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it pays to be sick – the real and immediate effects of the holidays act 2003

Employers are up in arms over the changes to provision for sick leave after the introduction of the Holidays Act on 1 April 2004. The meat workers industry is currently occupying centre stage in this debate as it is an industry in which sick leave amongst its workers has quadrupled since the enforcement of the Act.

Is the onset of winter to blame? Has a particularly bad flu been going around?

Perhaps the change in the calculation of "ordinary pay" may assist in explaining this rapid onset of "illness".

The new Holidays Act (2003) calculates "ordinary pay" for sick leave, bereavement leave, public holidays and any other paid leave, based on the last four weeks of income including incentive payments. Also under the new Act, an employer is not entitled to negotiate a two-tier pay system that would separate performance incentives from "ordinary pay".

To better illustrate the effect of such a change let us examine the pay rates at Greenlea Premier Meats, a small Hamilton based company. Pre- April 2004 they had negotiated a two-tier system of payment for their employee’s, a system that paid employees an ordinary rate of $9.50 per hour for non-productive days (for example public holidays and any other paid leave). The second tier however, could allow an employee at the top end of the pay scale to receive $27.50 per hour.

This agreement was challenged by a labour inspector two years ago, who argued that it was in breach of "good faith". This claim was later thrown out of the Court of Appeal and the Greenlea Premier Meats continued with their system until the new Holidays act forced a change. The new act directly undermines the Court of Appeal’s decision. Under the new legislation depending on the nature of their last four weeks of work, meat workers at Greenlea Premier Meats could be paid up to $27.50 per hour while on sick leave.

It seems ironic that legislation intended to benefit the employee will almost certainly come to have the reverse effect. Under the new Act an appreciative employer that seeks to reward their staff will be financially stung for doing so. It seems inevitable that in response to an increased number of "sickies" and "mental health days", employers may be forced to get rid of any bonuses altogether, to relieve the costly burden this new Act imposes.

We are employment law specialists. Please contact us at Barbara Buckett & Associates if there are any issues raised in this update you would like to discuss further.

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