Significant Decisions Headnoted - April 2007

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McGreal v Television New Zealand Ltd

AC 3/07

Heard: 5 Feb 2007, Auckland

Judgment Date: 1 Nov 2006

Court/Authority/Tribunal: Perkins J

Appearances: P McGreal (in person) ; A Drake & N Cervin

APPLICATION FOR DECLARATION OF EMPLOYMENT STATUS - Whether employee or independent contractor - Plaintiff resigned from employment with defendant and for next ten years provided services to defendant and others through his companies - Plaintiff alleged his integration into defendant's workforce and defendant's control over him meant he really was employee - Litigant in person - HELD - None of the usual tests to be applied persuaded Court that once plaintiff resigned from the defendant as an employee he was anything other than self-employed contractor or freelancer - Application dismissed - Sound engineer

This was an unsuccessful application for a declaration that the plaintiff was an employee of the defendant.

The plaintiff made an application pursuant to s6(5) Employment Relations Act 2000 for a declaration as to whether he was an employee of the defendant during a ten-year period following January 1995. He represented himself, and the Court allowed some laxity in the evidence produced to ensure that he felt he had been given ample opportunity to present his case.

In evidence, the plaintiff accepted that he resigned employment with the defendant in 1994 and set up a new business as a self-employed freelance sound engineer, and operated accordingly throughout the period for which the declaration was sought. He contracted work not only with the defendant but with other television and recording companies. He was registered for GST and he invoiced his clients accordingly. For periods during the overall period in question he operated his business through registered companies and trading entities and he was paid a salary by those companies and trading entities. He constantly changed the names under which he operated his business, allegedly for fun. He purchased equipment, leased premises and set up his own sound recording studio as part of his business enterprises. At times he tried to sell equipment to the defendant and also to persuade them to use his studio.

The plaintiff called his former wife to give evidence, apparently to corroborate his allegations as to a pay dispute prior to his resignation in 1994, and attempted to use her evidence as basis to cross-examine a witness for the defendant. He alleged that the defendant had tricked him into his situation because of its monopoly. The plaintiff submitted that he was integrated into the workforce of the defendant and was in effect an employee even though he had resigned employment in 1994 and set up in business on his own account. The plaintiff submitted that the control, which the defendant exercised over him, in reality placed him as an employee. The plaintiff also submitted that (i) as there was no written contract, he could not have been an independent contractor; and (ii) the period of his work with the defendant was too long for a contract of services to continue.

Held

1. It was difficult to know the real basis upon which the plaintiff claimed to have been an employee of the defendant for the period in question. The Court got the impression that the plaintiff brought the proceedings to support his contentions as to his professional abilities and to boost his own self-esteem. (para 3)
2. The evidence from the plaintiff's former wife was totally hearsay. The plaintiff did not comprehend why her evidence could be given little weight. However, her evidence provided considerable insight into the plaintiff's obsessive personality. (paras 14-17)
3. The plaintiff's submissions on integration were a little muddled. The allegation that the defendant abused its monopoly position was not borne out by the evidence. There was no evidence that he was integrated during the relevant period into the defendant's workforce. (paras 19-21)
4. There was little evidence to support the plaintiff's contention that the defendant exercised control over him. (para 22)
5. There was substantial evidence as to the way the plaintiff's services were provided including contemporary documents. Those proved conclusively that an oral contract existed. The evidence confirmed that for his own convenience the plaintiff had chosen the benefits and flexibility of being in business on his own account. Over many years the plaintiff structured his business operation to maximise the advantages of being self-employed. The way he engaged himself in performing the services required over the time, pointed clearly to the fact that he was a self-employed independent contractor. (paras 24, 37)
6. Simply because a contract existed for many years that could not per se convert the provider of the services into an employee. It had some serious conceptual difficulties in the present case in any event. That was particularly so when the provider of the plaintiff's services was a limited liability company or commercial trading entity, which in each of the entities specified in evidence employed the plaintiff separately. (para 25)
7. The present was not a case where the matter was finely balanced or required careful analysis of the facts in the context of the legal principles. (para 29)
8. The plaintiff clearly changed from being an employee to a freelance sound engineer. From that point both parties acted consistently with a contract for services being in place. The defendant was careful to always act consistently with the plaintiff being a freelance contractor rather than an employee. (para 31)
9. It was the intention of the parties that from the date of the plaintiff's resignation as an employee, he would continue as a self-employed contractor. That was evidenced by the payment and taxation arrangements, the nonexclusive relationship between the parties, and the structuring of the plaintiff's business. (para 32)
10. Industry practice, as far as the evidence went, seemed to suggest that sound engineers were employed by the television companies as either freelance contractors or in-house employees. That factor was therefore inconclusive. (para 33)
11. Applying the fundamental or economic reality test, most of the evidence suggested the plaintiff acted independently, attending when he was required for specifically contracted programmes, and being left very much to his own devices when performing the work. The way the plaintiff structured his businesses said it all. Consideration of the economic reality test lead conclusively to the plaintiff, or more particularly his companies or business entities, being engaged by the defendant on a contract for services. (paras 34, 36)
12. The plaintiff was not so integrated within the structure of the defendant and the defendant did not exercise such control over him that he could only be regarded as an employee. The evidence to the contrary was simply overwhelming. (para 38)
13. None of the usual tests to be applied persuaded the Court that once the plaintiff resigned from the defendant as an employee he was then anything other than a self-employed contractor or a "freelancer". Accordingly, the Court declined to make a declaration sought. (paras 37, 39)

Result: Application dismissed (declaration) ; Costs reserved

Statutes considered:

ERA s6

ERA s6(5)

Cases referred to in judgment:

Bryson v Three Foot Six Ltd [2003] 1 ERNZ 581

Hollis v Vabu Pty Ltd [2001] HCA 44

Massey v Crown Life Insurance Co [1978] 2 All ER 576

TNT Worldwide Express (NZ) Ltd v Cunningham [1993] 3 NZLR 681

Pages: 3

[973393]

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McKean v The Board of Trustees of Wakaaranga School

AC 1/07

Heard: 23 May 2006, Auckland

Judgment Date: 26 Jan 2007

Court/Authority/Tribunal: Colgan CJ

Appearances: P Pa'u ; C Chilwell & C Goode

DE NOVO CHALLENGE TO DETERMINATION OF EMPLOYMENT RELATIONS AUTHORITY - Unjustified disadvantage - Unjustified dismissal - Poor performance - Incapacity - Defendant initiated performance review process - Review process hampered by plaintiff's absences on sick leave - Final period of absence 8½ continuous months - Defendant requested indication of time of plaintiff's return and fitness to return to work - Plaintiff sent report from psychiatrist indicating plaintiff could not both return to work and recover and maintain good health in foreseeable future - HELD - Defendant had genuine concerns about plaintiff's teaching competency and justified in beginning competency procedures - Initiation of competency procedure not unjustified disadvantage - Also procedurally and substantively justified in dismissing plaintiff for incapacity - Competency provisions in Primary Teachers Collective Employment Agreement interpreted - Primary School teacher

This was an unsuccessful de novo challenge to a determination of the Employment Relations Authority which held that the plaintiff's dismissal was justified. The plaintiff was employed as a primary school teacher on an individual employment agreement which incorporated expressly the Primary Teachers Collective Employment Contract (Agreement) (2001-2003) ("cea"). The cea included a competency procedure ("the competency provisions") which provided that where competency was causing concern the school principal was to put in place appropriate assistance and personal guidance to assist the employee ("clause 3.6.1"). When that assistance had not remedied the situation the employee was to be advised in writing of the specific matters causing concern and the corrective action required and the time frame allowed ("clause 3.6.2").

