Meatloaf said 2 out of 3 ain’t bad. But when it comes to determining alternative holidays, 3 out of 4 could be bad.
That is the possible outcome of an Employment Relations Authority determination which directly affects when an employee becomes entitled to an alternative holiday for working on a public holiday (sometimes known as a day in lieu).
The case is Wendco (NZ) Ltd v Labour Inspector  NZERA Christchurch 199. It involved the interpretation of the Holidays Act 2003 and dealt with the question of whether a particular public holiday would “otherwise be a working day” for employees.
The employer operates the Wendy’s hamburger restaurants. Due to the nature of its business, it has a large number of employees whose working patterns are variable, so it is not always easy to determine whether the particular day of the week on which a public holiday falls would have been an employee’s usual working day. A further factor was that employees would often request to swap shifts after the roster had been posted, so change of days was commonplace.
Wendy’s therefore adopted a “3 out of 4” rule, which works like this: if the public holiday falls on a Monday and the employee worked 3 out of the last 4 Mondays, then the day would “otherwise be a working day” for the employee. It’s an important rule because the consequence of working on a public holiday that would otherwise be a working day for the employee is that, in addition to receiving payment at the rate of time and a half for any hours worked on that day, the employee also accrues an entitlement to an alternative holiday. An alternative holiday is a whole paid day off (regardless of the number of hours worked) to be taken at a later date.
In this case, the employment agreement contained the “3 out of 4 rule”, and Wendy’s payroll system automatically applied the “3 out of 4 rule” to public holidays.
The Authority found the blanket application of the “3 out of 4 rule” wasn’t good enough and could result in situations where employees received less than their minimum entitlements (including missing out on an alternative holiday).
Instead of applying the “3 out of 4 rule” automatically, the Authority said Wendy’s needed to consider, on a case by case basis, all of the factors set out in section 12(3) of the Holidays Act before determining whether a particular public holiday would otherwise be a working day for a particular employee. The factors are:
- the employee’s employment agreement;
- the employee’s work patterns;
- any other relevant factors, including:
– whether the employee works for the employer only when work is available;
– the employer’s rosters or other similar systems;
– the reasonable expectations of the employer and the employee that the employee would work on the day concerned; and
- whether, but for the day being a public holiday, an alternative holiday, or a day on which the employee was on sick leave or bereavement leave, the employee would have worked on the day concerned.
The Authority’s determination comes at a time when there has been significant scrutiny by MBIE’s Labour Inspectors of Holidays Act compliance. Audits have been conducted of a large number of businesses throughout New Zealand. While this particular decision only affects Wendy’s at the moment, it is likely the Labour Inspectorate and unions will try to extend its application to other employers who use the “3 out of 4 rule”, or a similar rule of thumb to determine what is “otherwise a working day”. Each case needs to be decided on its own merits, but the Authority’s determination sets something of a precedent.
Of course, the decision might not be as significant as it may seem for all employers who use the “3 out of 4 rule”. Whether or not the application of the factors set out in the Holidays Act will create a different result than the “3 out of 4 rule” will depend on all the circumstances applying to the employer and employee at the time the public holiday is worked. It could be that the result is no different in most circumstances or the liability is not as great as might be thought.
Nonetheless, employers who use a rule such as the “3 out of 4 rule” should consider and review their employment agreements, payroll systems and practices in light of this development. An assessment of whether a different result arises and what the potential liability might be could also be undertaken.