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Farmdirect Ltd v Southfuels Ltd and Ors
CIV 2006-409-002858
Heard: 14 Dec 2006, Christchurch
Judgment Date: 15 Dec 2006
Court/Authority/Tribunal: Fogarty, J
Appearances: J V Ormsby and P Whiteside ; J M Appleyard, V E Donaghy, S Kaminski, T McGinn, N S Elsmore
HIGH COURT - INTERIM INJUNCTIONS - Misuse of confidential information - Conspiracy to defraud - Breach of Statutory duty - Breach of duty of fidelity - Breach of contract - Plaintiff alleged first defendant venture begun in breach of duties by other defendants - Plaintiff applied for interim injunctions against all defendants - Application amended to interim injunction restraining only first defendant from continuing to trade while certain others involved including non-party - HELD - Arguable case against third defendant - Not clear whether there was serious question to be tried in respect of non-party - Third defendant should not be restrained from taking up shares in first defendant nor be restrained from being involved in its management - Was appropriate that third defendant file written undertaking promising return and/or destruction of all plaintiff data he might be holding - Application largely dismissed - Manager/Territory managers/Marketing consultant
This was a largely unsuccessful application for interim injunctions in the High Court.
The plaintiff ran a business of rural fuel supply. The first defendant was a new business and a competitor of the plaintiff, staffed by former territory managers of the plaintiff (the fourth, fifth, sixth, and seventh defendants ("the territory managers")).
The third defendant was a former manager of the plaintiff operating through a company ("the second defendant") in a management agreement rather than as an employee. The third defendant was expected to take up a shareholding in the first defendant as soon as his restraint of trade expired. The eighth defendant was a marketing consultant for the first defendant and former marketing consultant for the plaintiff.
In 2003 the plaintiff engaged the third and/or second defendants to provide a feasibility study on a new business model. To that end the third defendant had access to spreadsheets containing the trading data of the plaintiff.
The plaintiff alleged that in August 2005 the third defendant advised it that the new business model was not feasible. However, at that time the second defendant was considering a business model which added to that. It further alleged that the third defendant was exploring a competing business venture with other business people. As part of those discussions the third defendant was having direct discussions and sharing business information with those other business people. The eighth defendant was also involved in discussions examining the prospect of the new venture and was possibly involved in working on logos. During those discussions the third defendant indicated that the territory managers of the plaintiff were likely to be attracted over to a new company. Those discussions resulted in the creation of the first defendant's competing rural fuel supply venture. Around September 2006 the territory managers resigned from the plaintiff and then began working for the first defendant.
The plaintiff originally applied for injunctions restraining all the defendants from (i) being involved in any business activity concerning rural fuel supply, and (ii) using and communicating intellectual property of the plaintiff including trade secrets and confidential information. The plaintiff also sought an injunction restraining the second to eighth defendants from participating in the first defendant's business.
In the course of the proceedings the plaintiff sought that the first defendant, until
further order, be restrained from any business activity in the rural fuel industry so long
as the third defendant (and presumably the second defendant) wanted to participate and the eighth defendant and one of the other business people or any company entities associated with them or any other family connections whether as by shareholder, director or otherwise.
Concerning the injunction against the other business person who was not yet a party to the proceedings, the plaintiff submitted that confidential information which belonged to the plaintiff was wrongfully used by the third defendant. He had communicated it to the other business person and that person should be restrained from participating in the business of the plaintiff because if he did he would be using the confidential information which was the property of the plaintiff.
Held
(1) Although the details at the present stage of the case were not particularly clear, there was no doubt that the third defendant did tell the other business people who were exploring the new venture that the territory managers were likely to be attracted over to the new company. Certainly, there seemed to be a real likelihood that the third defendant was the reason why the first defendant knew and was able to obtain the services of these territory managers for the new business. There was a serious question to be tried, being in respect of the conduct of the third defendant. (paras 21, 22, 24)
(2) The plaintiff's amendment to its application excluding the territory managers was prudent in the circumstances because at the time the application was initially brought it was under the impression that the territory managers were under contracts with restraint of trade clauses in them, in fact the contracts they signed did not have those restraints. Secondly, the affidavits filed offered a reasonably compelling argument that the territory managers were dissatisfied with two decisions of the plaintiff. (paras 24-30)
(3) It was not clear at the present stage whether there was a serious question to be tried in respect of the business person. It was of no importance that he was not included yet in the present proceedings. In applications for interim injunctions proceedings the statement of claim was understood to be tentative and capable of amendment and that included the addition of parties. (para 31)
(4) The eighth defendant was certainly not, at the material times, a direct employee. It appeared she was on a three months management contract. The Court had no initial impression at all as to what extent she was under obligations to have total loyalty to the plaintiff and/or when they ceased and/or to what extent that she was aware that some of her thinking might be directed to a new venture. (para 23)