Following the successful completion of his teacher registration, management at the defendant's school raised concerns regarding the plaintiff's competence. During 2001 the plaintiff was the subject of a complaint from a parent alleging classroom disorganisation and uncertainty in educational programs. The plaintiff was appraised and told there were a number of areas which required improvement. During 2002 the plaintiff's teaching continued to cause concern and corrective assistance was provided. That year matters came to a head and the plaintiff attended a meeting with the principal where a number of specific allegations were levelled at the plaintiff for which he provided explanations. The principal then raised the competency issue. The meeting ended inconclusively and the plaintiff went on sick leave and immediately involved a solicitor. Correspondence between the parties occurred and on the plaintiff's return the parties had a meeting where a process was set up for assisting and guiding the plaintiff towards improvement. An independent person was to undertake the roles of guidance, assistance and appraisal during and at the end of the support and guidance period. The plaintiff raised a personal grievance in relation to the school's commencement of the competency process. When the plaintiff returned from sick leave the independent assessor observed his classroom teaching and prepared a draft report. The independent assessor and the plaintiff met and considered the draft report and discussed suggestions for improvement. A further observation was arranged but did not occur because the plaintiff went on long term sick leave. The defendant made arrangements for relief teaching for the plaintiff's classes for the remainder of the year. Towards the end of 2002 the school's management team decided, without consulting or informing him, to assign the plaintiff to a different level class for 2003.

The plaintiff did not return to work at the start of 2003. He provided a medical certificate which indicated he was suffering from moderately severe reactive anxiety symptoms preventing him from working. Unsuccessful mediation concerning the plaintiff's grievance occurred in March 2003. Following which, the school sought assurances that the plaintiff would be able to return to work by the beginning of the next term, indicating that it would need to give serious consideration to whether, and if so for how long, it was able to continue holding his job open. The plaintiff raised a personal grievance concerning the change in class level and indicated that he was not able to return to work within the same school environment due to feeling unsafe and stressed at the prospect. Meetings with the Board of Trustees, at which they were to consider the plaintiff's future, were delayed to give the plaintiff further time to provide relevant information. Shortly prior to the next Board of Trustees meeting and after the requested time for providing the relevant information, the plaintiff sent a psychiatric report indicating that the plaintiff was not medically able to return to work within the same school environment. Without hearing from the plaintiff further the Board resolved to terminate the plaintiff's employment on two months' notice due to incapacity.

The Employment Relations Authority determined that the plaintiff had not been unjustifiably disadvantaged or dismissed from his employment.

The plaintiff alleged that he was unjustifiably disadvantaged by the manner in which the defendant invoked the competency provisions of the agreement and his unilateral reallocation to another class at another level, without advice or consultation. He further alleged that he was dismissed unjustifiably for purported reasons of incapacity.

The relevant matters occurred before the enactment of the Employment Relations Amendment Act (No 2) 2004.

Held

1. Not all matters of a teacher's competency were intended to be encompassed by the competency provisions in the cea. That was because matters of competency were ones which "[were] causing concern". Further, the examples of such competency matters were serious and objectively measurable elements of competency. Where such competency issues that met that standard came to notice, the first step in the contractual process was for a principal to put in place appropriate assistance and personal guidance for the employee. The contractual emphasis was upon assisting and resolving such competency issues. (para 8)
2. Where a principal had concluded that there were concerns of such significance regarding competency that the competency provisions might be triggered, statutory obligations of good faith, as well as the implied contractual obligations of trust, confidence and fair dealing between the parties, required notification by the employer to the affected employee of the putting in place of appropriate assistance and personal guidance measures under clause 3.6.1. The s4 Employment Relations Act 2000 obligation of good faith applied to the implementation of clause 3.6.1. That was notwithstanding that the parties to the cea did not provide expressly for such advice in clause 3.6.1 but did so for the following steps under clause 3.6.2. (paras 9, 10)
3. It was implicit that the appropriate assistance and personal guidance that was put in place by a principal to assist a teacher should be of a nature and duration to both allow real improvement and for a fair assessment of whether improvement had occurred. It was also implicit that such processes did not take place in secret, that was that the employee was aware of them and therefore able to participate meaningfully in them. (para 11)
4. If, following the clause 3.6.1 process, a principal concluded that that had not remedied the situation, clause 3.6.2 then came into operation. Express obligations of advice to the employee of such a significant conclusion were mandated by 3.6.2. That required that an employee must be advised in writing of the specific matters causing concern, of the corrective action required and the timeframe allowed for this as determined by the principal. Next, the express provisions required that the process and results of that formal evaluation were to be recorded in writing, sighted and signed by the employee. If the principal made a report to the Board of Trustees or to the (now) New Zealand Teachers Council, a copy of such report was to be given to the employee. Where there was such a report, no action could be taken on it until the employee had had a reasonable time to comment upon the report in writing or orally or both. Clause 3.6.2 provided that only if the foregoing formal steps failed to resolve the principal's concern about the teacher's competency, the Board of Trustees might, "where justified", dismiss the employee without the need to follow the provisions of the cea relating to discipline. (para 12)
5. Part 10A of the Education Act 1989 imposed strict requirements of mandatory reporting of teachers involved in competency procedures. Those formal professional consequences of the commencement of the competency procedures under the cea meant that commensurately high standards of procedural fairness by Boards of Trustees as employers towards teachers as their employees were not only appropriate but necessary and affected the interpretation of the relevant provisions of the cea. (paras 13-16)
6. The defendant's allocation to a different level teaching position did not disadvantage the plaintiff in his employment. The plaintiff was qualified to teach at that level and it was a recognised expectation among teachers generally that they might be called upon to teach classes at different levels from year to year. Although such a change might have provided the plaintiff with some challenges as it would have for any teacher in his circumstances, that was not the same as disadvantaging a teacher in his employment. (paras 64, 65)
7. Even if the reallocation had amounted to a disadvantage, the Court was not satisfied that the school's action in doing so was unjustified. Although in many cases teachers were consulted about a school's intention to allocate them to different teaching levels and could expect reasonably to have sufficient notice of such reallocation to prepare for it, the plaintiff's circumstances were unusual. The school had to balance the interests of staff and parents, its own resources and the need for further prospective long-term relief in the absence of any reliable prognosis of the plaintiff's return to the classroom. (para 66)
8. In addition to his absence for reasons of ill-health, matters between employee and employer were otherwise strained to the extent that the school was expected to communicate with the plaintiff through his solicitor. The defendant could not be more than mildly criticised in all the circumstances for not either consulting with the plaintiff about its proposal to change his class level or really even for failing to advise him of that before the beginning of the school year although that might have been a prudent course. (para 67)
9. Although implementation of the competency procedures disadvantaged the plaintiff in his employment in the sense that a process was implemented that might have resulted in his dismissal, the Court was not satisfied that in all the circumstances of the case the employer's actions could be said to have been unjustified. That was not, however, to say that the defendant acted impeccably in the steps that it took to investigate and assess the plaintiff's competency as a teacher. But the Court's concern was substantial fairness and reasonableness rather than minute or pedantic scrutiny and expectation of precise contractual compliance. (para 70)
10. The trigger factors under clause 3.6.1 of the cea existed before the specific allegations were levelled at the plaintiff. That in turn allowed, indeed perhaps required, the principal to put in place appropriate assistance and personal guidance to assist the plaintiff. The Court was satisfied that the school had concern about matters of the plaintiff's competency and that he was made aware of those concerns. The first contractual test under clause 3.6.1 of the cea having been established, it was then incumbent on the school's principal to put in place appropriate assistance and personal guidance to assist the plaintiff. (paras 72, 74)
11. The school's professional educational objectives were not assisted by the aggressively legalistic approaches and responses of the plaintiff's solicitors from their first involvement with the school. (para 75)
12. The defendant wrote to the plaintiff setting out a list of concerns although that was very general and did not include particular examples. The information so provided met the school's contractual obligations to establish a dialogue to enable the principal to put in place the appropriate assistance and personal guidance contemplated by clause 3.6.1. (para 76)
13. The defendant was justified in going to the above lengths and generally in the manner it did so. It had genuine concerns about the plaintiff's teaching competency and expressed those repeatedly to him as was appropriate. It was simply not possible, however, to determine any further questions about the plaintiff's competency and indeed it was inappropriate to do so. The Court rejected the plaintiff's claim that the school's commencement of the contractual competency provisions disadvantaged him unjustifiably in his employment. (para 77)
14. Regarding unjustified dismissal for incapacity, if the incapacity (illness) suffered by the plaintiff that precluded his return to work was caused or contributed to, unlawfully, by his employer's wrongful acts or omissions, it would not be open to the defendant to say that it dismissed him justifiably because he was incapable of resuming work as a teacher. However, that was not the situation here and was unsupportable on the evidence. There was nothing extraordinary or certainly unlawful about the way in which the defendant went about addressing validly held performance concerns that the plaintiff said led to his lengthy periods of sick leave. (paras 78, 79)
15. The defendant was justified substantively in dismissing the plaintiff for what it described as "incapacity". After almost a year of sick leave, the most recent and largest proportion of which was continuous, the Board faced existing and potential problems for students, other staff members and the school. It was entitled to some certainty about when the plaintiff was able to return to work and the circumstances of such a return. Although the psychiatrist's report did not address when the plaintiff might return to work, it was significant in that it assessed that if he did so, he would be likely to suffer a relapse of the ill-health from which he had suffered for much of the past year. The school was entitled to assess that such a return would be likely to be temporary and, in reality, no return to work at all. (para 85)
16. As to the fairness of the process by which the dismissal was effected, although there was evidence of several minor elements of unfairness to the plaintiff, overall the defendant's conduct of the dismissal was not so unfair that it should thereby be categorised as unjustified. The challenge was dismissed. (paras 86-95)

