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Skinner and Anor v Stayinfront Inc and Ors
CA 18/07
Heard: 16 Apr 2007, Wellington
Judgment Date: 24 Apr 2007
Court/Authority/Tribunal: O'Regan, Robertson and Wilson JJ
Appearances: RD Wallis ; RL Towner
COURT OF APPEAL - Practice and procedure - Application for leave to appeal Employment Court decision - Employment Court issued preliminary judgment concerning nature and extent of applicants' challenge under s179 Employment Relations Act 2000 - Employment Court held challenge limited to preliminary issue of whether settlement agreements precluded applicants from raising personal grievances - Applicant alleged question of law of general importance was: whether, where the Authority had determined a preliminary issue, the "matter" before the Employment Court on appeal was that preliminary issue or the substantive claim - Respondent alleged appeal did not raise question of law and had no prospect of success - HELD - Logical and sensible for Employment Court to only determine preliminary issue because litigation concluded if resolved in respondents favour - No question of law raised - Employment Court decision was matter of case management - Application dismissed
This was an unsuccessful application for leave to appeal a decision of the Employment Court (see: 8 December 2006, AC 70/06).
The applicants entered into settlement agreements with the respondents. The applicants brought personal grievance proceedings in the Employment Relations Authority alleging that the settlement agreements were invalid more than two years after receiving the settlement payments.
The Authority heard the preliminary issue of whether the applicants' personal grievance claims were precluded by the settlement agreements and found that the applicants' claims were defeated. The applicants challenged that determination.
The Employment Court held that the Authority had only determined the preliminary issue and that was the extent of the challenge to the Court. Both the Authority and Court agreed that the "matter" before them was the determination of the preliminary issue and not the personal grievances as a whole.
The applicants submitted that an important question of law was whether, in a situation where the Authority had determined a preliminary issue, the "matter" before the Employment Court was that preliminary determination or the substantive claim. The respondents submitted that the Employment Court's finding that the Authority had only determined the preliminary issue was correct. Further, the appeal did not raise a question of law and had no prospect of success.
Held
(1) It was logical and sensible for the Authority, and the Employment Court on appeal, to determine as a preliminary question whether the personal grievances of the applicants were precluded by the settlement agreements into which they had previously entered with the respondents. Such an issue is often determined as a preliminary question, because if resolved in favour of the party relying upon the earlier agreement the litigation is brought to an end without putting the parties to the expense of a full hearing. (para 10)
(2) The Court of Appeal did not read the Employment Court judgment as laying down any inflexible rule as to how the Employment Court should determine matters coming to it from the Authority. The decision of the Employment Court was no more than a decision as to how the present litigation was to be managed before it. As such, it could not be said to raise any question of law. (para 14)
(3) At the conclusion of the litigation in the Employment Court, the applicants would have the right to appeal by leave to the Court of Appeal on any issue if they could satisfy the statutory requirements for the grant of leave. (para 16)
Result: Application dismissed (leave to appeal) ; Costs in favour of respondents ($1,500 plus disbursements)
Statutes considered:
ERA s187(1)(a)
Other workers/site names etc: Tobin
Pages: 2
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Credit Consultants Debt Services NZ Ltd v Wilson & Anor
WC 12B/07
Heard: 16 Apr 2007, Wellington
Judgment Date: 1 May 2007
Court/Authority/Tribunal: Shaw J
Appearances: L Taylor & M Richards ; G taylor
PROCEEDINGS REMOVED FROM EMPLOYMENT RELATIONS AUTHORITY - Applications for injunctions, compliance order and penalties against first defendant - Application for penalties against second defendant - First defendant's employment agreement contained six month restraint of trade clause and non-solicitation and confidentiality clauses - First defendant made redundant - Took documents containing client information and contact details - Commenced employment with competitor (second defendant) three months later - Contacted and solicited former clients - Whether first defendant had breached employment agreement and second defendant had aided and abetted breaches - Section 134(2) Employment Relations Act 2000 - HELD - Restraint of trade reasonable and imposed to protect plaintiff's proprietary interests - First defendant breached restraint of trade, confidentiality and non-solicitation clauses - Second defendant aided and abetted breaches of restraint of trade and non-solicitation clauses - Injunctions and compliance order necessary to prevent further breaches - Penalties imposed against first and second defendants - Applications granted - General manager
These were successful applications by the plaintiff for injunctions, a compliance order, and penalties.
