Cases of interest 2019

A summary of interesting or topical employment cases.

Employment Court – Setting penalty amount – Inadequate reasons for Employment Relations Authority decision

The employer underpaid employees in breach of the Minimum Wage Act 1983 and the Holidays Act 2003, and failed to provide written employment agreements in breach of the Employment Relations Act 2000. The employer repaid the sums owing. The Employment Relations Authority (ERA) awarded $220 in penalties. The ERA’s discussion when determining the penalty amount was very brief. The Labour Inspectorate challenged the ERA’s decision. It claimed that penalty was inadequate, the ERA had erred in its approach to penalties and the ERA failed to sufficiently state its findings.

The Employment Court held that the ERA made various errors of fact and law in setting the penalty amount (see paras 22-48). The Court held that the Authority could not be criticised for omitting a detailed analysis of the Preet approach to penalties and that this approach does not need to be applied to every case, particularly where the case is not complex (see para 53). However, the ERA had not given adequate reasons for its decision. The brevity and contents of the ERA determination casted significant doubt on the rationale for the result and consequently breached s174E of the Employment Relations Act 2000.

The Court uplifted the penalty award to $40,000.

Link to case [PDF 376 KB](external link)

Employment Court – Appointment of litigation guardian – Meaning of incapacity for Employment Court purposes

At issue was whether and how litigation guardians could be appointed for two disabled adult parties in the Employment Court.

The Court noted that there was no precedent or any express power under its own legislation for the Employment Court to appoint a litigation guardian. However, the Employment Court Regulations 2000 stipulate that where no procedure has been provided for, the Court must apply the High Court Rules 2016 (HCR). Therefore, r 4.30 of the HCR applied as it governed the appointment of litigation guardians (see paras 4-5).

A litigation guardian will be appointed where mental incapacity prevents a person from conducting litigation. The starting point is a presumption of competence (see para 6). The Court adopted the definition of incapacity from r 4.29 of the HCR (see para 8).

On the facts, the Court was satisfied that one of the parties was incapacitated and a litigation guardian was appointed. However, there was not enough evidence to show that the other party was incapacitated. The Court granted leave for an affidavit to be filed which showed the other party was also incapacitated (see para 9-15).

The Court held it was not necessary to impose conditions on the litigation guardian (see para 17).

Link to case [PDF 256 KB](external link)

Employment court – Unjustified dismissal – Trial Period – Whether employment relationship existed before trial period was signed

The employee undertook a successful work assessment and was offered a job. A signed employment agreement contained a 90-day trial provision but specified that commencement was delayed until the employee obtained the required work visa. In the meantime the employee attended the employer’s workshop daily. The employer described this as a “familiarisation” process whereby the employee shadowed one of the directors or other employees. The employer did not pay the employee during this period. However, three cash payments were made by the directors to the employee during this time.

The issue was not the lawfulness of the work performed prior to the visa being granted but whether the employee worked as an employee during this time thereby preventing the employer from subsequently relying on a trial period to dismiss the employee.

The Employment Court rejected the employer’s argument that at the time of the work assessment the employee was a volunteer. Simply labelling tasks as an “assessment” does not mean that the person is a volunteer and not an employee (at [35]).

The Court held that the fact the employee was looking for paid work, the length of time he was present on the employer’s premises, that he undertook tasks for the employer and his regular pattern of attendance all pointed towards an employment relationship. The evidence that the employee was merely “tagging along” over approximately five weeks was unconvincing.  Furthermore, a letter from the employer’s solicitors made it clear that a “wash up” was intended once the visa was granted (at [37]).

The Court held that the “familiarisation” period was a separate period of employment. Consequently, an employment relationship existed before the commencement of employment contemplated by the written agreement. The employer could not rely on the trial provision under s 67A Employment Relations Act 2000(external link) as the employee had been previously employed per s 67A(3) (at [46]).

Link to case [PDF 495 KB](external link)

Employment Court – Costs where proceedings discontinued – Application of High Court Rules

A substantive hearing never eventuated because the parties resolved the difficulties they were having reaching a new collective employment agreement through facilitation. The plaintiff subsequently filed a notice of discontinuance. At issue was whether either party should be awarded costs on the discontinued proceedings.

The Employment Court noted that neither the Employment Relations Act 2000 nor the Employment Court Regulations 2000 provide a specific procedure for determining costs in the event of discontinuance. However, r 15.23 of the High Court Rules 2016 creates a presumption that the discontinuing party pays the costs of the other party up to the date of discontinuance unless the defendant otherwise agrees or the Court otherwise orders. While discretion remains under r 15.23, the onus is on the discontinuing plaintiff to persuade the Court to exercise the discretion in its favour (at [4]).

The presumption is not easily displaced (at [4]). However, there are circumstances where it will be just and equitable for the defendant not to receive an award of costs. One such situation will be where a change in circumstances may render the proceedings irrelevant or unnecessary (at [8]).

In the present case, both parties had agreed to a referral to facilitation. Discontinuance became an inevitable outcome of that process. The Court held that each party should bear their own costs (at [9]).

Link to case [PDF 220 KB](external link)

Employment Court – Statutory entitlement for rest breaks – Relationship between break provisions in the Land Transport Act 1998 and the Employment Relations Act 2000

The employee is a bus driver in an ongoing employment relationship with Tranzurban. His individual employment agreement provides for an entitlement to an unpaid meal break of at least 30 minutes. No reference is made to other rest breaks in the agreement. Short rest breaks are scheduled into the bus routes, but in practice this time is often absorbed by operational delays such as heavy traffic and road works.

The employee argued that the employer was not meeting its obligation to provide him with reasonable rest breaks under s 69ZD of the Employment Relations Act 2000 (“ERA”)(external link). Section 69ZD requires employers to provide their employees with rest breaks that allow the employee a reasonable opportunity for rest and refreshment and are appropriate for the length of the shift.  The employer argued that the employee’s breaks are governed by the Land Transport Act 1998 (“LTA”) and the Land Transport Rule: Work Time and Logbooks 2007 (“LTR”) and that these override the ERA. The LTA and LTR provide that employees are entitled to a 30 minute meal break after five and a half hours of continuous work.

At issue was whether s 69ZH of the ERA(external link) meant that an employer is only obliged to provide its employees with breaks that correspond to the LTR, or whether they are also obligated to provide breaks as outlined in the ERA. The Court discussed the different objectives of the Acts. The LTA promotes safe road user behaviour and fatigue management. The statutory obligation for rest and meal breaks in the ERA intends to benefit employees with wellbeing and work-life balance.

The Court held that the two should operate side-by-side in order to achieve both objectives (see para 36). The LTA provisions are capable of coexisting with those in the ERA (see para 45). Therefore, the employer was obliged to provide rest breaks. However, an employer cannot control traffic delays. The Court ultimately found, on the specific facts of this case, that the breaks provided to employees were sufficient to meet the employer’s obligations (see para 86).