(5) There was a strong likelihood that the business person did gain an up to date insight into the plaintiff's business in meetings that he had with the third defendant. However, there was some doubt as to whether or not the business person would have obtained any significant advantage from that position. The Court lacked confidence that there was a serious question as to whether the business person brought any significant confidential information to the first defendant. (paras 34, 35)
(6) It was not likely that there were any business secrets in the business model developed by the third defendant at the request of the plaintiff. Essentially, the question in the present sort of business was to either contract for the distribution of fuels with a company offering specialist tankers and staff for that purpose or to own your own fuel fleet. That was a common enough business issue. (para 35)
(7) The data that the third defendant had could well be of great assistance in forming a judgment as to how much business could be obtained from the plaintiff. It needed to be kept in mind that the fuel provider would have given to the first defendant full information as to the full provider's customer base that it wanted the first defendant to take over. (para 36)
(8) One needed to keep taking into account that the territory managers had shifted from the plaintiff to the first defendant. They knew their customers, territory by territory. They might not have, and certainly if they did, they could not use, the hard data from the plaintiff as to the precise quantities their customers were taking. But, having been in the job for some time and knowing the job, they would have a very good feel for the customers. They would know how many customers they had, who were likely to remain loyal to the plaintiff, and who were capable of being won over to the new venture, and if so what sort of business they could bring. That was simply part of their industry knowledge and in that respect was not on the normal authorities confidential information of the plaintiff. (para 37)
(9) The business person already had expertise in the area. He would have a good deal of knowledge about the plaintiff's business, whether he had had the meetings with the third defendant or not, and he was involved in a company which had secured the territory managers of the plaintiff, who themselves had quite profound knowledge of the potential of winning customers away from the plaintiff to the first defendant. All in all, the Court was uncertain as to whether or not there would, at the end of the day, be a serious argument against the business person. (para 39)
(10) The third defendant should not be restrained from taking up shares in the first defendant, if that was what he intended to do, nor should he be restrained from being involved in the management of the first defendant. In the circumstances it was appropriate that he file in the present proceedings a written undertaking, in terms to be settled by counsel, promising the return and/or destruction of all of the plaintiff's data that he might be holding. (para 43)
(11) It was still open for the plaintiff to proceed with the statement of claim seeking relief by way of injunction against the third defendant (and the others of course) in which case he would have to be extracted from the first defendant and/or pursuing the case by way of damages. (para 44)
(12) There was not any basis for obtaining or requiring any undertakings or other binding covenants from the territory managers. They could not use any hard data that they had received and the Court was sure that they would be advised by their counsel as to their responsibilities in that regard and accordingly any risks that might flow from that. It was sufficient, at the present stage, that they had been exposed to the present litigation and, the Court was sure, understood the significance of it and of course they would continue as parties in the present proceedings so there would be a judgment no doubt in due course after having looked at the evidence as to whether they were to stay or not. (para 45)
Result: Application dismissed (injunctions) ; Third defendant ordered to return/destroy data ; Costs in favour of first, fourth, fifth, sixth, seventh and eighth defendants ; Quantum reserved
Cases referred to in judgment:
Aquaculture Corporation v NZ Green Mussel Co Ltd [1990] 3 NZLR 299
Pages: 4
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Credit Consultants Ltd v Wilson and Anor
WC 12A/07
Heard: 28 Mar 2007, Wellington
Judgment Date: 5 Apr 2007
Court/Authority/Tribunal: Colgan CJ, Travis, Shaw JJ
Appearances: L Taylor, M Richards ; T Kennedy, MJ Brewer
PRACTICE AND PROCEDURE - Proceedings removed from Employment Relations Authority - Jurisdiction - Injunctions - Sections 134(2), 161, 162 Employment Relations Act 2000 ("ERA") - Plaintiff alleged first defendant breached restraint of trade, confidentiality and non solicitation covenants - Alleged second defendant incited, instigated, aided or abetted alleged breaches - Plaintiff sought injunctions, compliance order, penalties and damages - Extent Employment Relations Authority and Court could hear and determine matters - HELD - Authority could not make interlocutory compliance order - Authority could not issue compliance order against second defendant - Plaintiff could not claim damages against second defendant in Authority or Employment Court because it did not have a cause of action in breach of an employment agreement - Damages claim against second defendant would be in tort or equity and not related to an employment agreement under s161 ERA - Authority could grant injunctions under s162 ERA against first defendant in relation to alleged breaches of contract - Injunction was "rule of law relating to contracts" - Section 162 ERA was remedial and did not confer substantive jurisdiction - Authority and Court had no jurisdiction to grant interlocutory injunctive relief against second defendant pending hearing of claim under s134 ERA - Question of Court's original jurisdiction to grant injunction against first defendant reserved - General manager
This was a matter removed from the Employment Relations Authority. The Court held that the Authority was empowered to grant injunctions against the first defendant for alleged breaches of contract but did not have jurisdiction to grant injunctions against the second defendant.