The plaintiff provided debt recovery and credit related services. The first defendant was employed by the plaintiff as a general manager. The first defendant's employment agreement contained a six-month restraint of trade clause, a nonsolicitation clause, and a confidentiality clause. The restraint of trade prevented the first defendant from working for an opposition company or business involved in the same or substantially the same business as the plaintiff within New Zealand.
The first defendant was made redundant in December 2006. Before he left his employment he sent a number of emails to his brother-in-law and his own personal email account containing the contact details of existing and prospective clients of the plaintiff. He also took all his existing and prospective clients' business cards.
Upon hearing of the first defendant's redundancy the managing director of the second defendant (a direct competitor of the plaintiff) approached the first defendant. The second defendant raised the restraint of trade issue with the first defendant, but did not seek legal advice or request to view the clause. In February 2007, the first defendant accepted an offer of employment with the second defendant in the role of New Zealand corporate sales manager.
The second defendant advertised the first defendant's appointment emphasising his knowledge and contacts. When he began his new role the first defendant contacted at least ten former clients and sent out contract documents to two or three. He secured the custom of at least one former client for the second defendant. The managing director of the second defendant was aware that the first defendant had contacted former clients and personally followed up some contacts.
The plaintiff alleged that the first defendant had breached his employment agreement by working for an opposition company, by misusing confidential information, and by soliciting its customers and prospective customers. The plaintiff sought injunctions restraining the first defendant from breaching his employment agreement, an order requiring the first defendant to comply with his employment agreement, penalties for breaches of the employment agreement, and damages for loss of business caused by the first defendant's actions. The plaintiff also submitted that the second defendant
aided and abetted the first defendant's breaches and sought a penalty under s134(2) of the Employment Relations Act 2000 ("ERA")
The first defendant submitted that the terms of the restraint of trade were unreasonable, but accepted he had acted improperly in some regards. The first defendant invited the Court to modify the clause so as to allow his employment with the second defendant to continue in areas other than debt recovery including providing terms of trade and employment contracts. The second defendant denied it had done anything wrong to warrant a penalty.
Held
(1) The first defendant admitted (i) he took employment with a company that was in the same business as the plaintiff within the 6-month restraint period; (ii) he had used confidential information from the plaintiff in the form of business cards, client lists, and other documents which he had sent by e-mail before his employment terminated or received after; and (iii) he had solicited both existing clients and at least one prospective client of the plaintiff with a view to moving their business the second defendant within the 6-month period. All of these were prima facie in breach of his employment agreement with the plaintiff. (paras 43, 44)
(2) In Debtor Management (NZ) Ltd v Quail (cited below), the Court found that the same geographic restriction in relation to a similar debt collection business was reasonable given that in that case the Auckland based company had customers who in turn had debtors who were spread throughout New Zealand. For the same reasons the Court found that in terms of geography the restraint of trade was reasonable. (para 52)
(3) The duration of 6 months of the restraint was reasonable. To the extent that it restricted the first defendant's freedom to take up employment, it was reasonable given the quality and extent of proprietary information belonging to the plaintiff that was in his command when his employment with the company ended. The reason for the restraint of trade was to protect that information from potential misuse. (para 53)
(4) The plaintiff's reasons for imposing the 6-month term of the restraint of trade were reasonable. It was not imposed arbitrarily but after legal advice and in the light of direct experience and for the purpose of protecting the company's proprietary interests. (para 55)