Link to case [PDF 674 KB](external link)

Employment Court – Partnership “buy-in” fee – Premium in respect of employment – Wages Protection Act, s 12A – Penalties 

The key issue in this case was whether a $125,000 fee to buy into an employer’s “Regional Partner Programme” was a premium, contrary to s 12A of the Wages Protection Act 1983, in circumstances where:

  • Under the employment agreement, commencement of employment was subject to payment of the fee.
  • The fee allegedly purchased a property interest in a client register.
  • The employee could potentially benefit from the programme by:
    • earning commissions from clients in their register;
    • growing the value of their client register;
    • selling their interest for a profit when they left the firm.
  • There was no guarantee the employee would get the buy-in fee back if they left the firm or get a return on their interest in the client register.
  • The employee was also paid a salary.
  • At the time the client bought into the client register, her share in the register had no clients.
  • The buy-in fee was paid into an account where it was coded as income and used for operational expenses

The Employment Court was satisfied the buy-in fee was a premium in terms of s 12A (see para [73]):

  1. The employee’s employment was conditional on her paying the buy-in fee;
  2. The employee derived no on-going benefit from payment of the fee.

The employee’s employment agreement expressly provided that her employment was conditional on the payment of the buy-in fee; the recruitment manager reiterated the requirement by email; and there was no evidence the employee could start employment without paying the fee (see para [76]).

There was no legal proprietary interest that arose from the partnership with the Regional Partners. The employee did not legally become a partner or become a shareholder. Importantly, at the time the employee paid the buy-in fee the Client Register was worth nothing (see para [80]). Commission payments payable under the Regional Partners Programme were “simply another element of [the employee’s] reward for her work … bringing in clients for [the employer]” (see para [79]).

There was no ongoing benefit to the employee once the employment ended. This was in contrast to Holman v CTC Aviation Training (NZ) Ltd [2017] NZEmpC 60, where the employee gained a qualification. Leaving employment with the employer triggered buy-back provisions. The employee had no ongoing right to use the register and was restrained from working with clients in the register (see paras [81], [82]).

The Employment Court found the employee was entitled to recover the buy-in fee under s 12A(2) of the Wages Protection Act as a debt due, with interest (see paras [85], [86]).

The Employment Court ordered the employer to pay a penalty of $8,000 for breach of s 12A of the Wages and Protection Act (see paras [113]–[122]).

Link to case [PDF 445 KB](external link)

Employment Court – Application of Employment Relations Act, s 67D Availability provision – Whether s 67D applies to requirement to work overtime – Whether employer required to compensate employees for availability for overtime

At issue was whether postal delivery agents could be required to work overtime hours in addition to their standard hours when the employer did not expressly compensate the employees for making themselves available.

The employees had a clause in their employment agreement (cl 20) stating:

Delivery Agents may be required to work reasonable overtime in excess of their standard hours (subject to safe operating procedures), provided that work is voluntary on days which are otherwise non-rostered days for an individual employee.

The Court made a declaration that the relevant clause in the collective agreement was an availability provision and did not comply with s 67E of the Employment Relations Act (see para [59]).

The Employment Court held that if an employer wishes to be able to require an employee to work overtime, as opposed to giving the employee a choice, it needs to provide reasonable compensation for the availability as required by law (see para [30]). If not, the employee can decline to work (see para [31]).

In coming to that judgment the Employment Court found:

  • Section 67D was not intended to apply only to “zero-hour” contracts (ie contracts where employees were required to make themselves available but had no guaranteed hours) (see paras [12]–[18], [21]).
  • A clause requiring an employee to work overtime was an availability provision; to be an availability provision it was not necessary that the provision required an employee to stand-by and wait for work (see paras [23], [26], [27]).
  • The submission that employees could not decline work under s 67E because they did not have “guaranteed hours” did not hold. The fact that under the collective agreement employees could sometimes be allowed to leave early and sometime work later did not mean they did not have “agreed hours” (see paras [41]–[44], [52]).
  • Compensation was not “agreed” as being part of the employees’ salaries under s 67D. The employees were not on salaries under the ordinary meaning of the term. Employees had not agreed that compensation was included in their pay (see para [56]).

Link to case [PDF 348 KB](external link)

Employment Court – Fixed-term employment agreements — Whether fixed-term agreement in breach of Employment Relations Act 2000, s 66 – Whether expiry of fixed-term effective

The employee was employed as a bus driver for the employer on successive fixed-term employment agreements over a period of 18 years.

At issue was whether the expiry of two of the fixed-term agreements was effective. In both cases the employer informed the employee the fixed-term would expire at the end of the school year because the employer’s contract with the Ministry of Education would expire at that time.

The Employment Court held the two fixed-term agreements were in breach of s 66 of the Employment Relations Act 2000.

The Employment Court found:

  • There was no “bright-line test” to determine how many fixed-term roll-overs were enough for a fixed-term agreement to breach s 66. While successive fixed-term agreements might raise a flag, whether the expiry of the fixed term was effective depended on the reasons for the fixed-term (see para [26]).
  • In determining whether a fixed-term was entered into for genuine reasons on reasonable grounds it is relevant to consider:
    • whether the stated reasons were sincerely held; and
    • whether the stated reasons were for proper purposes.
      (See para [27]).

Financial uncertainty related to ordinary business risk was not a genuine reason based on reasonable grounds for entering the fixed-term agreements (see paras [17], [18], [20]–[23], [28]). Even if financial insecurity was a genuine reason for entering the agreements, it was not based on reasonable grounds (see para [21]).

  • The employee was entitled to:
    • treat the expiry of the fixed-term agreements as ineffective (see para [29]); and
    • compensation for lost entitlements (see paras [30], [31]).

Link to case [PDF 261 KB](external link)

Employment Court – Unjustified dismissal – Remedies – Reinstatement

Key issues were whether the employee should be reinstated; the extent to which she should be compensated for lost remuneration; and the extent to which the employee should be compensated for humiliation, loss of dignity and injury to feelings.

The employer investigated the employee in relation to allegations her qualifications for her position were fraudulent. Though the employer did not find the qualifications were fraudulent, it dismissed the employee due to loss of trust and confidence, after the employee allegedly acted to hinder the investigation.

The Employment Relations Authority found the employer unjustifiably dismissed the employee but did not award reinstatement. The Authority accepted the employer had lost trust and confidence in her. The Authority awarded the employee three months’ lost remuneration and $20,000 compensation for humiliation, loss of dignity and injury to feelings, with 15 per cent reduction for contributory behaviour.

