A LABOUR INSPECTOR OF THE MINISTRY OF BUSINESS, INNOVATION AND EMPLOYMENT v TOURISM HOLDINGS LIMITED [2021] NZCA 1

A LABOUR INSPECTOR OF THE MINISTRY OF BUSINESS, INNOVATION AND EMPLOYMENT vTOURISM HOLDINGS LIMITED [2021] NZCA 1 [18 January 2021]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA419/2019[2021] NZCA 1BETWEEN A LABOUR INSPECTOR OF THEMINISTRY OF BUSINESS, INNOVATIONAND EMPLOYMENTAppellantAND TOURISM HOLDINGS LIMITEDRespondentHearing: 24 September 2020Court: Cooper, Brown and Clifford JJCounsel: A E Scott-Howman and S E Blick for AppellantS C Langton and S L Maxfield for RespondentJudgment: 18 January 2021 at 12 pmJUDGMENT OF THE COURTA The appeal is allowed.B We answer the questions of law submitted for determination by the Court:(a) What is the meaning of "not a regular part of the employee's pay"in s 8(1)(c)(i) of the Holidays Act 2003 for the purpose of calculatingordinary weekly pay under s 8(2) of the Holidays Act?Payments are "a regular part of the employee's pay" if they are made(i) substantively regularly, being made systematically and accordingto rules; or (ii) temporally regularly, being made uniformly in timeand manner.(b) If productivity or incentive-based payments are a regular part of theemployee's pay, do those payments have to be "pay the employeereceives under his or her employment agreement for an ordinaryworking week" for the purpose of calculating ordinary weekly payunder s 8(2) of the Holidays Act?No.____________________________________________________________________REASONS OF THE COURT(Given by Clifford J)Introduction[1] The Holidays Act 2003 (the Act) entitles employees to minimum periods ofpaid annual holidays.1 Sub-part 1 of pt 2 sets out, amongst other things, the basis uponwhich annual holiday pay is to be calculated.[2] This appeal from a decision of the Employment Court concerns the calculationof annual holiday pay for employees whose pay includes payments of commission.2[3] Section 214 of the Employment Relations Act 2000 provides for appeals to thisCourt on questions of law. Leave from this Court is required for such appeals.This Court granted leave on the following questions:3(a) What is the meaning of "not a regular part of the employee's pay" ins 8(1)(c)(i) of the Holidays Act 2003 for the purpose of calculatingordinary weekly pay under s 8(2) of the Holidays Act?(b) If productivity or incentive-based payments are a regular part of theemployee's pay, do those payments have to be "pay the employeereceives under his or her employment agreement for an ordinaryworking week" for the purpose of calculating ordinary weekly payunder s 8(2) of the Holidays Act?1 All references in this judgment to parts, sub-parts, sections and subsections are, unless otherwisestated, references to provisions of the Act.2 Tourism Holdings Ltd v A Labour Inspector of the Ministry of Business, Innovation andEmployment [2019] NZEmpC 87, [2019] ERNZ 239 [Judgment under appeal].3 A Labour Inspector of the Ministry of Business, Innovation and Employment v Tourism HoldingsLtd [2019] NZCA 569.ContextFactual[4] The respondent, Tourism Holdings Ltd (Tourism Holdings or the Company),operates guided bus tours throughout New Zealand under the brand name"Kiwi Experience". To do so, it employs "driver guides". As that title reflects, thoseemployees both drive the buses which carry the Company's customers on its tours andact as the customers' guides for those tours. Kiwi Experience tours are operated on a"hop-on/hop-off" basis: customers may "hop-off" a tour in one place and "hop-on"another like tour in that place, to suit the speed at which they wish to travel around thecountry. Tours are of varying lengths, generally between seven and 31 days. Theycover the whole country.[5] Driver guides have a variety of duties designed to ensure, as far as possible,that Tourism Holdings' customers enjoy their tour and the "kiwi experience" itpromises them. It is one of the driver guides' tasks to sell additional activities, touristexperiences, to the Company's customers whilst they are on tour. Those experiencesare provided both by third parties and the Company itself. They comprise the widerange of activities which, together with the delights of touring itself, can colloquiallybe said to constitute a key part of the "kiwi experience". Examples include anovernight stay and hāngi at a Rotorua marae, shuttle transport and guided hikes of theTongariro Crossing and helicopter flights over Franz Josef glacier. Given therelatively informal and "hop-on/hop-off" basis of Kiwi Experience tours, theCompany does not pre-sell those activities at the point the tour itself is booked andpaid for. Rather, those activities are booked and sold by driver guides as a tourprogresses.