(5) The fact that the restraint prevented the first defendant from working for an opposition company in the same or substantially the same business was reasonable and justified by the plaintiff's need to protect it proprietary interest. Because they were closely related to the second defendant's client base the work of providing terms of trade and even employment contracts was substantially the same business. No modification was necessary to make the restraint of trade clause reasonable. (para 59)
(6) The public interest is about the impact of the restraint of trade on the wider public market rather than on the private rights of individuals who are governed by the restraint. It is also the case that the public interest in the administration of justice is not served by not enforcing rational agreements between individuals. The plaintiff established that the terms of the restraint of trade clause were reasonably necessary to the parties in order to protect the proprietary interests of the plaintiff and they did not offend against the public interest. (paras 62, 63)
(7) The first defendant breached the restraint of trade clause by commencing and continuing employment with the second defendant and contacting the plaintiff's clients in order to solicit, endeavour to entice away, or discourage any client of the plaintiff from remaining as one of their clients. (para 64)
(8) The materials e-mailed and taken by the first defendant were clearly in the realm of confidential information as was the reconstructed client list he made and used in his employment at the second defendant. The first defendant breached the confidentiality provisions. (paras 66, 68)
(9) All of the terms of the non-solicitation clause were reasonable. The prohibition on soliciting existing and prospective clients was for a period of 6 months imposed to protect the proprietary interests of the plaintiff. The evidence clearly established that the first defendant actively solicited the plaintiffs' clients. He had therefore breached the non-solicitation clause of his employment agreement. (paras 71, 72)
(10) To warrant the imposition of a penalty under s134(2) ERA, the plaintiff had to establish that there was an act of incitement, instigation, aiding, or abetting and that
is act was wilful. (para 75)
(11) An analogy with the tort of interference with contractual relations is an appropriate standard of wilfulness for the purpose of evaluating whether a person was a party to a breach of an employment agreement under s134(2) ERA. The defendant must have known of the contract and deliberately intended to interfere with it although that knowledge need not be of the exact terms of the contract. It is sufficient if the defendant knew of the general contractual situation or practice in a particular field. (para 76)
(12) The managing director of the second defendant was quite aware of the existence of the restraint of trade clause in the first defendant's employment agreement and, although he had not seen it, chose to make no proper inquiry about it. He also knew that his company relied on such clauses. He was reckless as to the consequences of a breach of the restraint of trade when faced with being able to employ the first defendant who had brought a significant market advantage to him as a result of his knowledge and experience accumulated while working for the plaintiff. (para 77)
(13) In spite of his knowledge of the restraint of trade clause, managing director of the second defendant took active steps to intentionally employ the first defendant in his opposition company. He was aware of and took no steps to stop the deliberate solicitation of the plaintiff's clients. The advertisement was an express assistance to that solicitation. Although it was possible that he knew of and encouraged the use of client confidential information that the first defendant had at his disposal, there was no direct evidence of this. By the actions of its managing director the second defendant aided and abetted two breaches of the first defendant's employment agreement: employment by an opposition company and solicitation of the plaintiff's clients and potential clients. (paras 79, 80)
(14) On the basis of his past behaviour the plaintiff was justified in having little confidence that the first defendant would not continue to act in breach of his contract without a permanent injunction preventing it. The Court concluded injunctions should issue until the expiry of the first defendant's restraint of trade. (paras 85, 86)
(15) The plaintiff established that a compliance order was necessary to protect against misuse of confidential information. (para 90)
(16) The penalty breaches should be dealt with globally. The breaches were either repetitive (soliciting clients) or arose out of a single course of conduct (sending the emails).