Result: Challenge dismissed ; Costs reserved

Statutes considered:

Education Act 1989 s139AK

Education Act 1989 s139AK(2)

Education Act 1989 s139AN

Education Act 1989 s139AZC

Education Act 1989 Part 10A

ERA s4

ERA s4(4)

ERA s4(4)(b)

ERA s4(5)

ERA s123(1)(c)(i)

Employment Relations Amendment Act (No 2) 2004

State Sector Act 1988 Part 7A

Pages: 5

[973349]

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Mackway-Jones, Miller and Tommei as Trustees of the Familty Start Support Services (Invercargill) Trust v Clark

CC 2/07

Heard: 2 Feb 2007, Christchurch

Judgment Date: 2 Feb 2007

Court/Authority/Tribunal: Couch J

Appearances: P Churchman ; C French,

PRACTICE AND PROCEDURE - De novo challenge to determination of Employment Relations Authority - Application for stay of proceedings - Oral judgment - Employment Relations Authority found respondent was unjustifiably dismissed and awarded remedies including reinstatement - Applicants challenged Authority's determination and sought stay of Authority's remedies, in particular reinstatement - HELD - Facts of case distinguishable from similar applications in past - Significant change in circumstances since Authority investigation - Little prejudice to respondent if stay granted - Status quo meant respondent was not working on the job - Interest of justice required stay to an extent - Respondent's financial situation meant was appropriate he was paid in meantime - Stay granted on condition that Trust paid respondent's salary and pay other remedies into solicitor's trust account - Manager

This was a partially successful application for a stay of execution of remedies particularly that of reinstatement) awarded by the Employment Relations Authority (see: CA 4/07).

The respondent was employed as manager by the applicants' Trust's ("the Trust") predecessor ("the predecessor Trust"). He was dismissed and the predecessor Trust ceased operation. In order to ensure continuation of the Family Start program the Trust was constituted through the Southland District Health Board ("SDHB") to run the program on an interim basis until a new service provider was found ("the new service provider").

Not long after the respondent's dismissal there was a meeting ("the meeting") between the respondent and officers of the SDHB about the respondent becoming employed by the Trust as its manager. However, the applicants sent him a letter that they did not wish to progress employment discussions with him any further.

The respondent initiated a personal grievance against the applicants. He alleged that an agreement was reached at the meeting that he would be employed by the Trust and that the subsequent rejection of him amounted to an unjustified dismissal.

The applicants alleged that no agreement had been reached at the meeting. They also alleged that information which had come to their knowledge after the meeting showed that the respondent was unsuitable for the position in any event.

The Employment Relations Authority found in favour of the respondent and awarded remedies including reinstatement.

The applicants challenged the Authority's determination. They also sought a stay of proceedings of all remedies; in particular the order for reinstatement. In support of the application for stay the applicants argued (i) that the respondent had a degree of responsibility and culpability for the serious financial problems that affected the predecessor Trust, (ii) that at the meeting the respondent misrepresented his involvement in the financial affairs of the predecessor Trust, and (iii) that the circumstances have changed since the Authority investigation and that those changes rendered reinstatement inappropriate or impractical.

The respondent strongly contested the applicants' view of events affecting the first two grounds of the stay application. He submitted that, if a stay was granted, he would be seriously disadvantaged in his future employment. If he were not reinstated, he might not be considered by the new provider of the service. The dispute had been a matter of considerable public interest in the Invercargill area and, if a stay was granted, the impression would be given that the respondent was somehow at fault. Also, the outcome of the present application would effectively determine the issue of reinstatement because, by the time a substantive challenge could be heard and a decision given, it was almost certain that the position would no longer exist.

Held:

1. There were two key factors in the present case which distinguished it from similar applications in the past. The first distinction was that the respondent never actually worked for the Trust. The second distinction was that the relevant manager's position would almost certainly come to an end in the very near future because the Trust was operating on an interim basis until a new provider of the service took over. (paras 9-10)
2. The applicants' concerns, whether they were well founded or not, were genuine and based on their understanding of the history. By way of balance the respondent's belief that he had behaved appropriately and should bear no responsibility for previous events was equally genuine. The parties' contested views of events meant that the Court could not make any findings of fact about whether the respondent behaved appropriately or inappropriately with respect to the affairs of the predecessor Trust. That was a matter for the Judge who would hear the substantive challenge. (para 16-17)
3. As to the third ground of the stay application, there had been a significant change in circumstances since the Authority conducted its investigation. At that stage, it was known that the applicants were likely to relinquish the service at some time in the future but that was not certain and it was unknown when that might occur. On the present available information it appeared virtually certain that the service would pass to the new service provider within a matter of weeks. (paras 18-19)
4. In evaluating the factors to be considered in an application of the present sort, it seemed in the present case that distinctly different emphasis must be given to the factors which were normally considered because of the two particular distinctive features of this case described in holding (1). (para 22)
5. The three most relevant factors to be considered in the present case were (i) whether the benefit of a successful challenge might be lost if a stay was not granted, (ii) whether the respondent might be unduly prejudiced if a stay was granted, and (iii) the maintenance of the status quo. (para 23)
6. As to the effect on the benefit of a successful challenge if a stay was or was not granted, the applicants' desired outcome of avoiding having the respondent work for the Trust at all did not go as far as to render the challenge nugatory but it did, in the unusual circumstances of the present case, have some validity. (para 24)
7. As to the prejudice to the respondent if the stay was granted, the respondent was able to seek an appointment to the position with the new service provider whether or not he was practically reinstated to the position with the Trust. It would not make much, if any, real difference to his prospects of obtaining the position at the new service provider whether he was in what could only be a "caretaker" role of the service for the Trust. The respondent's employment history was very much more significant to his prospects of appointment than whether he was the "incumbent" at the time the Trust relinquished the service. (paras 25-26)
8. As to whether granting a stay would damage the respondent's reputation in the community, the outcome of the present application involved no findings of fact about the respondent's character or honesty. It could not and should not be interpreted by any party, including the media, as derogating from the conclusions reached by the Authority on those matters. (para 27)
9. As to the maintenance of the status quo, the status quo was that the respondent was not working on the job. That was so because the respondent never worked on the job in the sense of being employed by the Trust to do the work of manager. That fact should be given more weight because the order for reinstatement, if given effect, would create a situation which has never existed before. (para 28)
10. The interests of justice required that a stay should be granted to an extent. The respondent had exhausted his savings. Any financial difficulties the respondent had should not be perpetuated by any Court order. It was therefore appropriate that he was paid in the meantime. That recognised that the order for reinstatement made by the Authority was not being set aside. Rather, it was stayed in part. (paras 29-30)
11. There would be a stay of proceedings on the conditions that (i) the Trust paid the respondent's salary, (ii) the Trust paid a sum equivalent to all other remedies awarded to the respondent by the Authority into the respondent's solicitors' trust account to be held in trust pending the final outcome of the proceedings, and (iii) the Trust was to pursue its challenge with diligence and to co-operate in facilitating an early hearing to the extent that it was sought on behalf of the respondent.
12. The intention of the order with respect to reinstatement was solely to relieve the Trust of the obligation in the meantime to place the respondent in the role of manager in the sense that it would give him day-to-day control of its affairs. Reinstatement was to be given effect in the sense that the respondent had the position of manager and might describe himself as such when seeking appointment to a position with the new service provider. In the event that the position of manager for the Trust might become redundant in the future, then the respondent would be entitled to proper consideration by the Trust as an employee. (paras 32-33)

Result: Application granted in part (stay) ; Orders accordingly ; Costs reserved

Cases referred to in judgment: Air New Zealand v Hudson unreported, Colgan CJ, 17 August 2005, AC 46/05

Pages: 4

[973391]

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Ali'imatafitafi v Chief Executive of the Department of Corrections

AC 5/07

Heard: 2 Feb 2007, Auckland

Judgment Date: 5 Feb 2007

Court/Authority/Tribunal: Travis J

Appearances: I Ali'imatafitafi (in person) ; M Richards & L Inglis

PRACTICE AND PROCEDURE - De novo challenge to determination of Employment Relations Authority - Application by defendant to strike out plaintiff's second amended statement of claim - Alleged did not disclose reasonable cause of action - And did not comply with reg 11 Employment Court Regulations 2000 - HELD - Pleadings as they stood were grossly defective - However, was prima facie underlying cause of action which plaintiff ought to be allowed to advance - Clarifying directions given - Plaintiff to file and serve third amended statement of claim within 21 days - Real risk of challenge being struck out if third amended statement of claim did not comply

This was an unsuccessful application by the defendant to strike out the plaintiff's statement of claim.

The defendant applied to strike out the plaintiff's amended statement of claim on the grounds that it did not disclose a reasonable cause of action and did not comply with the requirements of reg 11 of the Employment Court Regulations 2000. The plaintiff filed a notice of opposition and later filed and served a further statement of claim ("the second amended statement of claim"). The defendant alleged that that did not comply with the regulations, did not disclose a reasonable cause of action, was likely to cause prejudice, embarrassment or delay in the proceedings and was an abuse of the Court in that it contained material that the plaintiff was prevented from raising as a claim, on the basis of an accord and satisfaction. The defendant relied on a mediated settlement which required that its terms and all matters at mediation were to remain confidential to the parties and was in full and final settlement of all matters between them.

The plaintiff, who represented himself, argued that where the rules of procedure were not complied with, the determinate was the justice of the case: Lavery v Trust Bank Wellington (cited below). He contended that the defendant would not suffer any prejudice which would seriously affect its ability to prepare its defence. The plaintiff made it clear that he was not intending to re-litigate the matter that had been settled in mediation but contended that the events that had given rise to his grievance and which had been dealt with in that mediation, were relevant to the circumstances that had led to his dismissal.

Held

1. The pleadings as they stood in the second amended statement of claim were grossly defective and did not fairly and fully disclose to the defendant the nature of the claim that it was being asked to respond to. However, it did appear there was a prima facie underlying cause of action relating to the dismissal which the plaintiff ought to be allowed to advance by way of a challenge to the Employment Relations Authority's determination dismissing his grievance. (para 8)
2. A close examination of the matters disclosed in the second amended statement of claim indicated that some paragraphs would be acceptable and others should be deleted or re-ordered in a way which fairly and properly presented the plaintiff's claim on his challenge. (para 9)
3. The Court clarified the matters the plaintiff had to address in re-pleading his essential cause of action. The plaintiff had 21 days from the date of the present judgment to file and serve a third amended statement of claim dealing. If the third amended statement of claim did not comply the plaintiff was at real risk of having his challenge struck out. (paras 9-22)

Result: Application dismissed (strike out) ; Orders accordingly ; Costs reserved

Statutes considered:

Employment Court Regulations 2000 r6

Employment Court Regulations 2000 r11

High Court Rules R186

High Court Rules R187

New Zealand Bill of Rights Act 1996 s14

Cases referred to in judgment:

Attorney-General v Prince & Gardner [1998] 1 NZLR 262

Lavery v Trust Bank Wellington [1994] 1 ERNZ 299

Lloyd v Museum of New Zealand Te Papa Tongarewa [2002] 2 ERNZ 356

Marshall Futures Ltd v Marshall [1992] 1 NZLR 316

Winton Seeds Ltd v Tegal Foods Ltd (1999) 13 PRNZ 96

Pages: 2

[973394]

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Peoples v Accident Compensation Corporation

CC 3/07

Heard: 1 Dec 2006, Christchurch

Judgment Date: 13 Feb 2007

Court/Authority/Tribunal: Couch J

Appearances: A C Shaw ; R H Gibson

PRACTICE AND PROCEDURE - Application to extend time for filing challenge to determination of Employment Relations Authority by 27 days - HELD - Although not uncommon for would-be plaintiffs to make application for leave to challenge out of time, appropriate process was application for extension of time - Delay substantial and significant - Applicant provided insufficient reasons to explain delay - Prejudice to respondent weighed against granting application but was not conclusive - Applicant had little prospect of success in challenging if extension of time was granted - Was not in interest of justice to extend time sought - Application dismissed - Case manager

This was an unsuccessful application to extend time for filing a challenge to a determination of the Employment Relations Authority.

The applicant was employed by the respondent. She was dismissed, and lodged a statement of problem with the Employment Relations Authority alleging that her dismissal was unjustifiable. The Authority held that the dismissal was justified (see: CA 86/06).

The applicant applied for an extension of time to challenge the Authority's determination 27 days after the expiry of the 28-day period for a challenge prescribed in s179(2) Employment Relations Act 2000 ("ERA"). The basis of her proposed challenge was that the Authority failed to give proper weight to the effect of work related stress on her and that there was disparity of treatment by the respondent between her and other employees of the respondent who behaved in a similar manner. She did not suggest that she intended to provide the Court with any evidence relating to those two issues which was not provided to the Authority.

