The Employment Relations Authority has refused to enforce a clause making an employee pay a month’s wages when they resigned without giving the required notice period.

The ERA held that such a penalty clause will only be enforced if an employer suffers actual additional costs that would not have been incurred if the employee had given proper notice.

In this case distributing the employee’s work amongst other staff and paying them overtime was not an additional cost as the employee would have been paid if she was working. 

Even though the other staff were paid more than the employee would have earned those costs were not held to be recoverable.  No explanation was given as to why lesser paid staff were not used.

The enforcement of such clauses is very difficult and the disruption caused to an employer when an employee walks out without notice it is not something that will be compensated for.

If an employer managed to hire a replacement worker and had to pay them more, then that extra cost might be recoverable, but as a notice period is not likely to be more than a month the recovery is likely to be small.

The ERA will also not enforce a penalty clause designed to force an employee to work out their proper notice.  The use of such a clause is against public policy.  No penalty will be imposed by the ERA for the blatant breach of contract by an employee in not giving proper notice.

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