The Employment Court affirmed that the dismissal was unjustified (see paras [231], [237], [238], [264], [266], [269], [270]). The Employment Court ordered reinstatement and increased all monetary awards to the employee. Specifically, the Employment Court:

  • found it was reasonable and practicable to reinstate the employee, but to a different position in a different team, at the same remuneration (see paras [309], [311], [312]–[326]).
  • awarded six months lost remuneration (see paras [336]–[338]);
  • awarded compensation for humiliation, loss of dignity and injury to feelings of $42,500 (see paras [339]–[354]) (The Employment Court arrived at this figure independently as no figure was specified in the statement of claim) (see paras [352], [353]);
  • rejected the finding of the Employment Relations Authority that the employee had contributed to her dismissal by obstructing the employer’s investigation (see paras [355]–[361]).
  • Link to case [PDF 794 KB](external link)

Employment Court – Unjustified dismissal – Reinstatement

A key issue was whether the employee should be reinstated after being unjustifiably dismissed.

The employee was a parking officer. The employer suspended the employee three times, and then dismissed him, over concerns about the employee’s interaction with a trainer and with the public. Of chief concern was the employee telling members of the public who were abusive they were not allowed to be offensive in public and that swearing in public was a criminal offence. In a training session, the employee “aggressively” defended how he talked to members of the public who were abusive. After the training session the employer told the employee to stay away from work for a day to “reflect” on how he had behaved.

Soon afterwards, the employee was involved in an incident with members of the public where he feared for his safety. In that incident, the employee followed the employer’s instructions and did not talk to the people concerned once they became abusive. Instead he left the situation and called for assistance. The employer suspended the employee following the incident. Following an investigation, the employer dismissed the employee.

The employer later conceded the dismissal was unjustified (see para [46]), because:

  • The investigation was procedurally flawed.
  • The employer had not addressed concerns about the employee’s behaviour earlier.

The Employment Court ordered that the employee should be reinstated. The Employment Court held while the employer claimed it had lost trust and confidence in the employee, a mere assertion was not enough. The employer’s position was difficult to maintain when it accepted the dismissal was unjustified, partly because the employer had failed to take formal steps to address the employee’s perceived unsatisfactory conduct (see para [68]). The Employment Court found in the most recent incident the employee was involved in he had followed the employer’s instructions. The employee had also agreed to change his behaviour in interacting with the public. The level of safety risk the employer claimed the employee posed was not demonstrated by the evidence (see paras [73]–[83]).

The fact that the employer’s supervisor found the employee challenging to manage did not disqualify him from reinstatement. In any event, the employee would have a different supervisor and the employee would be clearer about the employer’s expectations. There was no evidence the employee had difficulties with other parking officers (see paras [84]–[90]).

Link to case [PDF 436 KB](external link)

Employment Relations Authority – Collective bargaining – Fixing provisions of collective agreement

First Union Incorporated (‘the Union’) initiated collective bargaining with Jacks Hardware and Timber Ltd trading as Mitre 10 Mega Dunedin and Mitre 10 Mosgiel (‘the employer’) on 13 October 2013. Since 2015 the proceedings have resulted in seven Employment Relations Authority (‘the Authority’) determinations, two recommendations of the Authority after facilitation processes and six Employment Court judgments (see para 22). This determination of the Authority culminated in the first collective agreement between the parties by fixing the last remaining disputed terms.

This was the first time since section 50(external link)J was inserted in the Employment Relations Act 2000 (‘the Act’) in 2004 that the Authority was required to fix the provisions of a collective agreement.

The Authority was required to fix two terms:

  1. the term (duration) of the agreement.
  2. remuneration.

The Union sought remuneration of $21.50 per hour for Tier 1 (entry-level) employees, $23.00 per hour for Tier 2 employees and an additional trade qualification rate of $3.00 per hour. The employer sought to set their lowest pay rate at 25 cents above the minimum wage, being $17.95 per hour for Tier 1 employees and $18.70 per hour for Tier 2 employees. It also sought to keep its existing rate of $1.00 per hour for the additional trade qualification rate (see paras 11­­­­-16).

The Union argued that the wages should be fixed in line with a main competitor chain of hardware stores and a major supermarket model. The employer disagreed, preferring to be compared to two other Mitre 10 stores in small towns.

The Authority noted that the Act does not outline any process for the Authority to follow when fixing the terms of a collective agreement. It affirmed it was acting in line with the purposes of the Act, including building productive employment relationships based on good faith, addressing the inherent inequality of power in employment relationships and promoting collective bargaining (see paras 17-21).

The Authority considered the following factors in coming to its decision:

  • comparable wages in the market,
  • the financial position of the company,
  • the length of time between the initiation and finalisation of the collective agreement,
  • pressure in the economy to increase wages, and
  • the employer’s preference to maintain internal parity.

After weighing the evidence and arguments of the parties, the Authority concluded that the Tier 1 wages would be fixed at $19.00 per hour, Tier 2 at $21.00 per hour and the additional trade qualified rate at $2.00 per hour (see para 64).

The Authority found that the term of the collective agreement should be fixed to operate from the date of the determination until 31 August 2020.

Link to case(external link) [PDF 50KB]

Employment Court – Whether employee or contractor

Mr Hayward had worked for the director of the business since 2000 in a number of companies. Their relationship came to an abrupt end following a dispute in July 2017. Mr Hayward raised a personal grievance with Horizon Concepts Ltd claiming he had been unjustifiably dismissed. In a preliminary finding the Employment Relations Authority found Mr Hayward was an employee. Horizon Concepts Ltd challenged that determination in the Employment Court, arguing he was in fact a contractor and therefore unable to raise a personal grievance.

The parties agreed that Mr Hayward had been an employee until June 2016. At that time he ceased working for another of the director’s companies and started with two more, including Horizon Concepts Ltd. At the same time, the parties agreed that his method of remuneration would change from wages to GST invoicing. The parties discussed this change with an accountant and made the necessary arrangements. Although the parties disagreed on who initiated the change to invoicing, the Court found that the parties intended to create an independent contracting relationship (see para 27). It found the introduction of invoicing was a “significant departure from previous arrangements” (see para 17).

As well as the intention of the parties, the Court discussed the other common law tests used to ascertain whether a worker is an employee or a contractor, including the “control test”, the “integration test” and the “fundamental or economic reality test” (see paras 29-39). It found that although Horizon Concepts Ltd exercised control over Mr Hayward, he also enjoyed some autonomy. Mr Hayward had taken advice regarding being a contractor, appreciated the financial benefits and actively taken advantage of them.

The Court found that Mr Hayward had intended to be a contractor and was comfortable with the arrangement until the working relationship broke down (see para 40). Mr Hayward had been a contractor since June 2016 and the Court therefore had no jurisdiction to consider a grievance.

