Monday, August 30th, 2010

More on the 90 day trial period

Outline –

The predicament of Heather Smith, and particularly the circumstances surrounding her dismissal by Stokes Valley Pharmacy (2009) Limited has become somewhat of a cause celebre for the opponents of the 90 day trial provisions of the Employment Relations Act.

Heather Smith claimed that her employer, Stokes Valley Pharmacy (2009) Limited  dismissed her unjustifiably. Her employer maintained that she was properly dismissed and was not obliged to give any reason because the employment agreement contained a 90 day trial period.

The Employment Court was asked for rulings on various aspects of the Trial Period provisions of the Employment Relations Act

Background

Ms Smith started working for Stokes Valley Pharmacy in March 2007. In August 2009 the business changed hands. Ms Smith had to reapply for her position.

She was interviewed by the new owners, and on 14 September she was told that she had “got the job” and that a contract would be sent in the mail.

A draft Agreement was handed to her on 29 September.  The Agreement contained a “90 day trial or probationary” period.  The Agreement also said that there would be targets and regular appraisal meetings so that Ms Smith knew where she stood.

Ms Smith started working for the new employer on the 1st October.  The Employment Agreement was signed on the 2nd October.  Some changes were made to the agreement that day before it was signed.

The employer was not wholly satisfied with her performance and on 8 December 2009, she was informed that she no longer had a job.  She asked what she had done wrong.  She was told that “she was not what they were looking for and that she was inexperienced”.

The employers, who were somewhat inexperienced and dependent on legal advice, had been given a script by their lawyers and slavishly stuck to it.  They were advised and believed that they were not required to provide any explanation or justification for the dismissal.

Did the trial period provision apply?

The Employment Court had a number of issues to resolve.  The first one was whether the employer was entitled to rely on the Trial Period provisions of the employment agreement.  If the employer was not entitled to rely on those provisions, it was accepted that Ms Smith was dismissed unjustifiably.

The Court firstly considered the rationale for the statutory provisions.  It noted that the purpose was to allow employers some room in engaging and dismissing new employees where there may be doubt as to their suitability for the position.

The Court then noted that as the sections removed employee protection provisions (access to dispute resolution and to justice), they should be strictly interpreted.

The Court decided that the trial period provision in the Agreement was not available to the employer.  The trial period is only available to employees new to a particular employer.

The Court found that at the time of signing the Agreement, the employee had already been offered and had accepted the job and had worked for one full day.  Applying the strict interpretation of the definition of “employee” in the Act the Court concluded that on the 2nd October 2009, Ms Smith was an existing employee.

Notice

The Court then considered whether Ms Smith was properly dismissed. Even if the Trial Period provisions had applied , Ms Smith could still have brought a personal grievance claim unless it could be shown that she was lawfully dismissed.

The Section requires the employer to give notice of termination within the 90 day period. The relevant Agreement required that 4 weeks notice must be given.  Here,  no written notice had been given.  The employee was orally advised of her immediate dismissal.

The Court concluded that the dismissal was unlawful because written notice was required by the Agreement and had not been given.

As an employee is only barred from bringing a claim if the employment is terminated in accordance with the Act, in this case where was no bar to the employee bringing a personal grievance claim.

Reasons for Dismissal

Next the Court considered whether the employer was obliged to inform the employee of the employer’s reasons for dismissal.

If an employer proposes to make a decision that will or is likely to have an adverse affect on the continuation of employment, the employer must give the employee access to relevant information and an opportunity to comment on that information.

Under Section 120 of the Act, a dismissed employee can request the employer to provide a statement in writing of the reasons for the dismissal.  This must be provided within 14 days of the request.

Neither of these two provisions apply where there is a lawful dismissal during a trial period. (Note – even though the Court had decided that the trial period provisions did not apply, it still considered this aspect).

Section 4 of the Employment Relations Act requires parties to deal with each other in good faith. This Section deals with a number of aspects of good faith and how it is demonstrated.

For the purposes of this exercise, the 2 relevant components of the obligation to act in good faith are

  1. Parties to an employment relationship must be active and constructive in establishing and maintaining a productive employment relationship in which the parties are, among other things, responsive and communicative and
  2. If an employer proposes to make a decision that will or is likely to have an adverse affect on the continuation of employment, the employer must give the employee access to relevant information and an opportunity to comment on that information.

Where a trial period applies, an employer is not required to provide the information nor is the employer obliged to give the employee the opportunity to comment. The question before the court was whether the obligation to be responsive and communicative did require some explanation

The Court noted that it is important for employees to know why they have failed a trial period even though they have limited ability to challenge it.  They should not be deprived of the ability to learn from an unsuccessful trial.  Basically, the Court held that there are good employment relations and human personality reasons for giving explanations for the failure of a trial period and concluded that there was an obligation to give an explanation for the dismissal .

