason I reject Air New Zealand’s reinstatement claim”.

It is possible that LongChills’ former truck driver may have had a defence. It is unfortunate he did not seek legal advice. The only communication he had with the authority confirmed that he was aware of the claim and suggested his attitude towards his former employer may have played a role in his decision-making.

Doing nothing and hoping the claim might go away is never going to work. The truck driver may well regret his failure to participate.

Disclaimer:  The information contained in this newsletter is provided for general purposes only, and should not be construed as legal advice on any matter.

David Burton/Principal


P: 04 974 4138

Chris Scarrott/Associate


P: 04 974 4175

Calum Cartwright/Associate


P: 04 974 4129