Do minimum hours in contracts mean guaranteed pay?

Published 5 November 2024 | 2 min read

As a business owner, manager, or HR, you may have found yourself in the following situation: your business promises a minimum number of work hours in an employee's contract, but due to fluctuating demand, there are weeks when you simply don’t need them for all those hours.

This raises a tricky question: if your contract specifies a minimum of 40 hours, for example, does this mean you’re obligated to pay for all 40 hours—even when you only roster them for, say, 30? The answer to this question is essential for avoiding disputes, maintaining fair practices, and ensuring compliance with New Zealand employment law.

What if minimum hours in the contract don’t match the roster?

Consider the story of a recent dispute heard by the Employment Relations Authority (ERA) that dealt with precisely this issue. In this case, an acting duty manager at an East Auckland bar believed he was entitled to payment for the minimum 40 hours specified in his contract, even though he was sometimes rostered for fewer hours.

Over a period of 25 weeks, the worker claimed he’d been underpaid by approximately $1,726.64 due to these “missing” hours.

Meanwhile, the employer argued that scheduling was based on the business’s needs, and they only paid for the hours rostered. This led to a dispute over whether a contract’s minimum hours imply a fixed obligation for those hours regardless of actual work needs.

What does New Zealand law say?

In the Employment Relations Act 2000, employment agreements must specify agreed working hours or arrangements on when work will be performed. This includes establishing the number of guaranteed hours, workdays, and start and finish times, along with any flexible provisions.

In this recent case, the ERA looked at the contractual clause requiring the worker to “work a minimum of 40 hours per week,” coupled with a provision allowing the business to adjust hours based on operational needs.

The ERA ultimately determined that a reasonable interpretation of the contract’s “minimum of 40 hours” language required the worker to be paid for that time if they were available and willing to work, regardless of the rostered hours.

If employers do not clearly specify that “minimum hours” are contingent upon actual need or availability, they risk being required to pay for those hours. This case illustrates that if a worker’s contract stipulates a minimum, the presumption will often be that those hours are guaranteed.

The ERA Decision

The ERA’s decision is a reminder of several key points for New Zealand businesses to keep in mind when drafting or reviewing employment agreements:

• Ensure that terms like "minimum hours" are clearly defined in employment agreements to avoid ambiguity.
• Specify any conditions under which hours may vary, especially if business needs fluctuate.
• Consider that common law principles may require employers to pay workers for agreed-upon hours when employees are available, ready, and willing to work, even if not rostered for that time.
• Address potential scenarios, such as low business demand periods, to ensure clarity on expectations.

The one takeaway from this case is the importance of precise language in employment agreements. If an agreement specifies “minimum hours,” this could mean the employer must pay for those hours if the employee is available to work, regardless of rostered shifts.

To avoid unintended obligations, you should review your Individual Employment Agreements (IEAs) and seek legal guidance if necessary. A well-structured contract can help align expectations and prevent misunderstandings, benefiting both employers and employees.

Note: This information is based on official details from Employment New Zealand and is subject to change. Always refer to the latest guidelines for the most accurate information. Visit Employment New Zealand here.