The plaintiff provided credit and debt management services throughout New Zealand and Australia. The first defendant was the plaintiff's general manager. His employment agreement contained a 6 month restraint of trade clause, a confidentiality clause and a non solicitation covenant. Following restructure of the plaintiff, the first defendant was made redundant. Two months later the plaintiff noticed that the first defendant had began working for a competitor company ("the second defendant") and had contacted a number of the plaintiff's clients.
The plaintiff alleged that the first defendant had breached his employment agreement and claimed that the second defendant had incited, instigated, aided or abetted those alleged breaches. It sought from the Authority interlocutory, interim and permanent injunctions. Other relief sought included a compliance order, damages for loss of business attributable to the defendants' actions, and penalties under s134 of the Employment Relations Act 2000 ("ERA").
The Employment Relations Authority removed the entire matter to the Court to determine the extent of the Authority's jurisdiction. The jurisdictional matter was set before a full Court.
In the interim, a single Employment Court judge restrained the first defendant from soliciting the plaintiff's clients and employees, misusing confidential information, and required him to return certain property. The Judge declined to make any injunctive orders against the second defendant.
The issues before the full Court were: (i) whether the Authority and the Employment Court, either derivatively or originally, could entertain the causes of action against the second defendant; (ii) whether the Authority and the Employment Court (derivatively or originally) could grant injunctive relief (interlocutory and permanent) to enforce contractual constraints in economic activity and to enforce other contractual obligations. There was no dispute that the plaintiff could bring actions against the first defendant for penalty and compliance and damages for breach of contract, and penalty against the second defendant, in the Authority and on removal in the Employment Court.
The plaintiff submitted the Authority had the jurisdiction to grant the injunctions sought. In particular, the plaintiff argued that it was open to it to obtain an interlocutory injunction restraining the second defendant from further breaches (as a party) of the employment agreement until the Authority or the Court could determine the substantive claim for a penalty against it under s134 ERA relying on Land Transport Safety Authority v McNeil (cited below).
Held
(1) There was no power for the Authority to make an interlocutory compliance order in the same way that interlocutory injunctive relief may be granted by courts having the jurisdiction to do so to preserve a position pending a substantive hearing. The Authority may investigate the complaint of breach and if it found a breach, must specify a time within which a compliance order was to be obeyed: s137(3) ERA. (para 10)
(2) The Authority was not empowered to make a compliance order against a former employee's new employer (the second defendant) or other legal entity requiring that person to comply with the employment agreement between the former employer and the former employee. Section 137 ERA, which set out the circumstances in which a compliance order may be made, did not encompass that situation. A new employer or legal entity in the circumstances of the second defendant could not be said, under subs (1), to have not observed or complied with any provision of the first defendant's employment agreement with the plaintiff. (para 11)
(3) The plaintiff could not claim damages against the second defendant in the Authority or the Employment Court because it did not have a cause of action in breach of an employment agreement against the second defendant. It was not a party to that agreement or indeed in any contractual relationship with the plaintiff. There was no privity of contract between the two parties. Any claim for damages against the second defendant would be in tort or in equity but would not be founded on the employment agreement. Parliament had not altered the law in that regard since the judgment of the Court of Appeal under the Employment Contracts Act 1991 ("ECA") in Methodist Church v Gray (cited below). Any claim for damages by the plaintiff against the second defendant would have to be brought in the courts of ordinary jurisdiction. (paras 16, 62)
(4) Parliament had carved out the powers to grant injunctions which had previously been exercised by the Employment Court and conferred them on the Authority by enacting s162 ERA. Parliament's intention was to give the Authority the power to grant injunctions. (paras 40, 48-58)
(5) Section 162 ERA was a remedial section and did not confer substantive jurisdiction. The words "relating to contracts" in s162 ERA were not to be read down. An injunction was a form of relief which might be granted in order to preserve rights under a contract, it was a rule of law relating to contracts. (paras 41-46)
(6) The Court rejected the argument that the express inclusion in the ERA of the remedies of interim reinstatement in s127 which required the Authority to apply the law relating to interim injunction when considering interim reinstatement; and compliance (s137) and penalties (s133) provided an exhaustive code of the remedies and powers able to be exercised by the Authority. (para 59)
(7) The only justiciable claim against the second defendant in the Authority or the Employment Court was a claim for a penalty for being a party to the ex-employee's breach under s134 ERA. While accepting the principles expounded in Land Transport Safety Authority v McNeil (cited below) the circumstances of the present case were not so exceptional as to warrant interlocutory injunctive relief pending a hearing of a claim for penalty for breach as a party. (para 62)
(8) Section 134 ERA did not constitute a statutory obligation to not breach employment agreements. Rather, it provided for a statutory penalty for what the common law considers to be breach of contract (employment agreement). Even if it could be said that there was a substantive cause of action open to the second defendant, its remedy could only be in tort for the civil wrong of breach of statutory duty. A breach of statutory duty (a tort) was not justiciable in the Authority or the Employment Court. If the plaintiff sought more than a penalty against the second defendant, it would have to issue proceedings against it in the courts of ordinary jurisdiction. (paras 63-64)
Comment
(1) The Court reserved the question of the Court's original jurisdiction, that was other than its derivative jurisdiction under s190 ERA on a matter removed to it under s178 ERA, for a later judgment between the present parties.