Link to case [PDF 435KB](external link)

July 2019

Court of Appeal — Employment Relations Act 2000, s 161 — Jurisdiction of High Court to hear employment case — Abuse of process — Duplication of Employment Relations Authority proceedings

The employee pursued two claims against the employer simultaneously:

  • a civil case in the High Court for damages for breach of duties of care (including failure to provide a safe working environment and failure to communicate in a full and frank manner);
  • a proceeding in the Employment Relations Authority (the Authority) covering the same issues.

The High Court struck out the civil proceedings on the basis that employment relations problems were in the sole jurisdiction of the Authority. To pursue both proceedings at once was also an abuse of process.

The employee appealed the High Court decision. The employee submitted the claim was “an action founded in tort” and so came under the exception in s 161(1)(r) of the Employment Relations Act (the Act)(external link).

The Court of Appeal found that under the Act, the foundation of jurisdiction was whether the matter to be determined was an employment relationship problem (see para 19). The High Court was correct in striking out the case for want of jurisdiction. The claim was “wholly dependent on [the employee’s] former employment relationship with [the employer]” — much of the pleadings copied word for word the “statement of problem” in the Authority. (see paras 20–22).

The Court of Appeal also found the High Court proceeding was an abuse of process as a duplication of the proceedings in the Authority, even though the High Court proceedings were filed first (see paras 23–28).

Link To Case(external link) [PDF 488KB]

Employment Court — Section 8(2) of the Holidays Act 2003 — Calculation of Holiday pay — Treatment of commissions — Whether commissions part of “ordinary weekly pay”

At issue was the calculation of “ordinary weekly pay” under the Holidays Act 2003, s 8(2)(external link). The question was whether commissions that tourist bus operators earned on top of their wages should be included in calculations under s 8(2) as part of “ordinary weekly pay”. This was a test case because the Employment Court had not previously considered s 8(2) of the Act.

The bus operators were paid a daily pay rate when they went on trips. The trips ranged in length from a day to several weeks. On top of the daily pay rate, the drivers earned commissions for booking passengers in tourist activities. Under the employment agreement, commissions were payable only after:

  1. the bus operator submitted records of booked activities to the employer after the trip; and
  2. the employer confirmed the booking records with the activity providers; and
  3. the employer confirmed the passengers had done the booked activities.

Commissions were not payable if the passengers failed to do the activity.

The Employment Court found the commissions earned by the drivers did not form part of their “ordinary weekly pay” under s 8(2) (see paras 28–39). The Labour Inspector’s case “assumed commission was earned by the driver as soon as details of the extra activities booked, and undertaken, by passengers were provided to [the employer]”. That conclusion was inconsistent with the employment agreement. (see para 38). Practically, the employer could not could “ascertain what commission-related activities had been booked, paid for and undertaken” in a weekly period (see para 40). It would be inconsistent with s 8(2) to require holiday pay to be calculated, and to be payable, before there was a contractual obligation to pay (see para 41).

Link to case(external link) [PDF 393KB]

Employment Court — Employment Agreement — Indemnity provisions — Enforceability of clauses providing for indemnity costs

A key issue was whether an indemnity clause in an employment agreement (EA) was an unlawful attempt to contract out of the Employment Relations Act.

The employee breached his EA by leaving to work for a competitor and by using intellectual property of the employer to help the competitor. The employer sought damages against the employee in the Employment Relations Authority (the Authority). The Authority awarded the employer special and general damages with interest.

The employee’s EA contained an indemnity clause. Based on the indemnity clause, the Authority also awarded the employer $46,000 in indemnity costs. The indemnity costs were “about a 350 per cent increase on what might have been awarded by applying the tariff” (see para 48).

The employee challenged the indemnity costs in the Employment Court on the basis that the indemnity provision was an attempt to contract out of the Employment Relations Act 2000 (the Act) in breach of s 238(external link).

The Employment Court upheld the award of indemnity costs. It found the indemnity provision was not an unlawful attempt to contract out of the Act and the Court was obligated to enforce it — declining to award contractual indemnity was not within the Court’s discretion. However, “an assessment [was] needed as to whether the amount of solicitor-client costs [was] objectively reasonable” (see paras 50–55).

Link to case(external link)

August 2019

Employment Court – Calculation of remuneration for Public Holidays, Alternative Holidays, Sick Leave and Bereavement Leave – Holidays Act 2003 – Relevant Daily Pay – Average Daily Pay

The employer had previously used the Average Daily Pay (ADP) calculation when paying its employees for public holidays, alternative holidays, sick leave or bereavement leave (other leave). The company changed its methodology to Relevant Daily Pay (RDP) due to variable monthly commission payments paid to its employees. The employees disputed the company’s ability to do so.

RDP is defined in s 9(1)(external link) of the Holidays Act 2003(external link) as the amount of pay an employee would have received had they worked on the day concerned. ADP is defined in s 9A(external link) as the employee’s gross earnings over the previous 52 weeks divided by the number of days the employee worked over that period. The legislation sets out when the ADP calculation is to be used:

9A Average daily pay

(1) An employer may use an employee’s average daily pay for the purposes of calculating payment for a public holiday, an alternative holiday, sick leave, bereavement leave, or family violence leave if—

(a) it is not possible or practicable to determine an employee’s relevant daily pay under section 9(1); or

(b) the employee’s daily pay varies within the pay period when the holiday or leave falls.

The case centred on the meaning of “may” in s 9A(1) (as emphasised above). The employer’s position was that “may” created an option they could elect to use if they wished. On the other hand, the employees considered that the wording created an obligation on the employer to use ADP if either of the conditions applied.

The Court looked to the history of the legislation, including a speech made by the then Minister of Labour (see paras 28–32). It found that Parliament intended to provide employers with the discretion to pay either ADP or RDP in the specified circumstances (see para 33). If RDP can be calculated, then the employer is able to use it as their method of calculating other leave, even if the daily pay is variable (see para 34). The employees did not have a claim arising from the change in calculation (see para 42).

This was considered a test case with potentially wide ramifications in the workplace, although the Court reiterated that the factual circumstances in each case would need to be considered (see para 12).

NZEmpC 101 GD (Tauranga) Ltd v Price — Employment Court of New Zealand(external link)

Employment Court – Jurisdiction of Employment Court or Employment Relations Authority to decide whether workers are employees or contractors when Labour Inspectorate pursuing a claim for unpaid wages

The Labour Inspector was pursuing a claim for unpaid wages on behalf of pizza delivery drivers. The company claimed the drivers were not employees, but were independent contractors. The Court was asked to decide:

  • whether the Labour Inspector could ask the Employment Relations Authority (Authority) to determine whether the drivers were employees or contractors as a preliminary matter;  or
  • whether the Labour Inspector needed to get a declaration from the Employment Court that the drivers were employees before commencing proceedings in the Authority when the status of the workers is in dispute.

