Sleepovers Wages (Settlement) Bill. Initial Briefing to the Health Committee

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1 Sleepovers Wages (Settlement) Bill Initial Briefing to the Health Committee Ministry of Health Report to Health Committee Report No 1: 28 September 2011

2 Sleepover Wages (Settlement) Bill Overview The Sleepover Wages (Settlement) Bill seeks to resolve the issues raised by Idea Services Limited V Phillip William Dickson, which is also known as the Sleepovers Court Case. Background Sleepovers are where an employee sleeps overnight while at their workplace while on duty, and the employee is required to be available to attend to his or her duties during the course of the night as necessary. Historically, many people have been paid sleepover allowances that are less than the Minimum Wage. Mr Dickson, an employee of IDEA Services Limited, filed proceedings in the Employment Court in late 2007 claiming that IDEA Services payment of sleepover allowances that were less than the minimum wage was in breach of the Minimum Wage Act The case was heard in the Employment Relations Authority in 2008, with an appeal to the Employment Court heard in February The Employment Court issued judgments on 8 July 2009 and 11 December 2009 which held that: sleepovers constitute work for the purposes of the Minimum Wage Act 1983; and Mr Dickson was entitled to be paid no less than the minimum wage for each and every hour he worked for IDEA, including sleepovers. IDEA Services appealed this decision in the Court of Appeal. On 16 February 2011, the Court of Appeal issued a judgment confirming the Employment Court s decisions that sleepovers are work for the purposes of the Minimum Wage Act 1983 and that the minimum wage is payable for each and every hour that a person works during a sleepover. This meant that the Court of Appeal rejected IDEA Services argument that sleepovers were not work, and/or that wage averaging was allowed. Under wage averaging, a person s total earnings divided by the hours worked during a pay period, needs to be equal to or more than the minimum wage. The Court of Appeal s decisions had substantial implications. These included the following: Employers faced significant future wage increases and backdated liabilities for up to six years for people who worked sleepovers. The most significant impact was on the providers of community residential support services for people with disabilities and people with mental health conditions, as well as several other government funded and/or provided services. There was potential for providers to become insolvent as a result of the extent of their backdated liabilities, leading to the risk of service disruption for a very vulnerable group of people. For example, the liabilities for IDEA Services (owned by IHC), the largest provider of residential services, were so great that they became technically insolvent and were placed into statutory management to allow them to continue operating. 2

3 The Court of Appeal s decision was appealed by IDEA to the Supreme Court, and a hearing was scheduled to take place on 13 September On 12 September 2011 the Crown, IDEA Services, Timata Hou Limited, and the Service and Food Workers Union reached a conditional settlement. The Supreme Court hearing has been adjourned to enable the settlement to be put in place. The Bill is required to support this Settlement Agreement. The Bill provides for the payment of back pay for certain sleepovers, and the staged progression of payments for sleepovers towards the hourly rate under the Minimum Wage Act It also provides a framework for the settlement of other sleepovers for other health and disability providers funded through Vote: Health and, potentially, other employers funded by the Crown through an Order in Council process. The Settlement Agreement will become unconditional when the Bill is enacted. The Government s financial contributions to the settlements in the health and disability sector are not covered by the Bill. These are set out in the Settlement Agreement. For these employees and employers, the Government is contributing up to $90 million over three years for future wage increases and $27 million towards backdated liabilities. The Bill The Bill is divided into two parts which are outlined below. Part 1 Part 1 describes the purposes of the Bill and defines various terms used within it. It explains the relationship between the Bill and other law and provides that the Bill applies despite anything contrary in the Minimum Wage Act 1993, any other enactment, or any rule of law. It also provides that the Bill expires 5 years after the date on which it comes into force. The expiry of the Bill will not revive any claims for sleepover wages that are extinguished by the Bill. Part 2 Part 2 of the Bill consists of three subparts. Subpart 1 Subpart 1 relates to the extinguishment of claims for sleepover wages for IDEA Services Limited, Timata Hou Limited employees and other employees of any employer who provides health services and disability services funded through Vote: Health. The Bill s provisions mean that health and disability sector employees whose employers are funded through Vote: Health and who have not lodged valid claims with the Employment Relations Authority for back wages regarding sleepovers by 5pm on 2 September 2011, will not be eligible for back payments. This prevents future claims being made by employees who had not lodged a claim by the deadline, and limits the liability of health and disability employers for back wages. 3

4 Subpart 2 Subpart 2 puts in place the following aspects of the IDEA Services Settlement Agreement: Creating entitlements to back wages for sleepovers which are calculated at half of the appropriate minimum wage and annual leave adjustments for sleepovers worked by the employee. The Bill includes a two month deadline for the payment of back wages. a staged progression to the minimum wage over two years. This staged progression is: 50 percent of the applicable minimum hourly wage from 1 July percent of the applicable minimum hourly wage from the period beginning 1 July 2012 and ending with the close of 24 December percent of the applicable minimum hourly rate from 25 December 2012 ending with the close of 30 June On, and after, 1 July 2013 IDEA Services and Timata Hou must continue to pay an employee 100 percent of the applicable minimum hourly wage. Subpart 3 Subpart 3 provides for the application of subparts 1 and 2 (with certain modifications) to other Crown funded health and disability employers and their employees, and potentially for other Crown funded employers and their employees. This is through an Order in Council mechanism. The Bill allows for the terms of settlements to differ in matters of detail from the IDEA Services Settlement. In the health and disability sector, Orders in Council are able to vary: the two month deadline by which employers must pay back wages, but only if a majority of employees agree; and the stepped process for moving to the minimum wage (50% by 1 July 2011, 75% by 1 July 2012 and 100% by 25 December 2012), but only if this means employees receive the same or more pay than they did before 1 July Wages must be at least 100% of the minimum wage by 1 July For other employers funded by the Crown, the Bill provides flexibility to make adjustments to subpart 1 and 2 so that they reflect the particular circumstances of the affected employer and their employees. This includes modifications to the arrangements for back wages and the staged phase in of the minimum wage. Subpart 3 also incorporates a process for resolving disputes about entitlements to, or the calculation of, any sleepover wages under this legislative framework. In particular, it provides that parties may access mediation services and that disputes may be referred to the Employment Relations Authority established under the Employment Relations Act The Bill also provides that employers who fail to comply with their obligations under the Bill will be liable for a penalty imposed by the Employment Relations Act The penalties are: In the case of an individual a maximum penalty of $10,000; and 4

5 In the case of a company or other corporation, a maximum penalty of $20,000. Consistency with the New Zealand Bill of Rights Act 1990 The Ministry of Justice has concluded that the Bill appears to be consistent with the rights and freedoms affirmed in the Bill of Rights. Issues The following issues could be raised by those parties making submissions. Order in Council process In the event that employers and employees are not able to reach a settlement agreement, the Bill allows the Government to pass an Order in Council that imposes a settlement without the parties agreeing. The delegation of powers in this way could lead to complaints being made to the Regulations Review Committee or to action being taken by the Courts. To help mitigate risks of criticism, in the case where employees cannot reach a settlement, the Bill provides that the relevant Minister may recommend an Order in Council only when they are satisfied that the recommendation has the support of the parliamentary leaders of the political parties in Parliament that together command a simple majority of the House. This would mean that any such Order in Council could be shown to have the degree of support that would be normally required for legislation imposing such a settlement to be passed. Expiry of the Bill The Bill includes a sunset clause so the Act expires five years after the date of its commencement. This will provide an incentive for Crown funded employers and their employees to enter into settlement agreements within a reasonable period of time. 5