The applicant alleged the reasons for the delay included that (i) she was unrepresented in the Authority and was unaware of her right to challenge and of the time limit to exercise that right; (ii) she was living in Sydney during the relevant time which restricted her opportunity to obtain information and advice; (iii) the Authority determination did not include any advice about her right to challenge and how to go about making such a challenge; and (iv) her commitment to her new job prevented her from investigating challenge options earlier. The applicant submitted that the statutory scheme preferred the granting of an application for leave where a reasonable application was made.

The respondent submitted it would be prejudiced because it was entitled to conclude that the applicant's failure to challenge the Authority's determination within the statutory 28-day time period meant that her personal grievance was finally resolved.

Held

1. Although it was not uncommon for would-be plaintiffs to make an application for leave to challenge an Authority's determination out of time, the appropriate process was an application for an extension of time within which to make an election under s179 ERA. The Court's jurisdiction to extend time was conferred by s221 ERA which provided for the "joinder, waiver, and extension of time". (para 4)
2. The fundamental principle which guided the exercise of the Court's discretion was the interests of justice. Convenient and appropriate headings under which to consider the matters relevant to the exercise of the Court's discretion were (i) the reason for the omission to bring the case within time, (ii) the length of the delay, (iii) any prejudice or hardship to any other person, (iv) the effect on the rights and liabilities of the parties, (v) subsequent events, and (vi) the merits of the proposed challenge. (paras 8, 38)
3. There were no relevant subsequent events affecting the present application and it was not suggested that there was any prejudice or hardship to any other person. (para 8)
4. The 27 day delay in the present case was regarded as substantial and significant. The Court was reinforced in that view by an analysis of the Employment Court decisions over many years in comparable cases. (paras 10, 39)
5. While it was correct that the applicant had been unrepresented in the course of the proceedings before the Authority, she had instructed solicitors to represent her during the disciplinary process which led to her dismissal and subsequently. The applicant therefore had ready access to legal advice about the continuing conduct of her personal grievance had she chosen to seek it. Having elected to proceed in the way she did, the applicant must be taken to have assumed responsibility for knowing what her rights and responsibilities as a litigant were. It was not a convincing explanation for delay that it took the applicant more than a month to find out what steps she needed to take to challenge the Authority's determination. (para 16)
6. The two hour time difference between the east coast of Australia and New Zealand was not normally a significant impediment to obtaining information and advice. Indeed, it was apparent that the applicant made several telephone calls to New Zealand during business hours to obtain advice. She also had access to the internet on which information was continuously available. (para 17)
7. The fact that the Authority did not currently provide information about the right to challenge as a matter of course did not relieve the parties of the obligation to find out what their rights and obligations were. (para 18)
8. The evidence did not go far enough to support the proposition that the demands of her new position prevented the applicant from making relatively straightforward enquiries about her rights to challenge. (para 19)
9. Where an extension of time was sought, the onus was on the applicant to provide the evidence necessary to explain the delay as fully as possible. The applicant's affidavit did not do that. The information provided was sparse and, in many respects, vague. Overall, the reasons given by the applicant were far from sufficient to explain the substantial delay. (paras 20-21, 40)
10. In many cases where a would-be plaintiff delays in taking the formal step of filing an appeal or challenge, the prejudice resulting from that delay was greatly reduced by informing the intended defendant promptly of the intention to appeal or challenge. (para 22)
11. There was no suggestion that any informal notice of intention to challenge was given in the present case although there was clearly ample opportunity to do so. By allowing the respondent to believe that the matter was at an end right up until the time the Court proceedings were served, the prejudice to the respondent was substantially increased. That was a factor which weighed against granting the application but was not conclusive. (paras 22, 41)
12. The right to challenge was lost if it was not exercised within the statutory 28- day time period. It followed that, once the 28-day time period had expired, the scheme of the statute was that no challenge might be brought unless a judicial decision was made to extend time. (para 23)
13. The rights and liabilities of the parties which were relevant to the exercise of the discretion under s221 ERA were those which were affected by the delay. No such rights or liabilities were identified in the present case. (para 24)
14. Overall, the applicant had little prospect of success in challenging the Authority's determination if she were granted an extension of time to do so. On the information available it was distinctly unlikely that the Court would find the dismissal unjustifiable on the grounds that the respondent failed to have proper regard to work related stress suffered by her. On the issue of disparity of treatment, the Authority considered the evidence given about the conduct of other staff not only in the context of disparity of treatment in subsequent disciplinary action but also in the context of the applicant's suggestion that the respondent condoned the conduct in question. On the information available it seemed unlikely that the Court would conclude that the applicant genuinely believed on reasonable grounds that the conduct for which she was dismissed was acceptable to the respondent. (paras 30-37, 42)
15. It was not in the interest of justice to extend the time for filing a challenge by the 27 days sought. Accordingly, the application was refused. (para 43)

Result: Application dismissed (application to extend time) ; Costs reserved

Statutes considered:

ERA s179

ERA s179(1)

ERA s179(2)

ERA s221

Cases referred to in judgment:

Avery v No 2 Public Service Appeal Board [1973] 2 NZLR 86

Bacon v New Zealand Post Ltd [1999] 2 ERNZ 1

Bilderbeck v Brighouse Ltd [1993] 2 ERNZ 74

Ratnam v Cumarasamy [1964] 3 All ER 933

Stevenson v Hato Paora College Trust Board [2002] 2 ERNZ 103

Weston v Warwick Henderson Gallery Ltd [2003] 2 ERNZ 723

Pages: 4

[973417]

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Christchurch City Council v Southern Local Government Officers Union

CA 276/05

Heard: 10 Aug 2006, Wellington

Judgment Date: 16 Feb 2007

Court/Authority/Tribunal: Chambers, O'Regan, Robertson JJ

Appearances: CH Toogood QC, SL Hornsby-Geluk ; RE Harrison QC, AJ McKenzie, TP Cleary

COURT OF APPEAL - Appeal against decision of Employment Court - Appellant communicated with employees during bargaining for collective employment agreement - Employment Court held appellant breached s32(1)(d) Employment Relations Act 2000 ("ERA") - Three questions of law - Extent to which s32(1)(d) prohibited employers from direct communications with its employees during bargaining process - Whether test of bad faith bargaining was subjective - Whether s32(1)(d) prohibited communications prior to initiation of bargaining - Appellant argued disputed communications saved by s4(3) ERA - HELD - Disputed communications not protected by s4(3) ERA therefore Employment Court's decision on breach of s32(1)(d)(iii) stood - Employment Court's interpretation of s32(1)(d)(ii) ERA was wrong - "Bargain" meant "negotiate" - Section 32(1)(d)(ii) did not create complete ban on communications relating to bargaining - Parties to collective bargaining permitted to communicate statements of fact or opinion provided that did not otherwise breach s32(1)(d) - Test for good faith neither subjective nor objective - Employment Court's decision on that aspect consistent with earlier appellate authority - Employment Court was wrong suggesting the s32 ERA good faith obligation could arise before bargaining was initiated - Appeal dismissed

This was an unsuccessful appeal from an Employment Court decision (see: [2005] 1 RNZ 666) which held that the appellant had breached s32(1)(d) Employment Relations Act 2000 and had failed to comply with the duty of good faith with respect to communications during bargaining.

During negotiations between the appellant and the respondent union for a new collective employment agreement, the appellant communicated directly with union member employees on matters relating to the bargaining on a number of occasions ("the disputed communications"). The union objected, claiming such approaches were in breach of s 32(1)(d) of the Employment Relations Act 2000 ("ERA").

The Employment Court held that s32(1)(d)(ii) widened the net to catch all communications during bargaining. It found that the appellant had breached s 32(1)(d) ERA and had failed to comply with the duty of good faith with respect to some of the communications. It made a declaration to that effect.

