Wages Protection Act 1983: Unlawful and Unreasonable Deductions
Updated: Feb 21
If your employer has made a deduction from your pay, for whatever reason, you may have a claim under the Wages Protection Act 1983. Perhaps the most common example of this is when an employer makes a deduction from the employee's final pay for the failure to work the required notice period, or where the employer has made an overpayment and seeks to recover this.
The starting point is this: an employer must not make a deduction from an employee's wages unless it is in accordance with the Wages Protection Act 1983. This means that the deduction must be:
If this criteria is not met, you will have a claim under the Wages Protection Act 1983 for recovery of those wages. However, there is a warning: the employer may still have rights to bring a claim to the Employment Relations Authority with respect to the reason for those deductions.
Agreement to Deductions
Section 5 of the Wages Protection Act 1983 provides:
(1) An employer may, for a lawful purpose, make deductions from wages payable to a worker
(a)with the written consent of the worker (including consent in a general deductions clause in the worker’s employment agreement); or
(b) on the written request of the worker.
(1A) An employer must not make a specific deduction in accordance with a general deductions clause in a worker’s employment agreement without first consulting the worker.
(2) A worker may vary or withdraw a consent given or request made by that worker for the making of deductions from that worker’s wages, by giving the employer written notice to that effect; and in that case, that employer shall:
(a) within 2 weeks of receiving that notice, if practicable; and
(b) as soon as is practicable, in every other case,
cease making or vary, as the case requires, the deductions concerned.
The Act is pretty clear on this matter: there must be consent.
Some employment agreements will provide a specific deductions clause which allows an employer to make a deduction for specific reasons: such as the failure to work out the agreed notice period. In this situation, this will constitute consent in terms of the Wages Protection Act 1983.
Most employment agreements, however, provide a generalised deductions clause which does not provide specific reasons for deductions. In this case, an employer must first consult with an employee before making a deduction. Consultation, however, does not mean agreement; it only means that the employer must discuss the proposed deduction with the employee before acting on it.
Please note that if consent was provided under the threat of termination of employment, or otherwise duress, then you may still be able to claim for recovery of the deducted wages.
Lawful and Reasonable Deduction
Secondly, the deduction must be made for lawful purposes and it must be reasonable. The "lawful purposes" test was introduced to the Wages Protection Act 1983, and it appears that employers found this difficult to understand so the "reasonable" test was added in 2016. For the purposes of this article, I will use these two terms interchangeably: after all, if the deduction is not reasonable then it is not made for a lawful purpose.
This will always be determined on a case by case basis. However, the main test appears to be whether the deduction is made to recover for a loss or is made to penalise the employee.
For example, if the employee has failed to provide the agreed notice period, an employer cannot make a deduction to penalise the employee: rather, the deduction must represent the employer's reasonably forecasted losses from the employee's failure to work the notice period.
Remember that, in this situation, the employee would not be paid for the shifts not worked. This means that, in most cases, the employer can use those wages to pay a casual employee or to pay a permanent employee overtime. However, this becomes more difficult if the employee is in a role which takes bookings and appointments. Let's consider the following situation:
Thomas, a tank engine, resigns from his role at the railway. Thomas fails to provide notice; however, he has scheduled trips every day for the next four weeks. Thomas' boss does not have enough tank engines to replace Thomas' shifts, so he will be required to either:
Cancel the scheduled trips, until he is able to employ another tank engine; incurring losses in revenue and customer satisfaction.
Contract a tank engine from another company, for a significantly higher rate, until he is able to employ another tank engine.
However; there's another catch. As we discussed above, the employer can only make these deductions if the clause in the Individual Employment Agreement is specific. That is, it must state that the employer will be entitled to make deductions from the employee's final pay, for the reasonably forecasted loss that the employer will incur, where the employee has failed to provide notice. The employer should also then consult with the employee before making deductions to discuss the amount that will be deducted.
I'm not going to sugarcoat this: the law relating to recovery of overpayments is difficult to understand. Basically, an employer can only recover an overpayment by deduction if it falls within section 6 of the Wages Protection Act 1983. This section is rarely used and not often applied correctly, but to summarise, an employer can only make deductions from an employee's wages for overpayments which were made due to the employee having:
been absent from work without that employer’s authority; or
been on strike (within the meaning of section 81 of the Employment Relations Act 2000); or
been locked out (within the meaning of that subsection); or
There is then a list of circumstances when the employer can recover this overpayment by deduction, and if this applies to you: I recommend you read section 6 of the Employment Relations Act 1983.
WARNING: Employer's right to bring a claim at the ERA
The Wages Protection Act 1983 largely covers deductions from an employee's wages, but it does not prohibit an employer from pursuing a claim at the Employment Relations Authority for the monies it believes it is owed.
If you have breached the terms of your employment agreement, by not providing the required notice, your employer may seek to bring a claim at the Employment Relations authority with respect to this breach. In this situation, the employer could pursue:
Damages for any actual losses.
Penalties for the breach of the individual employment agreement; up to $10,000 for an employee.
Reimbursement of their legal fees required to progress this matter.
If your employer has overpaid you, and you are relying on section 6 of the Wages Protection Act 1983, the employer may still otherwise pursue a claim under the common law principle of "restitution": that is, where the employee has acquired a benefit unjustly, at the employer's expense or in a wrongful way.
This means that, even though you may be successful in recovering the unlawfully deducted wages, the employer may be successful in recovering some of that money back if they bring a claim at the Employment Relations Authority.
My point is: you're not invincible and you may want to consider any potential counteraction by the employer. Depending on the circumstances, you may be best to consider negotiating with your employer.
In taking a pragmatic view, it is still best to challenge the deductions: especially if you are not in a financial position to pay the owing monies in one lump sum. Once you have received reimbursement of the unlawful deductions, you may enter into a negotiation with the employer about a payment plan, or you may wait until the matter progresses to the Employment Relations Authority (which can take 12 months). The Employment Relations Authority may allow you to repay any sums owing in installments.