Result: Questions answered ; Costs reserved
Statutes considered:
Employment Relations Bill 2000 cl172
Employment Relations Bill 2000 cl197
ECA s104(1)(g)
ECA s104(1)(h)
ECA s104(2)
ERA s127
ERA s133
ERA s134
ERA s137
ERA s134(1)
ERA s134(2)
ERA s137
ERA s137(1)
ERA s137(1)(a)
ERA s137(3)
ERA s138(6)
ERA s161
ERA s161(1)(b)
ERA s162
ERA s178
ERA s178(2)(a)
ERA s190
LRA s207
Words and phrases: Interlocutory injunction ; Interim injunction ; Permanent injunction ; Enactment or rule of law relating to contracts ; founded on ; relating to
Cases referred to in judgment:
AC Neilsen (NZ) Ltd v Pappafloratos [2003] 1 ERNZ 363
Anstiss v Works Civil Construction Ltd [1996] 2 ERNZ 649
Axiom Rolle PRP Valuations Services Ltd v Kapadia (2006) 3 NZELR 390
BDM Grange Ltd v Parker [2005] 1 ERNZ 343
Bongard v Universal Business Directories Ltd [1995] 1 ERNZ 393
Conference of the Methodist Church of New Zealand v Gray [1996] 1 ERNZ 48
Credit Consultants Debt Services NZ Ltd v Wilson unreported, Travis J, 16 March
2007, WC 12/07
Diamond Advertising v Brunton [1993] 1 NZLR 168
Dillon v Chep Handling Systems Ltd [1995] 2 ERNZ 282
Evans v Amatel Holdings Ltd unreported, Travis J, 29 July 1997, AEC 82/97
Greenlea Premier Meats Ltd v New Zealand Meat & Related Trade Union Inc
unreported, Colgan CJ, 8 May 2006, AC 27/06
Grove v Archibald unreported, Travis J, 29 July 1997, WEC 39/97
Hobday v Timaru Girls' High School Board of Trustees [1993] 2 ERNZ 146
Hurford v International Insurance Brokers [1992] 2 ERNZ 449
Jerram v Franklin Veterinary Services (1977) Ltd [2001] ERNZ 157
Land Transport Safety Authority v McNeil [1998] 1 NZLR 622
Medic Corp v Barrett [1992] 2 ERNZ 1048
Nitsceh v Classic Air Ltd unreported, Colgan J, 5 February 1996, WEC 4/96
NZ Air Line Pilots Assn IUOW v Labour Court and Air NZ Ltd [1988] NZILR 1677
NZ Air Line Pilots Assn IUOW v Air New Zealand Ltd [1987] NZILR 685
NZ Harbours IUOW & Ors v Auckland Harbour Board [1988] NZILR 154
New Zealand Public Service Association v Design Power New Zealand Ltd [1992] 1
ERNZ 669
Sears v A-G [1995] 2 ERNZ 121
Turner v Ogilvy & Mather [1992] 3 ERNZ 94
TV3 Network Ltd v Eveready New Zealand Ltd [1993] 3 NZLR 435
Watkins v Bacica [1996] 1 ERNZ 594
X v Y Ltd and NZ Stock Exchange 1992] 1 ERNZ 863
Other workers/site names etc: EC Credit Control Ltd
Pages: 5
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Cuttriss v Carter Holt Harvey Ltd
AC 19/07
Heard: 24 Aug 2006, Auckland
Judgment Date: 27 Apr 2007
Court/Authority/Tribunal: Travis J
Appearances: M Hammond & P Dawson ; P Kiely & D France
MATTER REMOVED FROM EMPLOYMENT RELATIONS AUTHORITY - Personal grievance - Unjustified disadvantage - Whether discontinued retirement policy was term of employment agreement - Plaintiff alleged policy was express or implied term - Alleged legitimate expectation defendant would comply with policy - Alleged policy fundamental term which could not be unilaterally varied - PRACTICE AND PROCEDURE - Application for leave to file second amended statement of claim at end of hearing - Plaintiff sought to add claim that failure to consult rendered discontinuance of policy ineffective - HELD - Policy never offered to plaintiff and existence of its predecessors not initially known to him - Policy not an express term - Not incorporated by reference - Agreement expressly provided that policies might be unilaterally varied - Fact policy provided a financial benefit did not mean it formed part of remuneration and was so fundamental it could not be unilaterally changed - Policy not an implied term - No legitimate expectation - No unjustified disadvantage - Unlikely that consultation would produce different result - Amendment to claim not in interests of justice - Amendment not necessary to deal with key issue - Application dismissed - Mill employee
This was an unsuccessful unjustified disadvantage grievance removed from the Employment Relations Authority concerning entitlement to a retirement policy.