[6] In consideration for performing their general duties, driver guides are paidweekly in arrears at a daily rate whilst on tour. That rate depends on the type andlocation of a tour and a number of other variables. In exchange for their particularwork of selling additional activities, driver guides are also paid commission. Wherean additional activity is one provided by Tourism Holdings, it pays driver guides10 per cent of the price the customer pays. Where the activity is one provided by athird party, the third party pays commission — generally 50 per cent of the price thecustomer pays — to Tourism Holdings. Tourism Holdings itself separately pays anamount equal to half of that amount, namely 25 per cent of the purchase price paid bythe customer, as commission to driver guides. Importantly for this appeal, driverguides are not paid commission whilst they are on tour. Rather, they receive paymentsof commission once a tour has finished and after they have completed certainadministrative procedures required by the Company. That is, whilst on tour driverguides do not receive payments of commission at the same time as they receive theirweekly payment, based on the applicable daily rate. Rather they receive lump sumpayments of commission for each tour. Those amounts vary, necessarily, based on thelength of a tour and hence the opportunity a driver guide has to sell additionalexperiences, and their success (or otherwise) in doing so.[7] We return to the detail of those arrangements when considering the parties'arguments.Legal[8] In general an employee becomes entitled to not less than four weeks' paidannual holidays after the end of each 12 months of continuous employment.4 Thisappeal concerns employees so entitled.5 Section 21 provides for the calculation of theannual holiday pay of such employees as follows:21 Calculation of annual holiday pay(1) If an employee takes an annual holiday after the employee'sentitlement to the holiday has arisen, the employer must calculate theemployee's annual holiday pay in accordance with subsection (2).(2) Annual holiday pay must be—(a) for the agreed portion of the annual holidays entitlement; and(b) at a rate that is based on the greater of—(i) the employee's ordinary weekly pay as at thebeginning of the annual holiday; or4 Holidays Act 2003, s 16(1).5 Driver guides are employed on a permanent basis but, due to the seasonality of the industry, arenot guaranteed work throughout the entire year. Notwithstanding, the entitlement to four weeks'annual holidays will accrue following 12 months' continuous employment, as opposed to12 months' actual touring.(ii) the employee's average weekly earnings for the12 months immediately before the end of the last payperiod before the annual holiday.(Emphasis added.)[9] Pursuant to s 21(2), the employer must therefore calculate both the rate of"ordinary weekly pay" as at the beginning of the annual holiday and the rate of"average weekly earnings" for the 12 months immediately before the annual holiday.Holiday pay is then to be calculated by reference to the higher of those two rates.[10] As we go on to explain, commission earnt by employees — which is the focusof this appeal — will always be included in the second calculation, as that calculationis based on gross pay for the 12 months immediately before the employee takes theirannual holiday. However, commission is only included in an employee's ordinaryweekly pay, that is their pay for an ordinary working week, where it is a regular partof that pay.[11] The Act recognises that employees may not, however, have an ordinaryworking week. In those circumstances an alternative way of calculating ordinaryweekly pay for the purposes of s 21(2)(b)(i) is provided. This appeal concerns the waycommission is treated in that alternative calculation.[12] The phrases "ordinary weekly pay" and "average weekly earnings" are bothdefined. The correct interpretation of those phrases as a matter of law in the contextof the Company's obligations for the payment of commission to driver guides is theissue we must determine in this appeal.[13] "Ordinary weekly pay" is defined in s 8(1):8 Meaning of ordinary weekly pay(1) In this Act, unless the context otherwise requires, ordinary weeklypay, for the purposes of calculating annual holiday pay,—(a) means the amount of pay that the employee receives under hisor her employment agreement for an ordinary working week;and(b) includes—(i) productivity or incentive-based payments (includingcommission) if those payments are a regular part ofthe employee's pay:(ii) payments for overtime if those payments are a regularpart of the employee's pay:(iii) the cash value of any board or lodgings provided bythe employer to the employee; but(c) excludes—(i) productivity or incentive-based payments that are nota regular part of the employee's pay:(ii) payments for overtime that are not a regular part ofthe employee's pay:(iii) any one-off or exceptional payments:(iv) any discretionary payments that the employer is notbound, under the terms of the employee'semployment agreement, to pay the employee:(v) any payment of any employer contribution to asuperannuation scheme for the benefit of theemployee. (emphasis added)[14] The phrase "average weekly earnings", is defined in s 5 to mean "1/52 of anemployee's gross earnings". "[G]ross earnings" is, in turn, defined in s 14 as follows:14 Meaning of gross earningsIn this Act, unless the context otherwise requires, gross earnings, in relationto an employee for the period during which the earnings are being assessed,—(a) means all payments that the employer is required to pay to the employeeunder the employee's employment agreement, including, forexample—(i) salary or wages:(iv) productivity or incentive-based payments (includingcommission): [15] Thus, and as can be seen, commission can become part of an employee's baseweekly rate for holiday purposes in two different ways. First, in terms of "ordinaryweekly pay", and s 8(2): there it is the actual commission earnt in the weekimmediately preceding the employee's annual holiday that counts. Secondly, in termsof "average weekly earnings": there it is the total amount of commission earnt overthe preceding 52 weeks, prorated to a weekly basis, that counts.