Leave to appeal was granted concerning six questions of law.

The issues at the hearing were reduced to three questions of law: (i) to what extent did s32(1)(d) ERA prohibit the appellant from communicating with its employees without the union's consent, (ii) was the test of whether a party had acted in bad faith

subjective, and (iii) could s32(1)(d) ERA prohibit communications prior to the initiation of bargaining?

Business New Zealand Inc was heard as intervener.

As to the first issue, the appellant submitted that the disputed communications were protected by s4(3) ERA. It submitted that if a statement of fact was true or an expressed opinion was reasonably held, it could not, by definition, undermine a process which is based on openness and honesty. As to the second issue, the appellant submitted that the Employment Court wrongly applied an objective test of whether a party had acted in bad faith. As to the third issue, the appellant submitted that the Employment Court was wrong in its assertion that s32(1)(d) ERA might catch

communications which preceded the initiation of bargaining. As to the third issue, the respondent agreed with the appellant and there was no real dispute.

Held

1. Section 4(3) ERA was subject to s32 ERA. Section 32 modified s4 where there was a conflict between a specific provision in s32 and a more generalised concept in s4. In short, s4 continued to apply in a s32 case to the extent it was not inconsistent with the specific provisions of s32. (paras 29-30)
2. The conflict between ss 4 and 32 ERA required a modification to s4(3) along the lines of: "so long as, in a case of a union and an employer bargaining for a collective agreement, such communication does not amount to or lead to a breach of section 32(1)". (para 31)
3. Section 4(3) ERA had only limited relevance in the present case, where the disputed communications all took place while the bargaining process was under way. The case stood or fell on the meaning to be ascribed to s32 ERA. (para 33)
4. The appellant's s4(3) ERA argument was flawed. The appellant did not suggest, apart from the relevance of s4(3), that the Employment Court's interpretation of s32(1)(d)(iii) was wrong. Therefore Employment Court's conclusion on breach of s32(1)(d)(iii) with respect to disputed communications stood. (paras 34, 45)
5. The Employment Court's interpretation of s32(1)(d)(ii) ERA was wrong. The correct interpretation became clear when the use of the term "bargain" was analysed. The s5 definition of "bargaining" had to be applied with caution. "Bargain" in s32(1)(d)(ii) meant "negotiate". Section 32(1)(d)(ii) was to prevent employers negotiating or attempting to negotiate with their employees directly, in circumstances where those employees had a union acting for them. (paras 36, 43)
6. The answer to the first issue was that s32(1)(d) ERA prohibited the appellant from communicating with its employees only in so far as: (i) such communication amounted, directly or indirectly, to negotiation with those employees about terms and conditions of employment, without the union's consent (s32(1)(d)(ii) ERA); or (ii) such communication undermined or was likely to undermine the bargaining with the union or the union's authority in the bargaining (s32(1)(d)(iii) ERA). (para 44)
7. It was not helpful to characterise the "good faith" test as either objective or subjective: Auckland City Council v New Zealand Public Service Association Inc; Carter Holt Harvey Ltd v National Distribution Union (cited below). Rather, the court, in the s32 ERA context, must have regard to the circumstances referred to in s32(3). The Employment Court's decision in the present case was entirely consistent with the earlier appellate authority. (paras 48-51)
8. As to the third issue, the Employment Court was wrong when it suggested that the s32 ERA good faith obligation could arise even before bargaining had been initiated. Bargaining must have been formally initiated for the s32(1) duties to come into force. However, so far as present case was concerned, nothing turned on that error. (paras 54-55)
9. Although the Employment Court erred in its interpretation of s32(1)(d)(ii) ERA and in holding that s32 applied to pre-initiation of bargaining, neither error affected its conclusion. Accordingly, the formal result was that the appellant's appeal was dismissed. (para 56)
10. Section 4(3) ERA, read in conjunction with s 32(1)(d), permitted the parties to collective bargaining to communicate statements of fact or opinion reasonably held about an employer's business or a union's affairs (including in relation to the bargaining), to persons for whom an authorised representative was acting, provided that the communication did not otherwise breach s 32(1)(d). (para 58)
11. Section 32(1)(d) did not create a complete ban on communications relating to bargaining by a party to the bargaining to persons for whom an authorised representative was acting. (para 58)
12. "Bargain" in s32(1)(d)(ii) meant "negotiate". That was part of the definition of "bargaining" in s5 ERA: see para (b)(i). The other parts of the definition of "bargaining" did not apply in a s32(1)(d)(ii) situation as they applied to interactions, communications, and correspondence between the parties to the bargaining. The other parts of the definition were inapt for a situation concerned with an interaction between one party and third persons, namely "persons whom the representative or advocate [was] acting for". (para 58)
13. The expression "interactions ... that relate to the bargaining" in s5 ERA related only to interactions which occurred after bargaining had been initiated. (para 58)
14. A subjective test should not be applied to the question of whether a party to bargaining had acted in breach of good faith, pursuant to s4 and/or s32 ERA. The test was neither wholly objective nor wholly subjective, and those labels were not particularly helpful. In s32 circumstances, the court must apply the plain words of subs (1), in light of the matters specified in subss (3)-(5). (para 58)
15. As to costs, each side had a measure of success. While the appeal was formally dismissed, the appellant had nonetheless succeeded on several of its arguments and its future conduct was not quite as constrained as it would have been under the Employment Court's reasoning. Both sides saw advantage in having the issues raised by the appellant resolved for the future. In all the circumstances, each party should bear its own costs. (para 59)

Result: Appeal dismissed ; Questions answered largely in favour of appellant ; Costs to lie

where they fall

Statutes considered:

ECA s12

ECA s12(2)

ERA s4

ERA s4(1)

ERA s4(3)

ERA s4A

ERA s5

ERA s5(a)

ERA s5(b)(i)

ERA s5(b)(ii)

ERA s32

ERA s32(1)

ERA s32(1)(d)

ERA s32(1)(d)(ii)

ERA s32(1)(d)(iii)

ERA s32(3)

ERA s32(5)

ERA s40

ERA s41

ERA s42

ERA s43

ERA s44

ERA s178

Employment Relations Amendment Act (No 2) 2004 s6

Employment Relations Bill cl5

Employment Relations Bill cl33(1)

Employment Relations Bill cl33(1)(d)(i)

Employment Relations Bill cl33(1)(d)(ii)

Words and phrases: Bargain ; Bargaining ; Negotiate

Cases referred to in judgment:

Auckland City Council v New Zealand Public Service Association Inc [2004] 2 NZLR

10

Carter Holt Harvey Ltd v National Distribution Union [2002] 1 ERNZ 239

Christchurch City Council v Southern Local Government Officers Union Inc [2005] 1

ERNZ 666

New Zealand Fire Service Commission v Ivamy [1996] 1 ERNZ 85

Pages: 4

[973403]

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Tamarua v Toll NZ Consolidated Ltd

WC 3/07

Heard: 28 Nov 2006, Wellington

Judgment Date: 19 Feb 2007

Court/Authority/Tribunal: Shaw J

Appearances: D McLeod ; J G H Hanman

DE NOVO CHALLENGE TO DETERMINATION OF EMPLOYMENT RELATIONS AUTHORITY - Unjustified dismissal - Defendant investigated theft from returned stock area - Plaintiff admitted taking eight jars of jam but did not say he took them from rubbish area nor that he had permission from team leader - Said he knew it was wrong and did not offer further explanation - Plaintiff dismissed - Employment Relations Authority held dismissal justified and awarded costs against plaintiff - HELD - Plaintiff did not give defendant explanation it could rely on - If defendant had known plaintiff's subsequent explanation it might have reached a different conclusion - Court was limited to assessing circumstances as they were known to employer at time of dismissal - Therefore Authority's substantive determination was correct - Challenge dismissed - Cost award against plaintiff would cause considerable hardship - Circumstances of parties important factor - Defendant was large, well resourced company - Challenge against Authority's costs award granted - Costs to lie where they fell - Forklift operator

This was an unsuccessful de novo challenge to a determination of the Employment Relations Authority which held that the plaintiff's dismissal was justified (see: WA 171/05), and successful de novo challenge against costs awarded against the plaintiff (see: WA 9/06).