The Court noted that the powers of Labour Inspectors are both conferred and limited by the Employment Relations Act 2000 (‘Act’)(external link).  Section 228 of the Ac(external link)t stipulates that a Labour Inspector may commence an action on behalf of an employee to recover monies payable by an employer under the Minimum Wage Act 1983 (external link)or the Holidays Act 2003(external link). The meaning of “employee” is defined in Section 6 of the Act(external link). Section 6(5) provides that the court may, on application, declare whether a person is an employee. However, the jurisdiction of the Authority is listed in Section 161 of the Act(external link) (external link) and stipulates that the Authority has exclusive jurisdiction to make determinations on “matters about whether a person is an employee (not being matters arising on an application under section 6(5))”.

The Labour Inspector argued that Parliament was unlikely to have intended that the Inspectorate would have to:

(a) bear the cost and complexity of  having to seek a declaratory judgment from the court each time the status of vulnerable employees was in dispute; and then

(b) return to the Authority for a substantive determination,

when pursuing the minimum entitlements of vulnerable employees (see para 10).

The Court applied statutory interpretation principles to the issue.  It found that the Act enables Labour Inspectors to commence an action on behalf of “an employee”, which presupposes that employee status is not in issue (see para 13).  The Court held that Parliament had expressly conferred on the Court the statutory power to make the determination as to whether a person was an employee, not the Authority (see para 11).  It decided that s 161 did not restrict that power to only matters arising from an application made under s 6(5) (see para 14).

The Court rejected the Labour Inspector’s contention that it would unduly complicate proceedings to go to the Court first for a declaratory judgment.  It suggested that the Authority could either stay the application in the meantime, or remove the entire matter to the Court (see para 20).  The Court acknowledged that this process may “give rise to unmeritorious strategic manoeuvring by a limited number of employers” but remarked that such manipulation would not be welcome in the Court and may result in orders of increased costs (see para 22).

NZEmpC 110 A Labour Inspector v Gill Pizza Limited — Employment Court of New Zealand(external link)

Court of Appeal – 90-day trial – Paying wages in lieu of notice

The employer dismissed the employee during a valid 90-day trial period. The employment agreement included a notice period clause that allowed either party to terminate the employment relationship by giving four weeks’ written notice to the other party. It stipulated that the employer may elect to pay the remaining balance of the notice period and not require the employee to work it out.

After a meeting to discuss the employee’s work performance, the employer handed the employee a letter indicating they had decided to terminate the employment relationship in accordance with the 90-day trial period provision, effective immediately (see para 7):

Your notice period, as outlined in your employment agreement, is four weeks however we have decided you will be paid in lieu of working out your notice period. Therefore, your effective last day of work is today.

The employee sought to raise a personal grievance for unjustified dismissal on the grounds that the employer paid him in lieu of work for the notice period. He considered the Employment Court had incorrectly interpreted the phrase “notice of the termination” in Section 67B of the Employment Relations Act 2000(external link) . The section stipulates:

67B Effect of trial provision under section 67A

(1) This section applies if … [an] … employer terminates an employment agreement containing a trial provision under section 67A(external link) by giving the employee notice of the termination before the end of the trial period, whether the termination takes effect before, at, or after the end of the trial period.

(2) An employee whose employment agreement is terminated in accordance with subsection (1) may not bring a personal grievance or legal proceedings in respect of the dismissal.

The employee argued that “notice” meant more than advice of dismissal. It required specification of a future date on which termination will take effect. His position was that if the employee did not work during the notice period, that would amount to a summary dismissal (see para 24).

The Court of Appeal agreed with the Employment Court that the purpose of 90-day trial periods is to enable employers to assess an employee’s suitability for permanent employment. However, s 67B does remove employee protections and must therefore be interpreted strictly (see para 26).

The Court held that they did not consider Parliament intended “notice of the termination” to have a different, more restrictive meaning than it does in general law (see para 28). If a payment is simply an alternative to the employee being required to work out their notice period, then that is a termination on notice (see para 29). The Court dismissed the appeal, deciding that s 67B(1) of the Act applied to the termination of the employee’s employment (see para 31).

Appellate judgments 2019 — Employment Court of New Zealand(external link)

September 2019

Employment Court – Judgment of the full court – Challenge – Compliance order – Statutory interpretation – Whether Labour Inspector can use improvement notice to require payment of minimum wage and holiday pay arrears – Whether Labour Inspector should use demand notice to require payment of minimum wage and holiday pay arrears – Employment Relations Act 2000 – s 223D – s 224.

A Labour Inspector had issued an improvement notice to the employer to comply with the Minimum Wage Act 1983 and the Holidays Act 2003. The improvement notice required the employer to pay three named former employees wage arrears and holiday pay arrears. It also required the employer to review the public holiday and sick leave entitlements, and termination pay for another named former employee, and to pay that former employee any entitlements due and owing. After the employer did not comply with the notice, the Labour Inspector applied to the Employment Relations Authority to grant a compliance order, which it declined to do. The Labour Inspector then challenged the Authority’s determination in the Employment Court

The issue was whether an improvement notice under s 223D of the Employment Relations Act 2000 (Act) (external link)can require payment of minimum wage and holiday pay arrears. The employer did not take part in the Employment Court proceedings, but counsel assisting the court submitted that the Labour Inspector should have used a demand notice under s 224(external link). Counsel submitted that by not using s 224, the Labour Inspector misunderstands the statutory scheme, circumvents key protections for the employer in the demand notice process, and risks making s 224 a redundant section.

The Court found that the introduction of improvement notices in the Employment Relations Amendment Act 2010(external link) was part of a more flexible approach to widen the tools available to Labour Inspectors (see para 25). The Court further found that if the enforcement mechanisms in part 11 of the Act(external link) are not viewed as a ‘range of tools’, then certain situations would require multiple enforcement mechanisms. For example, if an employer used the incorrect calculation method for holiday pay, then the Labour Inspector would need to issue an improvement notice to fix the calculation method going forward, and also issue a demand notice or initiate a wage recovery action to recover wage arrears (see para 46).

The Court granted the compliance order, applied a penalty of $7,000 for non-compliance and concluded that the various mechanisms in pt 11 of the Act are a range of tools potentially available to Labour Inspectors including when past non-compliance has resulted in money owed to employees (see paras 47, 50 and 51).

A Labour Inspector of the Ministry of Business, Innovation and Employment v IT-Guys NZ Ltd [2019] NZEmpC 115 — Employment Court of New Zealand(external link)

Employment court – 90-day trial – Words and phrases – “to the effect that” – “in accordance with” – Contractual interpretation.