So, although an employer does not have to notify the employee of a proposal to terminate employment nor is the employer obliged to give the employee opportunity to comment, the employee can still seek and is entitled to receive an explanation for the dismissal when notice is given.

Effect of the appraisal regime

The final issue was whether he employer’s failure to comply with the appraisal regime contemplated by the Agreement unjustifiably disadvantaged the employee.

The Agreement clearly contemplated that the employer would train her in the first instance and then assist her maintain the level of competency achieved during the training period with regular and formal assistance from the employer.

In this case there were never any formal meetings designed to address problem areas nor were there any specified competency targets. Some issues were dealt with on an ad hoc basis, but there was no formal procedures implemented.

The employer maintained that because this was a relatively small business and the owners were working pharmacists as well as managers and owners, there was no real opportunity to conduct performance assessment in a formal manner unless it was done outside work hours.

The Court wasn’t convinced by this argument.  The clause was included by the employer.  The employer was expected to comply with it.  Because of the failure to establish performance targets, Ms Smith was deprived of the opportunity to perform to an acceptable standard.

The Court noted that the agreement confused trial and probationary periods. They are treated differently by the Act.

A probationary period is one where the employee is under close and critical assessment. Permanent employment will be assured only if the employer’s standards are met.

The employer must play an active role in the probationary period, pointing out short comings, and  advising about any necessary improvement. The employer must warn of the likely consequences if its expectations are not met.

The objective is always that the trial will be a success, not a failure. Both parties must contribute to its attainment.  If it becomes apparent to the employer, judging fairly and reasonably, that the trial is not a success, the employee is entitled to fair warning before the end of the probationary period that the employment will then be coming to an end.

Lessons to be Learned

  1. Unless the Employment Court decision is overturned, any Employment Agreement signed after a new employee has commenced work may not have a trial period provision
  2. If employment is to be terminated during the trial period, appropriate notice must be given.  If the Employment Agreement says that 4 weeks notice must be given for termination then 4 weeks notice must be give for termination of the trial period.
  3.  The good faith obligation to communicate probably requires the employer to explain to the employee exactly why the employee is being dismissed.  The good faith obligation to be responsive definitely requires an employer to give a truthful explanation.
  4. Trial periods and probationary periods are not necessarily the same.  An employee has greater security during a probationary period than a trial period.  It is best not to wrap features of both in the same clause of the Employment Agreement.
  5. Employment Agreements should be living documents.  They should reflect what actually happens in the work place.  Any employment agreement should be studied carefully by an employer in order to ensure that the employer can and intends to comply.  A custom made Employment Agreement should not be plucked off the shelf unless it is appropriate in any individual case.

Comment

It may seem that the interpretation of “new employee” is plunging the depths of pedantry given that the employee was given a copy of the employment agreement before she started and it was signed on the second day.  It will certainly create some practical difficulties for employers.  They will have to be particularly careful to ensure that any initial offer of employment is conditional upon the execution of an Employment Agreement and that work will not start until the Terms of Agreement are signed.  This particular point may well be appealed.

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Sunday, July 11th, 2010

Warning, warning, warning

The cases discussed in this article show firstly that an inappropriate warning may give rise to a claim for unjustified disadvantage and secondly that warnings must not be used simply as a pretext for a planned dismissal.

An employer should have a fully worded warning procedure in the employment agreement or in the staff manual.  The procedure should recognize that the primary objective is to lift the performance of the employee in order to meet the standards reasonably prescribed by the employer.

In each of the two cases, warnings were given without any consultation with the employee and without the employee having the opportunity to comment.  The employers had predetermined the facts.

Rangiwananga v Cado Holdings Ltd CA 37/10

Ms Rangiwananga was employed by Cado Holdings Ltd and claimed that she was unjustifiably dismissed following an argument with her employer.  She also claimed that she was unjustifiably disadvantaged when she received a warning concerning her performance.

She received the warning without any prior discussion or opportunity to discuss or comment on the reasons for the warning.  The warning letter referred to customer and staff complaints and alleged that Ms Rangiwananga was rude, disrespectful and belligerent.

Ms Rangiwananga was required to attend a meeting on the 4  September to talk about the issues arising out of the warning letter.  The warning letter had been delivered the previous day .

Ms Rangiwananga asked for the meeting to be postponed so that she could get advice but her employer refused this.  The meeting proceeded and the employer reiterated the allegations.