[16] The provision of those alternative calculations would appear to reflect theintention that holiday pay should be based on a rate which includes commission,however regularly or irregularly it is in fact paid. If regularly paid, but less thanweekly, commission would only be included in the first calculation if — as a matterof fact — commission had been earnt by the employee in the week before they tooktheir annual leave, irrespective of how much commission they had earnt in the rest ofthe preceding year. Similarly, even if paid in that week, the payment for that weekmight not fairly reflect commission earnt in the rest of the year. Hence the secondcalculation, which averages the year's commission to a weekly rate.[17] Section 8(2) provides an alternative way to calculate "ordinary weekly pay"where it is not possible to apply the definition found in s 8(1).[18] Section 8(2) provides:(2) If it is not possible to determine an employee's ordinary weekly payunder subsection (1), the pay must be calculated in accordance withthe following formula:a – bcwhere—a is the employee's gross earnings for—(i) the 4 calendar weeks before the end of the pay periodimmediately before the calculation is made; or(ii) if, the employee's normal pay period is longer than4 weeks, that pay period immediately before thecalculation is madeb is the total amount of payments described insubsection (1)(c)(i) to (iii)c is 4.[19] The Labour Inspector and the Company agree that s 8(2) applies here becausedriver guides do not have an ordinary working week by reference to which their"ordinary weekly pay" can be calculated. Essentially, that is due to the variableperiods which driver guides work during the course of their employment. Thoseperiods reflect the differing lengths of the range of tours Kiwi Experience provides.[20] The issue here is how commission received by driver guides as part of theirpay under their employment agreements is to be treated in the s 8(2) calculation.[21] The parties agree such commission is, pursuant to the s 14 definition, to beinitially included in the calculation a - bc as part of factor a. That is, it is part of driverguides' "gross earnings". But they disagree when it comes to factor b. Remember,factor b is the total amount of payments described in s 8(1)(c)(i)–(iii), namely:(i) productivity or incentive-based payments that are not a regular part ofthe employee's pay:(ii) payments for overtime that are not a regular part of the employee'spay:(iii) any one-off or exceptional payments:[22] The Company says that driver guides' commissions are covered by (i) above:they are productivity or incentive-based payments which are not a regular part of theemployee's pay, and so are to be deducted — as part of factor b — from ordinaryweekly pay when holiday pay is calculated and s 8(2) applies. The Labour Inspectorsays that such commissions are a regular part of the employee's pay, and so are not tobe deducted.[23] The significance of that disagreement is that if commission is not deducted aspart of factor b then the weekly holiday pay rate calculated under s 8(2) may be greaterthan that calculated under s 21(2)(b)(ii). That would occur where the amount ofcommission earnt by a driver guide in the four-week period referenced in s 8(2) isgreater, as a component of ordinary weekly pay,6 than the 1/52 portion used tocalculate "average weekly earnings" under s 21(2)(b)(ii).[24] There was some suggestion by the Company that, if the approach taken by theLabour Inspector is correct, employees may be able to act strategically and time their6 That is, when divided by four.annual holidays so as to maximise their holiday pay. There was, however, no evidenceas to the likely incidence or monetary significance of such behaviour. The LabourInspector noted, moreover, that other provisions of the Act give the employer an abilityto manage the timing of annual holidays. The parties accepted that issue was of littleor no significance for the task of statutory interpretation raised by this appeal.[25] Against that background we turn now to the issues in this appeal.The competing arguments — the significance of how driver guides' commissionis calculated and when it is paid[26] The Company's procedures for selling and recording the sale of additionalactivities to support receiving commission from third party providers and payingdriver guides their commission earnings are complicated. Very much in summary:(a) Driver guides take bookings from tour customers for additionalactivities provided by both third parties and the Company.