The Court also had regard to the totality principle. (para 92)
(17) The three causes of action which were made out related to three separate acts or series of transactions. In setting the penalty the Court took into account the wilfulness of the first defendant. Each of those warranted a penalty to mark the seriousness of the actions of the first defendant. In all the circumstances, a penalty of $2,000 for each of the global breaches was imposed making a total of $6,000. (paras 94-96)
(18) The Court treated the second defendant's involvement in the employment and advertising as one global breach and in the soliciting as the other. For each of those breaches the company was ordered to pay $2,500 making a total penalty of $5,000. (para 100)
(19) It was appropriate that the full amount of the penalties imposed against both defendants was to be paid to the plaintiff because the breaches were not breaches of a statutory obligation such as payment of wages or holiday pay but a matter solely between the parties. (para 102)
(20) The question of damages was to be the subject of a further hearing. (para 103)
Result: Applications granted ; Orders accordingly ; Penalty against first defendant ($6,000) (payable to the plaintiff) ; Penalty against second defendant ($5,000) (payable to the plaintiff) ; Damages reserved ; Non-publication order ; Costs reserved
Statutes considered:
ERA s134(2)
ERA s135(2)
ERA s139(3)
Cases referred to in judgment:
Airgas Compressor Specialists Ltd v Bryant [1998] 2 ERNZ 42
Credit Consultants Debt Services Ltd v Wilson unreported, Judge Travis, 16 March
2007, WC 12/07
Credit Consultants Debt Services Ltd v Wilson unreported, Chief Judge Colgan,
Judges Travis and Shaw, 5 April 2007, WC 12A/07
Debtor Management (NZ) Ltd v Quail [1993] 2 ERNZ 498
Faccenda Chicken Ltd v Fowler [1986] 1 All ER 617 (CA)
Fuel Espresso Ltd v Hsieh [2007] 2 NZLR 651
Gallagher Group v Walley [1999] 1 ERNZ 490
McIntyre v Bianchi [1992] 3 ERNZ 1057
NZ Baking Trades IUOW v Quik Bake Products Ltd (in receivership) & Cormack
[1990] 2 NZILR 284
Ravensdown Corp Ltd v Groves [1998] 3 ERNZ 947
Xu v McIntosh [2004] 2 ERNZ 448
Other workers/site names etc: EC Credit Control Ltd
Pages: 5
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An Employee v An Employer
CC 8/07
Heard: 19 Feb 2007, Christchurch
Judgment Date: 15 May 2007
Court/Authority/Tribunal: Couch, J
Appearances: DG Beck ; CR French
PRACTICE AND PROCEDURE - Application for leave to challenge out of time - 75 day delay - Applicant alleged delay caused by episode of depression - Alleged further delays due to difficulty finding suitable lawyer and Christmas holiday period - Respondent alleged it would be prejudiced by extension of time because of prolongation of negative effects of litigation on school where parties worked - HELD - Delay of more than 2 months very substantial and even gross - Depressive episode only impaired applicant's decision-making abilities for a few weeks - Applicant could have filed proceedings much earlier - Delay not adequately explained - Respondent would be prejudiced if extension granted - No significant error of law or reasoning in Authority determination that justified leave - Not in interests of justice to extend time - Application dismissed - Secondary school teacher
This was an unsuccessful application for leave to file a challenge out of time against the substantive and costs determinations of the Employment Relations Authority.
The respondent employed the applicant as a secondary school teacher. The applicant alleged that her employment had been affected to her disadvantage by unjustifiable actions by the respondent. The Authority issued a determination on 21 October 2005 dismissing the applicant's claims ("the substantive determination"). The Authority ordered the applicant pay the respondent costs in a determination dated 27 January
2006. The employment relationship between the parties was ongoing.
The applicant initially took no action when she received the substantive
determination. Over a month later, after discussing the determination with her sister, the applicant engaged a lawyer to challenge the determination and act for her in relation to the issue of costs in the Authority. The applicant alleged the lawyer engaged did not know if there was a mechanism for appealing a determination out of time and that she was advised to contact the Registrar of the Employment Court. She was informed of the challenge process by a letter from the Registrar on 21 December 2005. The applicant engaged a different lawyer in mid-January 2006 and filed the application for leave to challenge out of time on 2 February 2006.
The application for extension of time was made 75 days after the expiry of the 28 day period for a challenge prescribed in s179(2) of the Employment Relations Act 2000 ("ERA").
The applicant submitted that the principal reason for the delay was that the receipt of the substantive determination had triggered an acute episode of a depressive illness caused by her employment relationship problems. This had rendered her unable to make the necessary decisions to initiate a challenge until she received support from her sister. The applicant submitted that further delays were caused by the need to find a suitable lawyer and the closure of law offices during the Christmas holiday period.
The respondent submitted that it would be prejudiced by an extension of time because the negative effects of the litigation on the school would be more prolonged than if the challenge had been filed within time.