The plaintiff was employed by the defendant and its predecessors since 1970. During the plaintiff's employment the defendant and its predecessors had a retirement policy ("the retirement policy") contained in a site policy manual. The retirement policy provided a financial benefit and required no contributions from employees and was calculated on years of service. The plaintiff's letter of appointment in 1970 contained no reference to a retirement benefit. The other letters of appointment, following promotions the plaintiff received in June 1986 and October 1987, did not refer to a retiring benefit.
In 1992 the plaintiff signed an employment contract which did not refer to a retiring benefit. The contract contained a clause indicating company policies may be changed from time to time.
In September 2003 the defendant advised that the retirement policy was being discontinued and replaced at the plaintiff's work site with the retirement plan that was already in use at the defendant's other work sites. The plaintiff raised concerns over this with his manager as the replacement plan was less advantageous to him. In November 2003 the plaintiff was offered a new employment agreement. The agreement referred to a retirement plan that was not the same as the retirement policy. The agreement indicated that the company's policies, guidelines and procedures formed part of the terms of employment but that they may be changed from time to time and could not override the terms set out in the agreement without the employee's consent ("clause 16"). The plaintiff raised concerns over the wording of the contract but then signed it without amendment.
In December 2003 the plaintiff was advised that after receiving employee feedback it had decided to delete the retirement policy.
The plaintiff submitted the retirement policy was in the nature of a substantial financial benefit which could not be unilaterally deleted. As a matter of law, the retirement policy provided a benefit that was so fundamental, and such a substantial element of the plaintiff's remuneration package, that it could not lawfully be deleted unilaterally. The plaintiff relied on NZEPMU v The Christchurch Press (cited below).
The plaintiff submitted that if the retirement policy was not an express term of the contract then it was an implied term. The plaintiff further submitted that he had a legitimate expectation of receiving the benefit of the retirement policy when he became eligible, which was of such value to him that it could not properly be treated as a policy item.
The defendant submitted the retirement policy was not an express term of the contract and not contractually binding, citing Carter Holt Harvey v Pawson (cited below). Unless such policies were incorporated by reference into the employment contract, they were not contractually binding. The defendant submitted there was no rule of law requiring the retirement policy to be a contractual term of employment and it could not be implied. The defendant submitted that in order to establish a legitimate expectation the plaintiff must first demonstrate the retirement policy was offered as part of his terms and conditions of employment. The defendant also submitted the grievance was brought out of time.
At the conclusion of the hearing, the plaintiff sought to amend the pleadings and introduce a new cause of action which alleged that the defendant was contractually required to consult with the plaintiff before it decided to delete the policy and had not consulted. The plaintiff argued that either the defendant could not delete the policy without his consent or that the defendant should pay a penalty to him pursuant to ss 134 and 135 of the Employment Relations Act 2000 ("ERA"). The application was opposed and it was agreed that the substantive judgment would deal with the issue.
Held
(1) The facts of NZEPMU v The Christchurch Press (cited below) case were not analogous. The retirement policy was never offered to the plaintiff and the existence of its predecessors was not even known to him for some years. It was therefore not part of the initial bargain and none of the contractual documents included either the retirement policy or its predecessors. The 1992 contract and the 2003 agreement both provided that the defendant's policy may be amended from time to time. The plaintiff was therefore on notice that his employer could change its policy. The retirement policy was changed over the years although it was clear that whilst it was in operation it was not regarded as discretionary and the defendant made payments according to its terms. That however was consistent with the way the Courts over the years have viewed company policies, as being binding upon the employer but, in the absence of contractual provisions or incorporation into the contractual agreement, they were not binding upon the employee. They might however, form the basis of binding directions and affect the performance of the employment relationship. (para 34)
(2) As a general proposition unless a policy document such as the retirement policy was incorporated by reference in the applicable employment agreement, it was not expressly binding. (para 40)
(3) Certainly matters contained in policy manuals, which were fairly and reasonably promulgated, could form the basis of lawful and reasonable instructions and govern the practices of the workplace. They could also be determinative of the actions taken by the employer if those actions were inconsistent with the promulgated policy. That did not however, automatically raise them to the status of contractual terms, in the absence of agreement expressed or implied or by incorporation of the policies into the employment agreement. In the present case the policies were to form part of the terms of employment by clause 16 of the 2003 agreement, but the defendant had reserved to itself the right to change those policies to meet operational needs or changed circumstances, providing that did not override the terms expressly set out in the agreement. The retirement policy was not one of such terms. (para 42)