(b) Customers do not pay for third party activities at the time their bookingis made, because bookings can generally be cancelled or rescheduledby either the third party provider or the customer. Customers thereforegenerally pay third party providers at the time they undertake theactivity. Where the additional activity is provided by the Companyrather than a third party, payment is sometimes made upfront but stillsubject to a right of cancellation by the customer.(c) Third parties return commission payments, with supportingdocumentation, to the Company at regular intervals.(d) The Company pays commission to drivers, following a debrief andreconciliation process after the completion of tours. The Companypays driver guides commission earnt from the sale of third partyactivities before it receives its commission from the third partyproviders.[27] Thus, and as the parties recorded in their agreed statement of facts for theirhearing in the Employment Court:Accordingly, for the majority of activities, the booking, payment andundertaking of the activity can all happen on different dates. Due to the abilityfor passengers to cancel the booking, reschedule when they undertake theactivity (before or after paying for it), or not show up, while the Driver Guidewill be aware of how many bookings he or she made, the Driver Guide isunlikely to be aware of how many passengers actually undertook the activity or when payment was made, until documentation has been obtained fromthe third party operator.[28] Various standard forms of record-keeping support this process. Most thirdparty providers use Company-provided vouchers to record activities paid for and takenby Kiwi Experience customers, and to return commission to the Company. Driverguides also use copies of those vouchers, or details from those vouchers, obtained fromthird party providers during a tour as the basis for their claim for third partycommission to the Company. The Company reconciles the details provided by driverguides with the commission returned by third party providers.[29] On that basis the Company argues commission payments are not earnt bydriver guides until the debrief and reconciliation process has been completed. Whenso earnt, the commission paid is either not pay "for an ordinary working week" or isnot "regular", as to be "regular" it must be pay received under the employee'semployment agreement "for an ordinary working week".[30] That is, the phrase at s 8(1)(b)(i) and (c)(i), "a regular part of the employee'spay", is to be read as meaning "a regular part of the employee's pay for an ordinaryworking week" both (i) where an employee has an "ordinary working week", and s 8(1)applies, and (ii) where they do not, and s 8(2) and the formula a - bc is used.[31] In the decision under appeal the Employment Court, agreeing with the positiontaken by Tourism Holdings, reasoned that commission payments were not a regularpart of driver guides' pay because they did not form part of their pay for an ordinaryworking week. As the Judge put it, what was to be included or excluded from thecalculation required by s 8 was designed to enable a calculation "representative of anordinary working week".7 The Court agreed that commission was not earnt by adriver, in the sense that it had become payable under the employment agreement, untilthe reconciliation was completed.8 That was more than a purely administrative task.It was not until the driver had completed the tour and the corresponding paperworkthat the amount due and owing could be ascertained. Thus:9The commissions were, as a matter of agreement, based on completing tasksat a regular intervals having no reference at all to what was earned for havingcompleted an ordinary working week.[32] In this appeal, the Labour Inspector argues there is no proper basis for thatapproach. The calculation called for under s 8(2) is required as there is no "ordinaryworking week". On that basis the Labour Inspector says it makes no sense, whencalculating factor b, to do so as if s 8(1)(c)(i) referred to "payments that are not aregular part of the employee's pay for an ordinary working week". Rather, thequalifying concept used is simply "regular", in the context of the phrase "a regularpart of the employee's pay".Analysis[33] We proceed on the basis of the well-understood New Zealand principles ofstatutory interpretation. The meaning of the provisions in question must be ascertainedfrom their text and in light of their purpose,10 including the overall social and culturalobjective of the Act.11[34] In terms of the scheme and purpose of the Act, and of ss 5, 8 and 14 inparticular, we prefer the interpretation of the Labour Inspector. That is, the purpose ofthe alternative approach found in s 8(2) is to provide for the calculation of "ordinaryweekly" pay where the definition found in s 8(1) cannot be applied. One of thosecircumstances is, as here, where there is no "ordinary working week". It would besurprising if a central element of the definition that does not fit, namely that of an7 Judgment under appeal, above n 2, at [29].8 At [38].9 At [38].10 Interpretation Act 1999, s 5(1).11 Commerce Commission v Fonterra Co-operative Group Ltd [2007] NZSC 36, [2007] 3 NZLR767 at [22]."ordinary working week", was in those circumstances to be reintroduced into thealternative calculation under s 8(2) as regards included and excluded commission.