The plaintiff was employed by the defendant and its predecessors for 18 years. His employment record was unblemished. The defendant handled dry and refrigerated freight. It had an agreement with a customer for the transport of food products and the delivery of returns, including that of damaged goods, back to the customer. Unsalvageable goods were not returned but put in the rubbish by the defendant. The defendant had a policy which prohibited staff taking goods from the returns area but there was no policy that rubbish could not be removed.

The defendant commenced an investigation after some returns went missing. The investigators interviewed all staff on the site, including the plaintiff. Although he was not specifically suspected of theft at that stage, the plaintiff in a formal written statement admitted taking eight jars of jam. He also stated that they were "returns", while in reality he had taken the jars from the area destined for the rubbish. He also omitted to say that he had asked and received his team leader's permission. The plaintiff's statement was sent to the defendant's HR department. He was called in and suspended. He was given an opportunity at that stage to explain his situation but did not. He was then called to a disciplinary meeting in which he was accompanied by a union official. At the meeting the plaintiff's statement was read out and the plaintiff agreed to everything in it. When asked if he had anything else to say he said it was wrong of him. When asked why he didn't ask someone before taking the jam he did not answer. The defendant concluded that the plaintiff had taken customer property knowing it was wrong, and dismissed him for misappropriation of company property, breach of company rules, and loss of trust and confidence.

The plaintiff raised a personal grievance alleging his dismissal was unjustified. The Employment Relations Authority determined that the dismissal was justified, and in a later decision it awarded costs against the plaintiff of $1,500. The plaintiff challenged

both decisions.

The plaintiff alleged he had told the investigation that what he had done was wrong because he thought that if he admitted it he would be sent back to work, even though in his heart he did not think he had done wrong.

The defendant said it had not discussed any options other than dismissal because based on the plaintiff's information there was no other outcome possible. If it had known that he could take the jars there would have been a different outcome.

Held:

1. Section 103A Employment Relations Act 2000 required the Authority or the Court to consider objectively what the employer did and measure those circumstances against what a fair and reasonable employer would have done. The starting point was the circumstances at the time of the dismissal. (para 32)
2. The circumstances which confronted the defendant were that the plaintiff had admitted taking eight jars of jam from returns and accepted that that was wrong. He offered no explanation. He did not tell that he had checked with his team leader first; he did not explain the jars were in a pile of messy and broken product which made their return impossible or unlikely; and he did not mention that they were destined for the rubbish. (para 33)
3. There was no doubt that the plaintiff's actions were genuine and credible. He honestly believed that he was entitled to take the intact but messy stock from the pile of broken product. It was possible that if he had given this explanation a different outcome might have eventuated. However, that was only speculation. He did not give any other explanation that the defendant could rely on. (paras 34-35)
4. While the plaintiff's English was not entirely fluent, he was articulate enough to have given his explanation in English to the investigation and the disciplinary meeting although it was very likely that his failure to defend his position at the meeting was because of his natural modesty and reticence. (para 36)
5. There was no evidence that the meeting was conducted in a way that deliberately or even accidentally stifled his ability to explain. It certainly seemed that the plaintiff was let down by his union representative who had not extracted his explanation before the meeting and appeared to have done little to encourage him to articulate his position during it. (para 36)
6. In the circumstances, whatever truth had subsequently been revealed, the defendant could not be criticised for treating the present as an unequivocal and inexcusable theft of customer product based on what they knew at the time the decision was made. From the evidence they had it was serious misconduct. The plaintiff's summary dismissal was a justified consequence of that. It was consistent with the treatment of the other employees in similar circumstances. Faced with the information it had, the defendant acted in a way which a fair and reasonable employer would have acted. It had no material or evidence to justify a different course of action. (paras 37-38)
7. There was a reasonable possibility that, had the defendant known the explanation subsequently given, it would have reached a different conclusion. That did not however enable the Court, having heard that explanation, to substitute its judgment for that of the employer. The Court was limited to assessing the circumstances as they were known to the employer at the time of the dismissal. For those reasons the outcome of the Authority's determination was correct and the plaintiff's challenge was dismissed. (para 39)
8. As to costs, the present was a case where the circumstances of the parties were an important factor. The defendant was a large, well resourced company. It was quite evident that the plaintiff would be unable to meet any award of costs without considerable hardship. In the circumstances, and because he was on legal aid, the challenge to the award of costs in the Authority was allowed. Costs in the Court would lie where they fell for the same reasons. (para 41)

Result: Challenge dismissed (unjustified dismissal) ; Challenge granted (costs) ; Costs to lie

where they fall (Authority)(Court)

Statutes considered:

ERA s103A

Cases referred to in judgment:

Air New Zealand Ltd v Hudson (2006) 7 NZELC 98,260

Tamarua v Toll TranzLink Ltd unreported, Shaw , 11 July 2006, WC 11/06

Pages: 3

[973415]

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Fuel Espresso Ltd v Victor (Chi-Huan) Hsieh

WC 5/07

Heard: 19 Feb 2007, Wellington

Judgment Date: 19 Feb 2007

Court/Authority/Tribunal: Shaw J

Appearances: P Cullen & R Roil ; R Crotty & C Harold

APPLICATION FOR INTERIM INJUNCTION - Oral judgment - Plaintiff alleged defendant breached restraint of trade clause in employment agreement - Sought interim order that defendant ceased working for or operating a competing coffee cart - HELD - On interim basis, terms of restraint of trade clause were enforceable - Was arguable that plaintiff had proprietary interest to protect - Was no evidence that plaintiff paid consideration for restraint of trade - Latter meant that restraint of trade could not be enforced - Application dismissed - COSTS - Costs in favour of defendant - Barista

This was an unsuccessful application for an interim injunction in relation to an alleged breach of restraint of trade.

The defendant was employed with the plaintiff as a barista in one of the plaintiff's small espresso bars in Wellington city. His written employment agreement contained a restraint of trade clause which prohibited the defendant from: (i) working in a competing espresso bar/café or coffee company within a 100 meter radius of one of the plaintiff's outlets; or, (ii) setting up a competing business within a 5 kilometre radius for a period of three months throughout New Zealand.

The defendant resigned and started working with a competitor about 70 meters from the plaintiff's premises.

The plaintiff alleged that some of its customers had gone to the competitor, and sought to enforce the restraint of trade clause. It applied to the Court for an interim order that the defendant cease working for or operating the competing coffee cart until the end of the restraint of trade period. The plaintiff argued that it had a proprietary interest in the defendant's skills provided by its training. It also relied on the employees' influence over the plaintiff's customers in a small area where customers were coming to get their coffee from one place and another place opened up very close by.

The defendant argued that the plaintiff was simply trying to protect its business from competition and that there was no real separate proprietary interest that could be properly and justifiably protected.

As to costs, the plaintiff submitted that costs should lie where they fell. The plaintiff submitted that the conduct of the defendant, who made no response to initial legal

approaches, meant that the plaintiff had no alternative and was put to the cost and the expense of coming to Court. The defendant submitted that the correct approach was to follow category 2 band B of the High Court scales which, with a discount, amounted to $2,500.

