Last week a major McDonald’s franchisee lost four restaurants for asking staff to sign illegal bonded labour agreements. But training bond schemes are more common than you would think – because sometimes they’re actually legal. 

Bonded labour or forced labour sounds like it should be completely illegal, and it is for the most part.

But in some cases, employers can use legitimate training bond schemes to ensure their investment in a worker is paid off.

However, the issue is employers are misusing legitimate training bond schemes to illegally secure workers into term agreements.

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Dundas Street Employment Law partner Rosamund Webby says training bond agreements, colloquially known as “bonding arrangements” are not uncommon. 

Typically these training bond scheme involve a company paying for the training of a legitimate course or apprenticeship under the premise the worker will be bonded to that employer for certain period – it could be a year, or a year and half. 

However, Webby says, these arrangements tend normally to be in respect of ‘added extras’ to the actual employment.

“Such as expensive professional development or training in things that aren’t actually required to competently perform the basic job an employee is employed to undertake.”

She says generally, the amount that’s repayable also reduces the longer the employee remains in employment.

What is not allowed and in breach of the Wage Protection Act is charging a worker or prospective employee a premium for giving them employment. 

In the case of McDonald’s former franchisee owner Prakash Hira asked staff to pay him $3000 total as a bond agreement for “the entire hiring/on boarding & training cost”, and for “time spent throughout the onboarding processes such as orientation/follow up orientation, training plans and time spent training, uniform costs as well as several administrative costs”.

Webby says all of these costs are incurred simply in employing and ensuring a person can perform the basic job.

They are not added bonus extras that the employer doesn’t really need to offer.

Hence that contract isn’t “worth the paper it’s written on”, Webby says, as the arrangement is likely unlawful, and if it’s signed, it is likely to be entirely incapable of being enforced.

MBIE says migrant exploitation commonly involves workers being asked to pay back wages and training costs and pay premiums for jobs. Photo: Lynn Grieveson

Workers’ rights advocate Nathan Santesso has worked on thousands of exploitation cases and says while illegal training bonds are not common, about one in 20 cases he deals involves a dodgy bonded labour agreement. 

He says they were especially common in industries like beauty and massage clinics.

Santesso says he is currently dealing with an employment dispute involving a beauty therapy worker bonded to her employment for two years over a sham training course on laser hair removal.

He says bonds are allowed if there is an actual qualification the employer is paying for, usually to a third party, for the worker to attend, such as flight training. 

This protects the employer if the worker decides to take a free training course and leave without working.

Hospitality worker’s advocate Chloe Ann King says vulnerable migrant workers whose visas are tied to their employers are often victims of illegal bonded labour arrangements.

“Workers are asked to pay a premium and given a false sense of hope about getting residency. It’s totally cruel,” Ann King says.

She says exploitative employers often think their contracts trump employment law.

According to MBIE, workers being asked to pay part or all their wages back to employers and paying premiums for getting employment were among of the most common forms of migrant exploitation.

There have been calls from businesses and worker’s advocates for the government to act fast on having a modern slavery law in New Zealand, like Australia, the United States and United Kingdom already have.

All three countries also have dedicated modern slavery laws, designed to make businesses report on the potential risks of forced labour in their supply chains and what they are doing to address them. New Zealand has no such legislation.

“Workers are asked to pay a premium and given a false sense of hope about getting residency. It’s totally cruel.”
– Chloe Ann King, Raise the Bar

Ann King says while this legislation is necessary, current employment law took exploitation seriously. Employers who exploit migrants can be imprisoned for up to seven years and fined up to $100,000.

But the problem was, the Labour Inspectorate and the Employment Relations Authority, where employment disputes are heard, have been underfunded and did not have the resources to enforce the law. 

She says both departments were overlooked in this year’s Budget.

Disputes are facing up to two years of wait time before they are heard at the ERA due to a backlog of cases post-Covid.

As for Hira, the former owner of four McDonald’s restaurants, the union representing the workers of his stores say it will not take further action against the company, Hira Corporation. 

“We complained and head office acted quickly on the complaint – and [Hira] lost his company. That’s a win for us,” Unite Union national director Mike Treen says.

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