Issue 145
Meenken v Rigg Zschokke Ltd—Employment Court, Wellington, November 2009. Claim for breach of Wages Protection Act 1983—unsuccessful.
The Employment Court has held that deductions from wages ordered by Inland Revenue under the Tax Administration Act prevail over the right to wages without deduction.
The company received an Inland Revenue notice to deduct a sum of money from the employee’s wages. The employee gave the company written notification forbidding it to make the deduction from her wages. Her written notice released the company from its obligation to pay her wages on the condition that the amount owed to her by the company (for her wages) was paid into a different account.
The company insisted that it must make the deduction from the employee’s wages on the basis that it was under a statutory obligation to implement an Inland Revenue deduction notice or face severe financial penalty. The employee claimed that without her written consent, making the deduction would breach her employment agreement and the Wages Protection Act 1983.
The Employment Relations Authority stated that the employee was unable to contract out of the company’s legal duty to pay her wages. Besides, the money the employee wanted paid into another bank account was “simply wages under another name”.
The Authority noted that section 157 of the Tax Administration Act 1994 gave Inland Revenue the power to require by notice a deduction from any amount payable to a taxpayer. The Authority concluded that the company was obliged to effect the deduction on behalf of Inland Revenue and was not in breach of the Wages Protection Act.
The employee took her case to the Employment Court, which noted that under section 15 of the Wages Protection Act, protection against deduction without consent was subject to other statutory provisions, such as section 157 of the Tax Administration Act. The Court held that these other statutory provisions prevailed in the event of a conflict. The Court concluded that the employee’s claim could not succeed.
Rooney Earthmoving Ltd v McTague, Whiting and Bartlett—Employment Court, Christchurch, August 2009. Claim for damages arising from breach of employment agreement—successful.
The Employment Court has held that a company was entitled to damages after three former employees organised to set up a competing business while they were still employed. The three men worked for the company’s Ashburton branch in management roles, including regional manager. They were well-regarded by many local clients.
The regional manager resigned in late April, giving notice until the end of July. Soon after his resignation and still during the notice period, the regional manager met with the other two managers to discuss a proposed new business that would compete with the company.
In early May, while he was still employed by the company, the regional manager discussed setting up the new business with his accountants. On 13 May, the regional manager left after a disagreement with his boss, and did not work the remainder of his notice. One of the managers resigned from the company on 14 May, and on 17 May the other manager printed a list of the company’s Ashburton clients before resigning the next day.
A few days after leaving his job, the regional manager applied for credit to start up the new business. To back up his loan application, he provided various information, including that he had secured the services of two key personnel who were currently working as senior managers for his former employer. The application also said that the new business would be employing nine experienced operators (already confirmed), and that ongoing work had already been secured that would keep the business busy for at least a year. Around 24 May, the regional manager provided the credit company with a client list.
The company experienced a substantial decline in turnover in April and May, which continued for the rest of the year. It sought damages from the three former employees, claiming they had breached their duties of good faith, fidelity and confidentiality. There was no written restraint of trade.
The Employment Court held that the regional manager had abandoned his employment with no grounds to shorten his notice period. It was clear that the regional manager was intending to start a competing business before his notice period had expired. If he had worked his notice, then the other two managers would not have left their employment before the end of July. The regional manager was therefore liable for any damages suffered by the company as a consequence of his not working the remainder of his notice period.
The Court held one of the managers had used quotations from the company’s business to quote for work for the new business. He had wiped the details of both ongoing and future work from the whiteboard before he left the company and had removed a folder containing quotations he had given while working for the company. It gave several examples of potential clients the other manager had spoken to during his employment who had subsequently given work to the new business and not the company.
The Court held that if a manager or senior employee observes actions that are harmful to the employer, then the employee is required under the duty of fidelity or trust and confidence to report that conduct to the employer. This is equally so when the conduct in question is being performed either by the employee or at the employee’s instigation or where he or she is complicit in that conduct. The regional manager and the other two managers, as the branch’s most senior supervisors, were under a duty to disclose misconduct damaging to the company.
It concluded that all three managers had breached their duties of fidelity and trust and confidence. The company was entitled to damages suffered as a result of those breaches. If they could not agree between themselves on the amount of damages, then they could apply to the Court for a hearing.
Real Cool Ltd v Gunfield—Employment Court, Auckland, October 2009. Claim for unjustified dismissal—unsuccessful.
A finding of unjustified dismissal was overturned by the Employment Court, which then found the employee had been unjustifiably disadvantaged in her employment. The employee worked as a shipping administrator for the company. The Court held that the employment was indefinite, with a three month trial period (neither the employee nor the employer was able to produce a written copy of the agreement).
The employee experienced “some awkward or difficult working relationships”, particularly with one of the more senior administrators. When she was offered a job by a competing company that was in the process of buying Real Cool, the employee accepted.
The employee resigned and began working for the other company, but her employment lasted only a few days because the new employer’s manager changed his mind about employing her. She raised personal grievances against both companies. The employee and her new employer reached a mediated settlement, however her claim against Real Cool went to the Employment Relations Authority.
