Labour inspector v Freemind Enterprize Ltd

Over the last year or more we have seen a growing number of cases with employers shamelessly exploiting the migrant workers. The Employment Authority has been getting progressively tougher on them and has come down hard on Freemind Enterprize Ltd and its director.

Freemind recruited seasonal migrant labour for the kiwifruit industry. Workers were recruited from India for the season and returned at the end of the season. The kiwifruit packing company that contracted Freemind, provided training for their contractors in minimum employment and immigration requirements, which Freemind’s director attended.

Everything went along fine for years until there was a falling out with an employee who ended up in prison (Mr Pannu). He contacted a Labour Inspector because he hadn’t been paid wages amounting to $7,800. Then everything unravelled.

The Labour Inspector sought wage and holiday pay records for 6 years. Some were provided but not enough, so the Labour Inspector kept digging and reached the conclusion that not only was Mr Pannu owed money, but that 121 other employees were owed holiday pay and minimum wages, to the value of $153,522.

The first hurdle for the Labour Inspector was demonstrating that they were entitled to act on behalf of the 121 employees who had all left the country and many had not left forwarding addresses. The Authority concluded that the Labour Inspector was entitled to take action on behalf of a person without needing to have their agreement. They must do it on the employee’s behalf so that if any payments are awarded, they are due to the employee not the crown.

The rationale for the conclusion is ‘it cannot be correct that the Authority can order payment of minimum code entitlements against one employer because all of its employees are locatable and allow an employer to retain as profits the underpayments due to its employees not being immediately locatable’.

Because the company hadn’t kept adequate records of pay and holiday pay, the Labour Inspector constructed the best picture they could from the documentation available. It was then incumbent on the company to prove that the sums the Labour Inspector had constructed were wrong, otherwise, the Authority was entitled to assume they were as accurate as possible.

The company’s director, Mr Lally, had tried to protect his assets and as soon as he had been contacted by the Labour Inspector he stopped trading through Freemind, set up a new company, Win Tin Paul Limited (with his wife as sole shareholder and director) and devolved Freemind’s assets. The Authority had no hesitation in stripping the protection of the corporate veil from Lally, who was held jointly and severally liable for the payments.

Not only did Freemind and Lally have to pay the $161,000 (plus 5 percent interest), but the Authority also imposed severe penalties on the company.  The maximum penalty available under the law for the failures is $20,000 and Freemind was ordered to pay the crown $15,000 each for failure to provide written employment agreements; failure to keep holiday records; and failure to pay annual holiday pay; along with $10,000 each for failure to pay public holiday pay; and failure to pay Pannu minimum wages. It totalled $65,000 in penalties and $226,000 overall. The parties were invited to resolve the matter of costs, but if they don’t, Freemind will have costs ordered against it.

The reason for the penalties being so high is that they were serious, deliberate, sustained over a 6 year period, the workers were vulnerable and there was no remorse.

Normally Lally and Freemind would have their own legal costs on top of all this, but Lally represented both himself and the company. This might not have been the smartest decision as there were some tricky legal issues to be navigated.

Lally’s justification for not providing written employment agreements is that the workers were casual employees. His argument for not paying holiday pay and public holidays is that the clients didn’t pay the company for holidays.

Casual employees must have written employment agreements, just like any other worker, furthermore, if you are paying holiday pay with the weekly wages, it must be agreed in writing (ie in the employment agreement) and itemised separately in the pay slips.