(4) The Court was not persuaded that because the retirement policy provided a financial benefit, it somehow formed part of the remuneration and was therefore so fundamental that it could not be unilaterally changed. Nor did the Court accept that allowing the placement of retirement benefits into a policy manual would provide a licence for employers to place into non-binding policies core terms of the contract. As NZEPMU v The Christchurch Press (cited below) demonstrated, these were likely to be found to be contractual in effect because they would have been held out to the employee as part of the offer of employment. Here the employment agreement expressly provided that those policies might be unilaterally varied by the employer. Until they were altered those policies would have contractual effect according to the agreement, but when deleted would have no further contractual consequences. The retirement policy was not an express term of the employment agreement. (paras 43, 45)
(5) The tests for implication of terms ware set out in Attorney-General v NZ Post Primary Teachers' Assn (cited below). There was no relevant industry custom on the facts of the present case and payments pursuant to the retirement policy were not made as a matter of custom but in accordance with the policy which the company regarded as binding on itself before it was deleted. There was no need to imply such a term in order to give business efficacy to the agreement. The five criteria the Court of Appeal needed to be met, namely: (i) the term to be implied must be reasonable and equitable; (ii) be necessary to give business efficacy to the agreement and would not be implied if the agreement was effective without it; (iii) the term must be so obvious that it "goes without saying"; (iv) it must be capable of clear expression; and (v) not contradict any express term of the contract. The policy did not meet all those requirements and in particular would be inconsistent with the express terms of the agreement which allowed the company to vary or delete policies from time to time. (paras 47, 48)
(6) The burden of proving the representation, inducement or promise creating a legitimate expectation was on the plaintiff. However, the plaintiff was not aware of the retirement policy when he commenced employment in 1970 and the additional letters of appointment in 1986 and 1987 did not refer to the entitlement. The employment contract signed in 1992 did not refer to it but referred to the policy manual which could be amended by the defendant and the same situation prevailed under the 2003 employment agreement. Any expectation of the plaintiff was merely a perception on his part and was in conflict with the contractual terms of his employment, including the 1992 employment contract and the 2003 employment agreement and was inconsistent with his own email in which the plaintiff took issue with the defendant's intention to delete the retirement policy but said he could not argue with the assertion that the new plan should take it over. He also protested the wording of clause 16 of the 2003 agreement yet went ahead and signed it. The plaintiff could have had no expectation of the policy continuing in view of the response he received. In these circumstances the plaintiff had failed to establish a legitimate expectation that the benefit would be retained. (para 51)
(7) Although the retirement policy was expressed in unequivocal terms, the 2003 employment agreement and its predecessor in 1992 made it clear that the defendant was only bound to honour its terms while it was still contractually binding and before it was varied or deleted. As a policy item it was so recognised in the employment agreement and, in accordance with the case law, would not otherwise be contractually binding. (para 52)
(8) A penalty for breach of an employment contract, for the failure to consult, needed to be commenced within 12 months after the cause of action had arisen: s135(5) ERA. That remedy was therefore barred by the provisions of the Act and was unavailable to the plaintiff. (para 55)
(9) Even if the plaintiff was to succeed on the consultation point, the remedy available was a compliance order. After consultation, it was highly likely that the decision would be the same. No other affected employees appeared to have brought claims, and, in view of the retirement benefit presently available to the plaintiff, the end result did not appear to be unreasonable. To impose any absolute prohibition preventing deletion of the policy would be to vary a term of the employment agreement and the Court would be unlikely to be satisfied under s190 ERA that such a change would be absolutely necessary. The Court was not persuaded that allowing the amendment would do justice between the parties, nor was it necessary to deal with the key issue in controversy between them, which the present judgment had resolved. The amendment was therefore declined. (para 62)
(10) The policy could be unilaterally deleted and even if that disadvantaged the plaintiff, the defendant's actions were justifiable in all the circumstances. The plaintiff's unjustified disadvantage grievance failed. There was therefore no need to deal with the issue of whether the disadvantage grievance was brought out of time, although the failure on the part of the defendant to take that point prior to the trial of the matter, after having filed a statement in reply and attending mediation, might well have amounted to a waiver. (para 63)