The Employment Relations Authority was critical of the employer.  Specifically:

  1.  The employer had saved everything up rather than raise issues of concern with Ms Rangiwananga when and as they arose.
  2.  Ms Rangiwananga should have been given the opportunity to get advice or representation.
  3.  Ms Rangiwananga should have been given the opportunity to comment on the individual matters of concern and her responses taken into account.  Instead, the employer had already determined culpability.

Ms Rangiwananga was unjustifiably disadvantaged because security of her employment had been undermined and her work environment was less satisfactory as a result.

About a month later, the employer raised another complaint.  The manner in which the employer dealt with this left Ms Rangiwananga visibly upset and she left home for the day.

Her employer was abusive and told her that by leaving she was abandoning her employment.

Her doctor certified her to be unfit for work.  The medical certificate was faxed through to the employer.  Despite the medical certificate, the employer delivered a notice of termination recording that Ms Rangiwananga had abandoned her employment and was instantly dismissed.

The Employment Relations Authority had little difficulty finding that the employer had no justification for the dismissal and was fully aware of the reasons for Ms Rangiwananga’s absence.

The employer was ordered to pay:

1                         $3000 for the manner in which the initial warning letter was dealt with;

2                         $12,500 as compensation for the manner in which she was dismissed and

3                         loss of earnings of $7,020.

Shan Mohammed Ali v AAA Parts & Auto Services Ltd AA 103/07

In the second case, Shan Mohammed Ali took action against his employer, AAA Parts & Auto Services Ltd following his dismissal for poor performance.  The employer maintained that he had properly delivered three warnings for poor performance — alleging poor quality of work, time wasting and unsatisfactory dealings with customers.

The first warning was verbal and was given in April 2006.  Written warnings were given in July and October 2006.

The employer said that during the April discussion, he talked about a lot of general issues with the Ali.  He said that he complained about “too much mucking around” and that he told the employee “to behave himself and work properly”.

The second letter was delivered three months later and complained about the time it took for the employee to get things done.  The letter said that the employee had one last chance after which he would be dismissed.  There was no meeting between the time of the verbal warning and the delivery of the first letter.

A final letter was delivered in October.  It recorded that the applicant’s performance and attitude had not changed.

Although it seems there may have been grounds for concern about the employee’s performance, the  Employment Relations Authority found that the employer went about it the wrong way. The Authority firstly considered the proper way for dealing with poor performance issues.  The long-standing approach is as follows:

  1.  A fair and reasonable employer will put the perceived performance problems directly to the employee;
  2. The parties are to discuss the problems and with any assistance needed by the employee in order to achieve targets or outcomes.
  3.  The employee must be given an opportunity to improve.  Progress is to be reviewed.  The employee should be given an opportunity to explain why the particular outcomes are not achieved.  Only if there is inadequate explanation, may the employee be dismissed.
  4. The employer must give specific information about the shortcomings and achievable targets to overcome them .
  5. During discussions, the employee must have the opportunity to be accompanied by a support person or representative.

The authority also explained the law on warnings.

  1.  A warning must give the employee an opportunity to improve.
  2.  A warning cannot be used to create a pretext for dismissal.
  3.  The purpose of the warning is to avoid a dismissal if possible by describing the shortcomings, give a clear information on what improvement is necessary and how improvement is to be measured.

AAA Parts & Auto Services Ltd made no effort to discuss shortcomings nor did it make any effort to bring about improvement.  The warnings were simply dressings down.

Compensation of $4000 was awarded for the distress.  Compensation of $14,731.20 was awarded for loss of income.

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Sunday, July 11th, 2010

Redundancy

An employer can lawfully terminate employment on the grounds of redundancy.  It is essential, however, that the employer goes about it in the correct manner.  Girl Guides Association of New Zealand Inc recently found out the hard way.[1]

Pamela Galbraith was the Youth Services Manager from 1996 until 2007.  She was then appointed Program Manager.  In May 2009, she was dismissed for redundancy.

Ms Galbraith returned from annual leave on the 4th May.  That same day she was presented with a letter advising that a restructure was underway and the position might be affected.

She attended a meeting on 11 May following which she was advised that if the restructuring proposal proceeded, her position would be disestablished.

There was a further meeting on 15 May.  She made representations to Girl Guides.  The meeting was briefly adjourned.  When the meeting was reconvened, she was advised that her position had been disestablished and her work would be terminated immediately.

The Employment Relations Authority looked firstly at the process and secondly whether the redundancy was genuine.  It made the following criticisms:

1                         Girl Guides failed to provide proper and sufficient information about the proposal to restructure to enable Ms Galbraith to involve herself in consultation.