Held
(1) The Court's jurisdiction to extend time to file a challenge is conferred by s219(1) ERA. The discretion conferred by s219 is not subject to any statutory criteria. However, it must be exercised judicially and in accordance with established principles. The fundamental principle which must guide the Court in the exercise of its discretion is the justice of the case. (paras 7-9)
(2) Given that the time within which the applicant could initiate a challenge as of right expired well before the period specified in reg 74B of the Employment Court Regulations 2000, the regulation had no direct application to the present case. However, the Court considered whether the policy underlying it should be applied by regarding the length of the delay as being shorter. In terms of the final outcome, it did not matter under which heading this aspect of the evidence was considered but it seemed more natural to discuss it in the context of the reasons for delay than to regard it as truncating the period of delay which actually occurred. On any view of it, a delay of more than 2 months must be regarded as very substantial or even gross. (paras 14, 15)
(3) The expert evidence did not establish that the applicant's delay in taking steps to challenge the Authority's determination was fully explained by any psychiatric condition she may have experienced. At most, the receipt of the substantive determination triggered a depressive episode which impaired the applicant's decision-making ability for a few weeks. Even viewing the expert evidence in the light most favourable to the applicant, it only provided an explanation for her failure to take steps within the statutory 28-day time period and, perhaps, for a week or so after that. From late November 2005 at the latest, the applicant was aware of the significance of the Authority's determination, aware of her rights with respect to a challenge and capable of making the decisions necessary to exercise those rights. (paras 36-38)
(4) Where an extension of time is sought, the onus is on the applicant to provide the evidence necessary to explain the delay as fully as possible. With respect to the period from the end of November 2005 onwards, the applicant did not do this. The evidence supporting reasons for the delay other than her mental illness was sparse and, in many respects, vague. Even making generous allowance for the Christmas and New Year period, the evidence fell well short of an adequate explanation for the very substantial delay which occurred. (para 39)
(5) Where a party fails to comply with s179(2) ERA, the merits of the proposed challenge become a significant factor in the exercise of the Court's discretion whether to grant an extension of time. A party seeking such an extension of time must persuade the Court that the proposed challenge has a realistic prospect of success. If there is a significant error of law or reasoning apparent on the face of the determination, that may suffice. Otherwise, there will almost always need to be evidence which persuades the Court that the proposed challenge has a reasonable prospect of success. There was no such evidence in the present case. (paras 52-53, 59)
(6) The respondent had been prejudiced by being led to believe for more than 2 months that the matter was at an end. While the Court took this factor into account, it did not place great weight on it. If the extension of time sought was granted, the prejudice to the school community as a whole arising from the prolongation of the dispute would be significant. (paras 57, 58)
(7) It was not in the interests of justice to extend the time for filing a challenge to the substantive determination. The application was refused. (para 60)
(8) The applicant could have challenged the costs determination as of right on 2 February 2006 when the application for extension of time was made. Assuming that the applicant was properly advised, the only sensible construction was that the applicant wished to challenge the costs determination only in conjunction with a challenge to the substantive determination. If that was incorrect and the applicant would wish to challenge the costs determination alone, it was not in the interests of justice to grant the extension of time now necessary for her to do so. (paras 61-62)
Result: Application dismissed (leave to file challenge out of time) ; Costs in favour of respondent (quantum reserved)
Statutes considered:
ERA s179
ERA s179(1)
ERA s179(2)
ERA s219
ERA s219(1)
Employment Court Regulations 2000 r74B
Cases referred to in judgment:
Avery v No 2 Public Service Appeal Board [1973] 2 NZLR 86
Bilderbeck v Brighouse Ltd [1993] 2 ERNZ 74
Day v Whitcoulls Group Ltd [1997] ERNZ 541
Otago Taxis Limited v Strong unreported, Judge Couch, 2 March 2007, CC 6/07
Peoples v Accident Compensation Corporation [2007] 1 ERNZ 26
Ratnam v Cumarasamy [1964] 3 All ER 933 (PC)
Stevenson v Hato Paora College Trust Board [2002] 2 ERNZ 103
Pages: 3
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