The Authority determined that the employee had been dismissed unjustifiably. The company was ordered to pay $8000 compensation to the employee for humiliation, and a penalty of $1000 to the Crown for failing to supply wages and time records in breach of section 130(2) of the Employment Relations Act 2000. The company appealed.
The Employment Court held that the employee had resigned from her employment with Real Cool and was not dismissed. The Authority’s finding of unjustified dismissal and compensation was overturned. The Court held, however, that the employee did have a personal grievance for the unjustified actions of her employer. The senior administrator (with whom the employee had a difficult working relationship) commented adversely on the employee’s work performance and told her—wrongly—that her employment there would end soon because she was employed on a fixed-term that was due to expire.
The Court noted that the issue was not whether the senior administrator was authorised to make statements about the employee’s employment, but whether the employee could have reasonably taken that the senior administrator was speaking on behalf of the company’s management. In the circumstances, the Court held, it was reasonable for the employee to conclude that the senior administrator was authorised to make those statements. This advice disadvantaged the employee in her employment by distressing, unsettling and placing unwarranted pressure on her.
It ordered the company to pay the employee $3000 for distress. The penalty for failure to supply wages and time records was upheld, and the Court ordered that $500 of it be paid to the employee.
Hall v Pan Pacific Auto Electronics Ltd—Employment Relations Authority, Auckland, August 2009. Application for relief of restraint of trade—partly successful.
Six months has been determined by the Employment Relations Authority to be an unreasonable length of time for restraint of trade preventing a former employee working for a competitor.
The employee was employed as a branch manager and his employment agreement contained a restraint of trade that provided the employee could not be involved, including as an employee, in competition with the company for at least six months after his employment ended.
The employee had access to a range of information amounting to the company’s trade secrets, including pricing decisions, developing product lines and detailed knowledge of the data and structure of a newly-developed on-line catalogue. He resigned after being offered a job by a competing business, and spent his six-week notice period on garden leave.
The employee applied to the Employment Relations Authority for relief of the restraint of trade. He agreed to comply with clauses in his employment agreement on confidential information, intellectual property, non-solicitation of employees or prospective clients and customers of the company. The company sought to have the restraint enforced by the Authority.
The Authority began by noting that a restraint of trade is prima facie void and unenforceable unless, in the circumstances, it is reasonable between the parties and in the public interest. A restraint may reasonably be imposed only for the extent necessary for the former employer to prepare to meet the competition of its former employee. It must be no more than adequate to meet that purpose.
The Authority determined that the trade secrets that the employee had knowledge of were capable of being protected by a restraint. In the circumstances, the restraint was reasonable to protect a range of confidential information, including prices and margins on suppliers’ products, and the structure and content of its marketing catalogue.
However, six months was not a reasonable length of time for the restraint. No more than three months could be justified in circumstances where pricing and margin information along with intelligence from and about customers and suppliers was reviewed at weekly and quarterly meetings. After that period—at the most 12 weeks—some or all of the information to which the employee was privy would be stale. Furthermore, the company expected its new catalogue to be released by that time, so its contents and structure would no longer be confidential.
The Authority used its power under section 8 of the Illegal Contracts Act 1970 to modify the restraint of trade provision by reducing the period to three months.
The Manufacturing & Construction Workers Union v Interclean—Employment Relations Authority, Christchurch, August 2009. Application for penalty for breach of Employment Relations Act 2000—successful.
The Employment Relations Authority has determined that the company’s offer of individual employment agreements during a meeting to discuss the collective agreement was an inducement not to be covered by the collective.
After about three months of collective bargaining between the union and the local branch manager, a collective agreement was proposed, ratified by the union members and signed by the branch manager. The company’s head office in Auckland was then sent a copy of the agreement, but was not happy with it.
A meeting was held in Christchurch between company representatives and three union members. During the meeting, the company made it clear that it would not be complying with the collective agreement, apparently because the pay scales were too complicated.
The company said that employees were welcome to be in the collective, but they would be offered the same terms and conditions as the Auckland collective agreement. They were also offered individual employment agreements entitling them to the same allowances as the Auckland collective. Most of the union members employed in Christchurch resigned from the union.
The company told the Employment Relations Authority that the branch manager who signed the Christchurch collective agreement did not have authority to do so, and therefore it had not failed to abide by the collective.
The Authority disagreed: “[The branch manager] signed the collective agreement within the scope of his actual authority with the company. Implied authority and apparent authority often coexist but considering the matter from the viewpoint of a reasonable person dealing with [the branch manager], it would have appeared to the union that he had the authority to enter into the collective agreement on behalf of Interclean”. The Christchurch collective agreement was enforceable.
The Authority also determined that offering the union members individual employment agreements was an inducement not to be covered by the Christchurch collective agreement. The way in which it was done was not honest or open and there was an ulterior purpose—to undermine the collective agreement. This was not an action done in good faith.
The Authority concluded that the company had breached sections 4(1) and 4(6) of the Employment Relations Act 2000. It ordered the company to pay a penalty of $7000, of which $2000 went to the Crown and $5000 to the union.
—Selected and written
by Louisa Clery
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