Don’t Dock Pay Until You Consult

In a previous blog, I wrote about the circumstances in which you can deduct money from your employee’s pay packet.

I reminded you to get consent from your employee before doing so and suggested that inserting a general deductions clause in your employment agreements is a good way to get that consent.

The law has since changed, however. The previous advice still stands, but there is now another step you must take.

You now must consult with employees before actually docking their pay, if you rely on a general deductions clause. And in all cases the deduction must be reasonable.

WHY THE CHANGE?

The change appears to have been partly prompted by media reports of cases where petrol station employees had their pay docked when customers drove off without paying for their gas.

Presumably, the petrol station owners in these cases felt the staff should be held accountable. However, it is doubtful whether it is fair for employees to be held to account for actions of others that are largely outside their control.

That led the Government to consider ways of preventing employers from reducing their employees’ wages unreasonably.

The solution they have come up with is to force the employer to consult the affected employee beforehand and requiring that the deduction not be unreasonable.

The requirement to ensure the deduction is reasonable was arguably already the law – employers are not supposed to act unreasonably in any case.

But by adding the rquirement to consult, the Government hopes that employers will take their employee’s views into account and thereby prevent any unreasonable behaviour before it occurs.

ONLY GENERAL DEDUCTION CLAUSES REQUIRE CONSULTATION

The requirement to consult only applies to general deductions clauses that permit you to dock your employee’s pay for anything they may owe you.

If you have a specific clause in your employment agreements that says you will make deductions from your staff’s wages for ongoing accommodation, or for their social club dues, then you don’t have to do anything differently. That type of deduction has been specifically agreed, so you don’t have to consult your employee before making any deductions in reliance on those specific clauses.

Should you have specific deductions clauses for all the possible deductions you might want to make to avoid this new obligation to consult?

I don’t think so. It is a good idea to keep a general deductions clause in your agreement. It means you don’t have to think of all the possible ways in which your employee may end up owing you money – some of which are just not foreseeable.

WHAT CONSULTATION REQUIRES

Let’s say one of those unforeseeable occasions arises. Your employee now owes you some money. You have a general deductions clause that empowers you, on the face of it, to deduct the money from their next pay.

What do you have to do next?

You must first consult with the employee before actually making that deduction.
Consultation is not defined in the Act. But the concept of consultation is well understood in the employment law context. Employers are required to consult with employees in many scenarios, most importantly before coming to a decision on whether to dismiss or take other disciplinary action.

Therefore, we can say with some certainty that the duty to consult will require:

  • telling your employee that you propose to make a deduction in reliance on the general deductions clause, and the reasons for it, before making a decision to proceed with that deduction;
  • giving the employee an opportunity to comment on your proposal and the information you are relying on;
  • listening to the employee’s response and keeping an open mind, allowing for the possibility that they may say something that changes your views on whether the deduction is fair; and
  • considering whether what the employee has said changes your mind before you finalise your decision.

Consultation does not mean that you must reach agreement with your employee. They may adamantly object to the deduction. But if you have reasonable grounds to proceed with the deduction, despite what the employee has said, you are free to proceed.

CONCLUSION

If your employee owes you money and you have a general deductions clause that allows you to deduct that amount from their pay, don’t just proceed to make the deduction without first talking to your employee about it.

Tell them that you think they owe you money, and why, and that you propose to deduct that money from their pay in reliance on the general deductions clause in their employment agreement.

But don’t make up your mind to make that deduction just yet. Give them an opportunity to give you their thoughts on whether they think the deduction is fair, and be open to the possibility that what they say might affect your decision.