[35] Nor do we think the possible outcome of that interpretation, namely that therate calculated under s 8(2) may produce a higher holiday pay base rate than the "grossearnings" calculation, is inconsistent with the operation of s 8. If an employee who ispaid hourly and works seasonal or fluctuating hours takes an annual holiday after abusy four-week period in which they have worked somewhat more than usual, thenthey will already enjoy the benefit of those hours accrue when calculating their holidaypay under s 8(2).12 We do not see why employees regularly paid by commissionshould not enjoy an equivalent benefit, which is itself consistent with the scheme andpurpose of the Act. After all, s 21 is drafted to give employees the benefit of the greaterof the "ordinary weekly pay" and "average weekly earnings" calculations.[36] The interpretation the Labour Inspector supports is also consistent with thequalifying word "regular" in s 8(1)(c)(i). The dictionaries give us a number ofmeanings for the word regular. As relevant, the word means both (i) "conforming toa rule or principle; systematic", or what might be called substantive regularity; and (ii)"acting or done or recurring uniformly or calculably in time or manner; habitual,constant, orderly", or what might be called temporal regularity.13[37] In our assessment, both those meanings apply to commission as earnt by theCompany's driver guides. Commission is provided for as part of the "rule"represented by the individual's employment contract for promoting and organisingbookings for additional activities as a specific duty of an employee. The terms forpayment of commission, the "rules" for payment of commission, are set in thatemployment agreement. Moreover, and on the basis of the pattern of driver guides'employment — that is the pattern of the "trips" (albeit of varying lengths) they areresponsible for — commission is a regular and habitual part of their pay. While it isnot part of the payment of daily rate compensation for each week of a tour a guidereceives during the tour, it does form the part of their pay in the week after the tour in12 Excluding, of course, overtime or other special payments deducted by s 8(1)(c)(i)–(iii).13 Tony Deverson and Graeme Kennedy (eds) The New Zealand Oxford Dictionary (OxfordUniversity Press, Melbourne, 2005) at 947.which it its paid, and regularly — that regularity fitting the pattern of the tours a driverguide is responsible for over time.[38] Finally, and to the extent this involves a question of law,14 we are not persuadedby the Company's "earnt" proposition. By the Company's own explanation, a driverguide earns commission when two things happen: the driver guide books an additionalactivity for the customer, and the customer, in the case of third party providers onlyhowever, takes and pays for that activity. The entitlement to the commission accrues,is earnt, at that point. The subsequent debrief procedures provide the paperwork bywhich (i) the Company and the driver guide can agree on the amount of commissionearnt, and (ii) the Company can use that information as a cross check on third partycommission returns. Those are processes of calculation of the amount earnt, ratherthan the earning of that amount.Result[39] The appeal is allowed.[40] We answer the questions of law submitted for determination by the Court:(a) What is the meaning of "not a regular part of the employee's pay" ins 8(1)(c)(i) of the Holidays Act 2003 for the purpose of calculatingordinary weekly pay under s 8(2) of the Holidays Act?Payments are "a regular part of the employee's pay" if they are made(i) substantively regularly, being made systematically and according torules; or (ii) temporally regularly, being made uniformly in time andmanner.(b) If productivity or incentive-based payments are a regular part of theemployee's pay, do those payments have to be "pay the employee14 As we understand the practical implications of this appeal, noting the complexities of theHolidays Act, this would only appear to be material when a driver guide takes holidaysimmediately following the completion of a tour, and before the reconciliation of commission earntduring that tour has been able to be calculated. In those circumstances, appropriate "good faith"arrangements would appear to be possible to address any issue arising.receives under his or her employment agreement for an ordinaryworking week" for the purpose of calculating ordinary weekly payunder s 8(2) of the Holidays Act?No.[41] The parties agreed that, in the event the Labour Inspector was successful, costswould lie where they fall and accordingly we make no order as to costs.Solicitors:Crown Law Office, Wellington for AppellantLangton Hudson Butcher, Auckland for Respondent