The employee had succeeded in claiming a personal grievance of unjustifiable dismissal in the Employment Relations Authority (Authority) after the Authority found that the following 90-day trial provision was invalid. The Authority found that the clause did not state when the 90-day trial period was to commence and was therefore faulty.

3 Trial period

3.1 The Employee’s employment is subject to a Trial Period of 90 days in accordance with S 67A of the Employment Relations Act 2000.

3.2 The Employer may terminate the Employee’s employment during the Trial Period. If the Employer does so the Employee is not entitled to bring a personal grievance or other legal proceedings in respect of the dismissal.

3.3 One week’s notice will be given to an Employee dismissed during or at the end of the Trial Period. In respect of any dismissal occurring within the 90 day trial period the Employer will act in good faith and be open and communicative with the Employee.

The Court found that the words of s 67A of the Employment Relations Act 2000(external link) do not require specific word formulations to express that an employee is subject to a 90-day trial provision for the first 90 days of employment. The Court stated that “the inclusion of ‘to the effect that’ in s 67A(2) means a provision in an employment agreement complies with the section if the provision has the same general meaning and leads to the same result as specified in the section” (see para 13).

By including the words “in accordance with S 67A of the Employment Relations Act 2000” in the employment agreement, the trial period clause had the effect that for the first 90 days of employment, the employee was subject to a trial period (see paras 14–16). The Court further said that this is the meaning that a reasonable person with the background knowledge available to the parties at the time would have taken from the clause (see para 17).

The Court set aside the Authority’s determination.

Watts & Hughes Construction Ltd v De Buyzer [2019] NZEmpC 116 — Employment Court of New Zealand(external link)

Employment Court – Preliminary issues – Holidays Act 2003 – Statutory interpretation – Leave and holiday records – Whether employers required to keep leave and holiday records for entirety of employment – s 81(4) – s 83

The employee was employed by the employer between 28 March 2004 and 9 November 2016. The employee considered that the amount he was paid by way of holiday pay when his employment ceased was less than it ought to have been. The employer provided the employee with holiday and leave information for the period January 2010 to November 2016. Information prior to January 2010 was not provided for.

The issues were whether s 81(4) of the Holidays Act 2003(external link) requires an employer to keep and retain an employee’s holiday and leave records for the entire employment period of the employee; and where s 81(4) has not been complied with, what, if anything, are the consequences for the employer as regards s 83 of the Holidays Act 2003(external link).

The Court found that s 81(4) provides for a rolling time frame of not less than six years per entry. An employer who keeps the information required by s 81(2) in its holiday and leave record for six years from the date on which the information is entered into the holiday and leave record has complied with s 81(4) (see para 19). This finding made it unnecessary to conclude on the issue of s 83. However the Court found that where an employer fails to keep holiday and leave information for the period required, and that prevents an employee from bringing an accurate claim, then in the absence of evidence to the contrary, the Authority or Court on a challenge, may accept as proved statements that the employee has made about holiday and leave pay actually paid to the employee (see para 24).

Hatcher v Burgess Crowley [2019] NZEmpC 117 — Employment Court of New Zealand(external link)

Employment Court – Breaches of minimum standards – Penalties – Liability of husband and wife partners in a partnership – Employment Relations Act 2000, pt 9A.

A key issue in this case was how penalties should be imposed in a business partnership, where the partners were husband and wife.

The defendants operated two liquor stores as a husband-and-wife business partnership. The partnership employed six Indian nationals on temporary work visas. Over a period of six years, the partnership underpaid the employees by over $250,000 and consistently breached the Holidays Act 2003(external link). The employer concealed underpayments by giving the employees employment agreements stating wages of $16–$20 per hour, while actually paying them as little as $8 an hour.

The defendants paid all arrears in full prior to the Employment Court hearing. At issue in the Employment Court was the amount of penalties the Court should impose for the breaches of the Minimum Wage Act 1983(external link) and the Holidays Act.

Before addressing the quantum of penalties, the Court considered generally the liability of partners in a partnership. The Court found that under the Employment Relations Act 2000(external link) and the Holidays Act, the “only logical approach … for the purposes of the imposition of penalties is to regard the defendants in partnership as individuals” (see paras 16–19). The Employment Court accepted that, in circumstances where the partners were husband and wife, the Court needed to avoid effectively imposing “double penalties” (see paras 12–14).

The Court calculated each partner's fine, based on their personal culpability. The Court arrived at a fine of $180,000 for the husband (see paras 44–46) and $20,000 for the wife (see para 48). The husband’s fine reflected “his overall culpability having regard to the persistent and cynical way he treated this group of employees and the way that he endeavoured to conceal the true position”. The wife’s involvement in the breaches was “minimal”, however, “[a]s a partner in the business, she had a responsibility to endeavour to cease her husband’s continued exploitation of the employees over a lengthy period”. The Court considered that a total fine of $200,000 was consistent with previous cases” (see paras 47–48).

Labour Inspector v Parihar [2019] NZEmpC 145(external link)

Employment Court – Application for sanctions – Employment Relations Act 2000

The employee was offered the position of Farm Operations Manager with the employer. He accepted and relocated from the United Kingdom to commence the role. Within six months, the employer terminated the employment on the grounds of redundancy. The employee sought, and was granted, interim reinstatement while awaiting a hearing in the Employment Relations Authority (Authority).

When the employee returned to the workplace, he was given menial tasks to do rather than his managerial role. The employee sought a compliance order from the Authority, and the employer was ordered to reinstate the employee to his former role without limitation.

The employee was then given additional duties, but was still not returned to his senior role. The Court found that the interim reinstatement order was only partially satisfied (see para 66). It found that one of the directors of the employer company, Mr Shing, was reluctant to accept the employee back into the workplace and relinquish the managerial responsibilities he had taken over (see para 83).

The Court found the employer had deliberately failed to comply with the compliance order (see paras 107–108). The employee asked the Court to impose sanctions on the employer under s 140(6) of the Employment Relations Act 2000 (Act). The sanctions sought were:

  • a fine of $40,000;
  • penalties;
  • a term of imprisonment against Mr Shing.

The Court declined jurisdiction to impose a term of imprisonment. The employer, as a company, could not be imprisoned. Mr Shing had not been named on the compliance order and therefore could not be sanctioned personally (see para 118). The Court noted it would not have imposed imprisonment in any case as the breach was not sufficiently serious to justify it (see para 119).

The Court found that a fine of $2,500 was appropriate in the circumstances. It added that should the employer continue to be non-compliant, it may face a more serious sanction (see para 117). The Court declined to impose penalties as that would amount to a double jeopardy (see para 124).