Held:

1. The principle issue was whether the restraint of trade clause in the employment agreement was enforceable. There were three aspects to enforceability in the present case: (i) whether the terms of the restraint of trade clause were enforceable; (ii) whether it was arguable that the plaintiff had a proprietary interest to protect; and (iii) the law that consideration was a prerequisite for an enforceable restraint of trade. (paras 14-17)
2. On an interim basis the terms of the restraint of trade clause were enforceable. They were not too wide. Although they referred to the clause applying to all of New Zealand, they were actually confined to where the plaintiff operated. It did not prevent a person working as a barista anywhere else in the whole of New Zealand. (para 15)
3. There was an arguable case that the interest in the plaintiff's customers could be taken by the competing business. That arguably gave the plaintiff a proprietary interest to protect. (para 16)
4. There was no reference whatsoever in the employment contract to an express consideration to be paid for the restraint of trade. There was no extrinsic evidence about it. One could not reasonably imply consideration for the restraint of trade. (para 17)
5. The defendant was on a basic wage for a café bar employee. Nothing at all in his agreement showed that he was paid any more than anybody else. The law was that if you are going to require an employee to be restrained there must be some extra payment for that. Unfortunately in the present case that was not done. (para 18)
6. There was no inference that there was consideration for the restraint of trade clause. That meant that the restraint of trade could not be enforced and that meant that there was no arguable case on that point. (para 19)
7. If a restraint of trade could not be enforced there could be no injunction to support it.
8. As to the balance of convenience there was a very fine balance. There was no evidence really on either side to assist the Court very much on that. In the end it came down to a simple question of law. There was no consideration either expressed or which could reasonably be inferred to support the restraint of trade so it could not be enforced and the application for the interim injunction was dismissed. (paras 21-22)
9. As to costs, the defendant was legally correct and was entitled to some contribution. The costs reflected the fact that he did not make any response when he was approached at a time when maybe the present matter could have been sorted out without recourse to the Court hearing. The defendant was entitled to his disbursements and, in addition, costs in the sum of $1,000.

Comment:

1. The Court regretted that the defendant went off and did as he did in the face of a very clear and reasonable expression of a restraint of trade.

Result: Application dismissed (interim injunction) ; Costs in favour of defendant ($1,000 plus

disbursements)

Cases referred to in judgment: M A Watson Electrical Ltd v Kelling [1993] 1 ERNZ 9

Pages: 3

[973426]

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Fuel Espresso Ltd v Hsieh

CA 88/07

Heard: 8 Mar 2007, Wellington

Judgment Date: 9 Mar 2007

Court/Authority/Tribunal: Hammond, O'Regan, Arnold JJ

Appearances: PJ Cullen ; RM Crotty, CA Harold

COURT OF APPEAL - Application for leave to appeal Employment Court decision - Appeal against Employment Court decision - Respondent was employed and trained by applicant - Employment agreement contained restraint of trade clause - Respondent resigned and started work for competitor in breach of restraint clause - Applicant applied to Employment Court for interim injunction - Employment Court held restraint unenforceable due to lack of consideration over and above that provided in underlying employment agreement - HELD - Employment Court was wrong as matter of law - "Extra" consideration not required unless restraint clause added by later variation to an employment agreement - Adequacy of consideration might be relevant to the question whether a restraint of trade was reasonable - However, there was consideration in the present case - Present was a clear case for interlocutory injunction - Application granted - Appeal allowed - Barista

This was a successful application for leave to appeal an Employment Court decision (see: WC 5/07), and a successful appeal of that decision.

The respondent was employed by the applicant as a barista in one of its ten small espresso outlets throughout Wellington City. The applicant offered training programmes to its employees, which made it vulnerable to its employees setting up in competition once they learned the trade and the applicant's modus operandi. The respondent's employment agreement contained a restraint of trade clause which prohibited the respondent: (i) from working in a competing espresso bar/café or coffee company within a 100 meter radius of one of the plaintiff's outlets; or (ii) setting up a competing business within a 5 kilometre radius for a period of three months throughout New Zealand.

The respondent resigned his employment and started work as a barista with a competitor about 70 meters from the applicant's premises, well inside the area covered by the restraint of trade clause. The applicant believed that some of its customers had gone over to the respondent to buy their coffee.

The applicant applied to the Employment Court alleging that the defendant breached the restraint of trade clause in his employment agreement. It sought an interim order that the respondent cease working for or operating the competing coffee cart until the expiry date of the restraint of trade.

The Employment Court held that extra consideration, over and above the consideration for the underlying employment agreement, was a prerequisite for an enforceable restraint of trade. In the present case there was no express or extrinsic evidence that extra consideration had been paid and neither could it reasonably be inferred from the employment agreement. Therefore, the restraint of trade was unenforceable, and the application was dismissed. As to the balance of convenience, the Employment Court said there was a very fine balance. The Employment Court awarded costs of $1,000 plus disbursements in favour of the respondent.

The applicant applied for leave to appeal the Employment Court's decision and to hear and determine the appeal under urgency.

The applicant submitted that the Employment Court was wrong, as a matter of law, on the consideration issue. It submitted that the present was a short-term restraint, which had only a month to run. If the applicant was unable to obtain an interim injunction the damages would be very hard, indeed probably impossible, to calculate and damages were not really the relief which was sought.

Held:

1. The Employment Court appeared to have relied on M A Watson Electrical v Kelling (cited below) for its proposition regarding the extra consideration. However, on the facts of that case, what was involved was a subsequent variation to an employment agreement, and by reason of the particular facts of that case, at the point in time when it was sought to enforce the restraint of trade, there was no consideration. Hence that was just an illustration of the familiar point that a variation of an agreement required consideration, just as much as the initial agreement did. (para 17)
2. The present case dealt with the initial (and only) agreement of the parties. The traditional definition of consideration required that there be "something of value" which must be given, and that consideration was either some detriment to the promisee or some benefit to the promisor. But the law did not enquire into the adequacy of the consideration, nor, as the Employment Court seemed to have thought, did it require an extra "premium" for a restraint of trade clause. It was also a very well settled principle of contract law that even mutual promises could be consideration for each other. (para 18)
3. The Employment Court was wrong as a matter of law. Not only was there an arguable case for consideration; in the present case there was consideration. (para 19)
4. The issue of adequacy of consideration might be relevant to the question whether a restraint of trade was reasonable. Also, it might be that on other, and much more extreme, facts a low salary set against a harsh restraint would be relevant to the exercise of the Court's discretion. However, these matters were not an issue in the present case. (paras 20, 22)
5. It was very difficult to see how the present case could be, as the Employment Court said, a "finely balanced" one. The restraint was plainly reasonable. Agreements were made to be kept. The respondent was employed and trained, but then left in face of a clear contractual provision preventing him from doing what he did. In the absence of an interim injunction, any relief to the applicant will, in the time-honoured phrase, be nugatory. The present was a clear case for an interlocutory injunction. (para 21)
6. Accordingly, leave to appeal was granted. The appeal was allowed. There would be an injunction on the terms sought by the applicant. (para 24)
7. The costs orders in the Employment Court were set aside. In that Court, the applicant was to have costs of $1,000 and disbursements. In the present Court, the applicant was to have costs of $2,000 plus disbursements. (para 24)

Result: Application granted (leave to appeal) ; Appeal granted (interim injunction) ; Orders

accordingly ; Costs in favour of applicant ($1,000 plus disbursements)(Employment

Court); ($2,000 plus disbursements)(Court of Appeal)

Cases referred to in judgment: M A Watson Electrical Ltd v Kelling [1993] 1 ERNZ 9

Pages: 3

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