Result: Applications dismissed ; Costs reserved
Statutes considered:
Employment Court Regulations 2000 r6
ERA s61
ERA s114(3)
ERA s134
ERA s135
ERA s135(5)
ERA s190
Cases referred to in judgment:
Alliance Freezing Company (Southland) Ltd v NZ Amalgamated Engineering etc
IOUW [1989] 3 NZILR 785 ; [1990] 1 NZLR 533 ; (1989) ERNZ Sel Cas 575 (CA)
Alton-Lee v Victoria University of Wellington [2000] 2 ERNZ 152
ANZ National Bank Ltd v Doidge [2005] 1 ERNZ 518 (EC)
Attorney-General v NZ Post Primary Teachers Assn [1992] 1 ERNZ 1163
Carter Holt Harvey Ltd v Pawson [1998] 2 ERNZ 1 (EC)
Corrections Association of New Zealand Inc v Chief Executive in Respect of the Dept
of Corrections [2004] 2 ERNZ 277
Elders Pastoral Ltd v Marr (1987) 2 PRNZ 383 (CA)
Elston v State Services Commission (No 3) [1979] 1 NZLR 218
Leitman v Air NZ Limited and Airline Stewards and Hostesses of NZ IUOW [1989] 3
NZILR 434
Mackintosh v Carter Holt Harvey Ltd unreported, Travis J, 11 July 2001, AC 2A/01
New Zealand Amalgamated Engineering Printing & Manufacturing Union Inc v
Carter Holt Harvey Ltd [2002] 1 ERNZ 597
NZ Amalgamated Engineering Printing and Manufacturing Union Inc v The
Christchurch Press [2005] 1 ERNZ 288
NZ (except Northern etc) Food Processing etc IUOW v ICI (NZ) Ltd [1989] 3 NZILR
24
Rotorua District Council v Kameta unreported, Travis J, 6 December 1994, AEC
73/94
Other workers/site names etc: (Cutriss)
Pages: 5
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Eastern Equities Corporation Ltd t/a Farmers Transport Ltd v Bright
AC 26/07
Heard: 19 Mar 2007, Auckland
Judgment Date: 16 May 2007
Court/Authority/Tribunal: Perkins, J
Appearances: TM Petherick ; DJ Erickson
DE NOVO CHALLENGE AND CROSS CHALLENGE TO DETERMINATION OF EMPLOYMENT RELATIONS AUTHORITY - Unjustified dismissal - Poor performance - Plaintiff held series of informal meetings addressing numerous management concerns and seeking defendant's improvement - Following failure to improve plaintiff offered demotion and terminated employment when offer declined - HELD - Flexible, informal approach to appraisal appropriate for senior manager where purely performance issues being appraised - Early meetings not objectionable - Plaintiff not required to disclose identity of complainants - Serious deficiencies in defendant's performance - By penultimate meeting plaintiff had really only completed series of appraisals - Standards required before dismissal could occur not met - No written warnings that employment was in jeopardy - Matters should have been reduced to writing - Final meeting predetermined - Defendant's actions were obstinate and obdurate - Court awarded compensation of $7,500 reduced by one third to reflect contribution - Awarded $1,000 for loss of benefit (company vehicle) - Had defendant not improved continued employment unlikely beyond further three month period - Defendant awarded lost remuneration of $3,000 - Branch Manager
This was an unsuccessful challenge and partially successful cross challenge to a determination of the Employment Relations Authority. The Court held that the defendant's dismissal was procedurally unjustified and awarded remedies.
The defendant was employed by the plaintiff in October 2002 as a branch manager. In late 2003, problems with the branch were identified by the general manager who then conducted a number of performance reviews with the defendant. At these meetings a number of issues were discussed, including wider issues relating to the performance of the branch. Matters had not improved by March 2004 and further performance issues were discussed including the defendant's failure to adequately manage an identified health and safety issue and alleged complaints of a confrontational and aggressive approach by the defendant. The defendant was given clear directions as to the plaintiff's requirements. Minutes were kept of these meetings but outcomes were not specified in writing.
Matters did not improve and the general manager met again with the defendant, informing him that the meeting was to discuss ongoing performance concerns and that he should bring a representative. At that penultimate meeting performance issues were again discussed. The general manager indicated the branch manager job was beyond the defendant's capabilities and offered the defendant an alternative lower status job. The defendant was given time to consider the offer and went on sick leave.
The defendant refused to resign or accept the offer. At a final meeting the defendant's employment was terminated.
The Employment Relations Authority determined that, while the plaintiff had genuine concerns about the defendant's performance, the dismissal was procedurally unjustified. It granted lost remuneration on the basis of the difference between the defendant's branch manager salary and the lower status job offered to the defendant. Compensation for humiliation etc was also awarded.
The defendant submitted the plaintiff had failed to follow the procedure in his contract and the relevant manuals. He alleged he was never made aware that his performance was specifically in issue and that at the relevant meetings general matters as to the branch's performance were also discussed. He alleged he was not provided with fair warnings or given opportunity to improve. He submitted he was entitled to know not only the details of complaints made against him but also the identity of the complainants. The defendant cross-challenged seeking an increase in remedies awarded.
The plaintiff alleged the dismissal was procedurally and substantively justified. The matter was determined on the law prior to the enactment of s103A Employment Relations Act 2000.