Savage v Wai Shing Ltd [2019] NZEmpC 153 — Employment Court of New Zealand(external link)

Employment Court – Validity of 90-day trial – Notice Period – Employment Relations Act 2000

The parties entered into an employment agreement containing a 90-day trial period clause including the following wording:

"If, during the trial period, we decide to terminate your employment, we will give you notice of termination before the end of the trial period. If we decide to terminate based on the 90-day trial any notice period will not apply and termination may be immediate. "

At the relevant time, s 67B(1) of the Act(external link)stipulated:

"This section applies if an employer terminates an employment agreement containing a trial provision under section 67A by giving the employee notice of the termination before the end of the trial period, whether the termination takes effect before, at, or after the end of the trial period."

Before the trial period ended, the employer terminated the employment with immediate effect. The issue was whether immediate notice can be given under a 90-day trial period; or whether the lack of a notice period invalidated the 90-day trial and meant the employee could raise a personal grievance for unjustified dismissal.

The Court noted that legislation will be strictly interpreted when it restricts the rights of employees to access the courts (see para 35). This is particularly important due to the “inherent inequality of power in employment relationships” (see para 40). The Court proceeded on the basis that Parliament would have been aware of the general law that a reasonable notice period is implied (see paras 42-44) and also that immediate dismissal is only permissible on the grounds of serious misconduct (see para 45). In this context, the Court found that if Parliament had intended to allow immediate dismissal during a trial period it would have said so (see para 62).

The Court held that “notice of the termination” in s 67B(1) means the giving of advance notice, or a notice period (see para 57). The trial period provision in the agreement did not therefore meet the requirements of s 67B of the Act (see para 64). The Court found that the employee was unjustifiably dismissed.

The Court declined to specify an implied term of minimum notice (see para 55).

Allied Investments Ltd t/a Allied Security v Cradock [2019] NZEmpC 159 — Employment Court of New Zealand

Employment Court – Holidays Act 2003 – Transferring part of public holiday

At issue in this case was whether a provision in an employment agreement complied with s 44A of the Holidays Act 2003 (Holidays Act)(external link). Section 44A allows employers and employees, under certain circumstances, to agree to move the start time and finish time of a public holiday, to fit around shift work that starts one day and finishes the next.

For example, if employees work shifts from 10 pm to 6 am, under s 44A the employee and employer could agree to change the ANZAC Day public holiday so that it starts at 10 pm on the 24th of April and finishes at 10 pm on the 25th of April; that way, any 10 pm to 6 am shifts will not be partly on a public holiday and partly not.

In this matter, the employee was employed as a security officer. His roster included night shifts that began at 6 o’clock in the evening and ended at 6 o’clock in the morning.

The employment agreement between the parties included the following term:

Transfer of a Public Holiday Clause

The Employer and Employee agree to transfer the public holiday to accommodate the Employers operational hours. The transfer of a public holiday will occur either when the shift starts on the public holiday and transfers into the non-public holiday or when the shift starts on a non-public holiday and moves into a public holiday.


Public Holiday on a Monday: Work shift Monday 7am to 7pm and Monday 7pm to Tuesday 7am may be treated as the 24hrs of Public Holiday period. Further information on this can be found at: www.legislation.govt.nz/act/public/2008.(external link)

The employers’ public holiday transfer policy included the following paragraph:

Public Holiday Transfer

As per the Holidays Amendment Act 2008 and the transfer clause in your employment contract Public holidays will be treated as applying from the start of your shift on a public holiday until the end of a shift whether during or after a public holiday.

The issue before the Court was whether the above transfer agreement was effective for the purposes of s 44A.

The Court held that to comply with the Holidays Act, the transfer agreement must specify the relevant part of the public holiday being transferred. In this case, it was not clear whether the clause related to transferring a whole public holiday, or part (see para 35). The clause also did not address what would happen when public holidays were on consecutive days (see para 36).

The Court found that the wording of the clause was ineffective and had not resulted in a transfer of part of the public holidays worked by the employee to another day (see para 46).

Allied Investments Ltd v Flowers [2019] NZEmpC 173 — Employment Court of New Zealand

Employment Court – Application to strike out proceeding – Abuse of process – Whether challenge is moot – Non-de novo challenge – Declaration

At issue was whether a challenge proceeding can be struck out for having no practical effect on the parties.

The employee, a corrections officer, was assaulted in 2012 while working in a part of the Otago Corrections Facility called J wing. The employee successfully pursued a personal grievance for unjustified action causing him an unjustified disadvantage and claims for failing to meet an implied contractual duty and statutory duty to provide a safe workplace. The department was ordered to pay him lost remuneration and compensation for humiliation, loss of dignity and injury to feelings (see para 3). The Employment Relations Authority had concluded that the employer had not met the staffing ratios for corrections officers, and that the employee was alone when there should have been two officers available (see para 5).

The employer challenged the determination only on a discrete point about the Authority’s findings relating to staffing requirements and the Authority’s analysis regarding the employer’s departmental documents, collectively described as User Guides. The employee applied to strike out the employer’s challenge on the basis that: (see para 12)

(a) the challenge is moot because the outcome will have no practical effect on the parties before the Court; and

(b) there are no circumstances that would allow a challenge that is otherwise moot to be permitted to proceed.

The employer opposed the strike out application.

The Court struck out the proceeding on the basis that the proceeding was moot and that there were no grounds to exercise the discretion to allow it to continue and be heard (see para [40]). The Court considered that even if there were an issue of public importance, it should not put the employee a position where he is still interested in the proceeding.

Chief Executive of the Department of Corrections v JCE [2019] NZEmpC 195 — Employment Court of New Zealand

Employment Court – Premium for employment paid overseas – Minimum Wage Act 1983 – Holidays Act 2003 – Penalty – Declaration of breach – Banning order

At issue were: whether the workers were employees, the payment of minimum wage, holiday pay, whether the director of the employer company was a person involved in the breaches, declaration, penalties, banning orders, and whether a premium for employment paid overseas can be taken into consideration in the apportionment of penalties.

Newzealand Fusion International Ltd (the employer) owned a holiday park in Reporoa, and used social media to attract two individuals living in China to work at the park. The individuals were asked to sign employment agreements in China. The employer also sought and received payment of CNY 200,000 (around NZD 45,000), as bonds for employment.

Upon arrival in Auckland, the individuals were transported to the holiday park in Reporoa and began working immediately. They worked seven days a week and received no pay over several months. Both returned to China in distressed states, but neither was repaid their bonds. A Chinese journalist working in New Zealand learned of the situation and made a complaint to the Labour Inspector. During the investigation, a third individual was discovered working in a similar position.

The Court found that the three individuals were employees and did not receive minimum employment entitlements. It also found that Shenshen Guan, director of the company was a person involved in the breaches, and that the breaches were serious.  The Court made declarations of breach against the Employer and Ms Guan (see para 31).

The Court commented on Mehta v Elliot [2003] 1 ERNZ 451 (EmpC) which stated that the payment of a premium for employment overseas is outside the jurisdiction of New Zealand employment legislation (see para 85). While the Court accepted Mehta, and the Labour Inspector did not seek repayment orders, it exercised its broad equity and good conscience jurisdiction under s 189 of the Employment Relations Act 2000 to reflect the amounts paid for the bond in the apportionment of penalties (see paras 86 and 88).

The Court found breaches of the minimum entitlement provisions in the Minimum Wage Act 1983, and the minimum entitlements and payments under the Holidays Act 2003. In respect of these breaches the following orders were made (see paras 109–115):

  • declarations of breach against both the employer and Ms Guan as a person involved in the breach; and
  • pecuniary penalties in the sum of $300,000 against the employer, and $150,000 against Ms Guan, a total of $450,000, of which $100,000 will be paid to each employee, and the remaining $150,000 paid to the Crown; and
  • compensation orders against the employer consisting of $69,500, $69,000, and $91,850, to the employees, which include unpaid wages, holiday pay and compensation for non-pecuniary loss;
  • and banning orders against the employer, and Ms Guan for 18 months;
  •  and orders for interest on the compensation orders.

Labour Inspector v Newzealand Fusion International Ltd [2019] NZEmpC 181 — Employment Court of New Zealand(external link)

Employment Court – Redundancy – Notice of redundancy – Unjustifiable dismissal – Contractual interpretation – Redundancy clause – Good faith – Constructive dismissal

At issue were whether the construction of a contractual redundancy clause bound the employer to pay redundancy compensation and whether a duty of good faith is an incorporated term.

The employee had worked for the employer from February 1988 until his resignation on 25 May 2017. The two reasons for his resignation formed the basis of his employment relationship problem:

  • that the company had not complied with the employment agreement, because it had not terminated his employment for redundancy; and
  • that he was compelled to resign because of what he said was the inappropriate handling by the company of certain financial information that risked compromising his professional standing as a chartered accountant.

The employment agreement contained the following redundancy clause (see para 29).


Redundancy is where a position or employee has become superfluous to the needs of the company.

If we terminate this agreement due to redundancy, as above, then you WILL be entitled to redundancy compensation. The amount of compensation will depend on your length of service with the Company at the time of your redundancy and will be calculated as a number of weeks of your base salary as follows; 6 weeks for your first year of service, plus 2 weeks for each additional year of service (pro rated), up to a maximum of 20 years service.

However, as in the Termination paragraph above we would give you one month’s written notice of termination."

The employee claimed that his position became surplus at the beginning of October 2016 when an enterprise resource planning system known as the JD Edwards (JDE) software system went live. He was offered another job with the title “Business Performance Manager – Construction Division”. He was unhappy about the employment agreement which came with this role because it did not contain the redundancy provision which his previous employment agreement had, nor did it recognise continuous service for the purposes of long service leave. The company responded by providing two alternatives: to accept an amended version of the new employment agreement, which had a redundancy compensation clause capped at 26 weeks and a further increase in salary; or to retain his current employment agreement with no changes, since the employer considered that the new role was essentially the same and did not really require a new employment agreement.

The employee expressed disappointment about not being dismissed for redundancy and paid compensation. He eventually responded through his lawyer rejecting both choices and raising a personal grievance. His response however stated that he would continue working “without prejudice” to his rights. The employer confirmed that the employee would have ongoing employment and his job title, terms and conditions of employment would remain unchanged. The employee resigned several months later.

The issues before the Court were (see para 27):

  • Was the employee’s original position redundant so that he was entitled to receive notice of termination of his employment and compensation for redundancy as provided for in the employment agreement?
    • If so, did the employer breach the employment agreement by not giving notice terminating his employment and paying compensation?
  • Was the employee constructively dismissed because:
    • The employer did not give notice to terminate the employment agreement and pay compensation; and/or
    • Of the way the company dealt with certain financial information?
  • Was there a breach of the duty of good faith?
  • Is a duty of good faith incorporated into the employment agreement?
  • Was the employee prevented from claiming his original position was redundant, or that he was constructively dismissed by continuing to work?

The Court also dealt with the issue of remedies, a claim of wage arrears, and penalties.

The employee claimed that the employer could not decline to end his employment just because another job was suitable and available for him (see para 32). He claimed that once it was established that the position was surplus to the employer’s needs, the employer’s only option was to comply with the employment agreement, and that when the offer of a new job was declined, the company had to dismiss him for redundancy (see para 33). The employee referred to the cases of Auckland Regional Council v Sanson [1999] 2 ERNZ 597 (CA) and Wills v Goodman Fielder New Zealand Ltd [2014] NZEmpC 233. In both of these cases, the respective courts upheld claims of constructive dismissals of employees in circumstances where the employers had dragged their feet in relation to decisions about redundancy.

The employer claimed that the employee’s employment had not come to an end by reason of redundancy, and that he had decided to resign (see para 40). The employer submitted that two conditions needed to be satisfied before the employer was required to pay compensation (see para 41):

  • The employer had to terminate the employment; and
  • The termination had to be due to redundancy as defined in the agreement.

The employer claimed that differences between the old and new roles were not such that the employee’s original position could be considered to no longer exist. It additionally said that the fact that the employee applied for the new position indicated his desire to remain employed and suggested that the new job was suitable.

The Court distinguished the cases of Sanson and Wills, because in those cases, the jobs had ceased to exist, which was not the case here (see para 53). The Court found that the employee’s original position had not ceased to exist by way of redundancy at the time the employee resigned (see para 53–54).

The Court held strong reservations against the argument that the significance of the duty of good faith in the Act means that the duty becomes an incorporated term into employment agreements, giving rise to damages for breach (see para 110). It held that Parliament was not likely to have intended to create a situation where contractual damages for breach of an incorporate term of good faith would be available alongside personal grievance claims, compliance orders and penalties (see para 110).

The Court further held that even if the employer did breach the employment agreement, the employee affirmed his employment agreement by continuing to work and therefore lost the right to rely on the claimed breaches (see para 112). Sending a letter from a lawyer saying that he will continue to work without prejudice to his rights was of no effect, because the employee had to make an election under s37 of the Contract and Commercial Law Act 2017(external link) to cancel or affirm the employment agreement. By continuing to work, he affirms the employment agreement, a decision “fatal to his claim” under s38 of the Contract and Commercial Law Act 2017 (see para 113 and 115).

Apart from a claim for unpaid holiday pay, all of the employee’s claims were unsuccessful (see para 130).

Johnston v The Fletcher Construction Company Ltd [2019] NZEmpC 178(external link) — Employment Court of New Zealand

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