Held
(1) The employer had not carried out the formal requirements in the employer's manual in respect of the final steps taken. However, the manual and the provision in the contract meant that the employer retained some flexibility in the way that the performance appraisals were carried out. With the exception of the flow charts, the manual provisions and the contractual clause were really aimed at methods by which performance was improved rather than proceeding down an intended path to dismissal. (para 38)
(2) In dealing with a manager of the defendant's seniority, some flexibility and latitude in the process might be permitted. However, if an employer adopts a less formal approach to appraisal and dismissal later comes to be considered, an employer would not be regarded as having acted justifiably unless the employer had first given the employee fair warning and an opportunity to improve and show whether he could do the job or not. (para 39)
(3) In a situation where purely performance issues were being appraised the plaintiff was not required to disclose the identity of the complainants. Disclosure might be required where misconduct issues leading to the possibility of summary dismissal were considered. In the present case the identity of the customers making complaints about the defendant were noted and discussed. However, in a situation where allegations were being made by fellow employees of his confrontational and aggressive approach it would be unreasonable to require the employer to disclose their identity if the defendant was to remain in a management role over them. (para 41)
(4) There were serious deficiencies concerning the defendant's performance of his duties as branch manager. Although it would have been preferable for them to be specified in writing following each of the meetings rather than remaining merely in the form of minutes retained, these deficiencies were discussed with him and he was given opportunity to improve. Objective criticism was given and objective statements of standards set. (paras 43-45)
(5) By the penultimate meeting the plaintiff had really only completed a series of performance appraisals. The standards required before a dismissal could take place had not even begun to be met. The procedure, which should have been put in place at that point, was to clearly establish the standards in formal written warnings and go down the process, which was set out in the vertical flow chart contained in the policy and procedure manual. That such warnings were not then put in place and subsequent
meetings held to assess performance following the warnings, resulted in a substantial procedural deficiency. (para 45)
(6) Where meetings commence for performance appraisal but later in the process dismissal was in prospect the employee must be notified. It was possible that having had it brought home to him, by proper written warnings, that his employment was in jeopardy if he didn't improve, the defendant may have attended to the difficulties being put to him and improved. However, such a warning was not given. (paras 46, 49)
(7) The company did not conduct a final meeting at which the defendant was informed in advance that dismissal was a possible outcome, and at which he was given the opportunity of legal representation. The final meeting conducted was to confirm his dismissal, but that was an outcome, which the general manager had already predetermined prior to the meeting once he knew the defendant would not accept the other position offered. He did not undertake that meeting with an open mind. It was true that the defendant was given the opportunity of having his solicitor present at that meeting, but in view of the attitude the company had clearly adopted by that stage, it was difficult to see how such representation might have procured an alternative result. The general manager subsequently confirmed that that was so in the letter he wrote following that final meeting. (para 48)
(8) There was always the hope that matters would improve and that was enhanced if proper procedures were followed and the employee given proper time for reflection and the taking of advice. The plaintiff in the present case faced the added difficulty that in a situation where the employee was clearly being told the areas where he needed to improve, he simply was not listening. Faced with that difficulty matters were not reduced to writing as they should have been. (para 50)
(9) The early meetings were not objectionable. When it was clear, however, that the defendant was not going to improve in his performance and dismissal was an option then as a matter of fairness the plaintiff should have embarked on a more formal procedure of warning and assessment. Simply adopting the attitude that if the defendant was not to accept the demotion then the dismissal was the only alternative fell short of a fair and proper process. For those reasons the challenge was dismissed. (paras 51, 52)
(10) The appropriate method of dealing with reimbursement and mitigation was to consider the difference between the remuneration the defendant was receiving as branch manager and the remuneration he received in alternative employment. Had the procedural deficiencies not occurred and the defendant not improved his performance his continued employment would have been unlikely beyond a further period of 3 months. The gross lost remuneration was $3,000 and that sum was awarded. (para 53)
(11) There was ample evidence of the defendant's distress and humiliation at his untimely termination of employment. However, he was somewhat the author of his own misfortune. (para 54)
(12) Having regard to the nature of the employment and the overall circumstances surrounding the unjustifiability of the termination being purely procedural, the Court was not persuaded that there should be any substantial compensation for loss of the benefit of an expensive motor vehicle as was claimed. However, the loss of such benefit should not simply be subsumed in the compensation specifically awarded for the humiliation and distress. It was appropriate that a further identifiable sum be awarded, assessed at $1,000. (para 55)
(13) Concerning contribution some of the defendant's actions were obstinate and obdurate. In other respects he refused, whether as a result of a quirk of his nature or deliberate stubbornness, to accept and improve the areas of criticism. That was similar to the colloquialism of bloody-mindedness referred to by Brandon LJ in Nelson v British Broadcasting (cited below). There were actions of the defendant which contributed towards the situation that gave rise to the personal grievance. However, the Authority's remedies award was tending towards the conservative. The Court would have been more inclined to have awarded compensation in the sum of $7,500 with a one-third reduction arriving at the same figure as that awarded by the Authority. (paras 56-62)
Result: Challenge dismissed ; Cross-challenge granted in part ; Reimbursement of lost wages ($3,000) ; Loss of benefit ($1,000)(company vehicle) ; Compensation for humiliation etc ($7,500 reduced to $5,000 contributory conduct) ; Costs reserved
Statutes considered:
ERA s124
Words and phrases: Bloody-mindedness
Cases referred to in judgment:
Nelson v British Broadcasting Corporation (No 2) [1980] ICR 110
New Zealand (with exceptions) Food Processing etc IOUW v Unilever New Zealand
Ltd (1990) ERNZ Sel Cas 582
Paykel Ltd v Ahlfeld [1993] 1 ERNZ 334
Trotter v Telecom Corporation NZ Ltd [1993] 2 ERNZ 659
Pages: 4
[973685]
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