2                         The letter to Ms Galbraith recorded that the Society wanted to deliver membership services in the most efficient and effective way possible.  The letter stated that the role of Program Manager might be disestablished and work contacted out.  Other work would be absorbed within the remaining organisation.  The letter did not say that the impetus for change was a serious financial position (which was the primary reason for the restructure) nor did it put the proposed disestablishment into context with the wider structure of the whole organisation.  It was put to her in very simplistic terms namely, disestablish and contract out or not.  It was very hard for an employee to respond adequately to such a proposal.

3                         Girl Guides should have explained the business rationale for the proposal and provide sufficient information to enable input.

4                         There was no information on how the disestablishment of the role would reduce expenditure.

5                         There was no evidence of any objective selection process or criteria for determining who was made redundant.

6                         Because of lack of information, it was impossible to judge the effect of the disestablishment of the position and how that would positively influence the organisation in future.

7                         Effectively, the lack of information was so fatally flawed as to prevent Ms Galbraith from making any viable observations as to an alternative strategy.

8                         The applicant was awarded $17,500compensation for loss of wages and $16,000 as compensation for the distress, humiliation etc

Conclusions.

An employer considering restructuring which may lead to redundancy must consult in good faith.  This requires providing information about the employer’s objectives, how the employer wishes to achieve those objectives and criteria for selecting any particular course of action that may impact on an employee.

An employee is entitled to have adequate time to consider the information and an opportunity to make comment.

Failure to follow the appropriate procedure will make it very difficult for an employer to show that the redundancy is genuine.

[1] Pamela Galbraith v Girl Guides Association of New Zealand Inc C. A. 139/10

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Sunday, July 11th, 2010

90 day trial period

The 90 day trial period

The purpose of the 90 day trial period is to enable employers to take on staff without the risk of a personal grievance claim if things do not work out.

A recent Employment Relations Authority case suggests that employers must still take some care when deciding to terminate employment.

The case also illustrates the appropriate procedure if an employer wishes to terminate a probationary employee.

Nicole Schneider took action against her employer BBX Distribution PTY Limited claiming unjustified dismissal.  The case itself was not about the 90 day rule.  Nicole Schneider’s employment agreement contained a three month probationary period which enabled termination on giving one day’s notice.  The Authority, however, did make the following observation about the trial period:

The 90 day trial period does not exempt an employer from the duty of providing the opportunity for an employee to be heard when dismissal is contemplated”

Time will tell whether claims can be brought for dismissal under the 90 day rule.  Although an employee may not bring a claim for unjustified dismissal, there are still ways of going about it and an employer, doing so inappropriately, may well be challenged.

The Schneider case, in the meantime, illustrates exactly how not to go about things.

1             Nicole Schneider received no training, feedback or support during the time of her employment.

2           She was given a performance review sheet to complete and return, which she did.  There was no feedback.

3           On the same day that she completed the review sheet, she was advised that the company’s New Zealand manager would telephone from Auckland.  The manager advised her that her employment was terminated.  No reason was given.

4          Immediately after the telephone call, Nicole Schneider was given a written dismissal letter personally signed by the company’s managing director who, at that moment, was in Australia and had clearly signed the document some time previously.

5          There was no opportunity to state her case.  The managing director had clearly decided in advance that she would be dismissed.

6           The review process had been a farce.  The employee conducting the review had already been instructed to give a negative report.  It was all contrived and regarded by the authority as “shameful”.

Nicole Schneider was awarded $7,200 being 13 weeks remuneration and $9,000 by way of compensation for the distress and humiliation.

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Sunday, July 11th, 2010

Misconduct outside the work place

It is now well established that an employee can be disciplined, even dismissed, for misconduct which takes place outside of work hours and the workplace . However, disciplinary action can only be justified if there is some connection between the misconduct and employment.

This “connection” can be illustrated by reference to a number of cases.

It is noteworthy that in each of these cases, the employee was aware of the need to maintain an appropriate standard of conduct.

If your business is in any way sensitive to public opinion and your business interests may be hurt as a result of employee misconduct , it is important to ensure that the employee is knows that certain standards must be met.

Other misconduct may destroy the trust and confidence that an employer has in an employee .

There are a number of ways of ensuring that an employee is aware of the potential impact is non-employment activity.  The staff manual may specify a code of conduct. Equally, the employment agreements may list, as serious misconduct, any conduct that brings the reputation of the employer into disrepute.

In Whitney v New Zealand Post Ltd AA 308 A/09, the applicant was employed as a postie.  She was required to sort and deliver mail containing the usual variety of items such as cash, credit cards, gift vouchers, drivers licences and other items of tangible value as well as general mail .

She had been dismissed from her previous position because she had admitted theft from her previous employer.  The police did not however bring charges for quite some time, by which time Whitney had secured the position at New Zealand Post.  She was convicted of theft.

This was not her first problem with the legal system. Some 10 years earlier she had worked for New Zealand Post.  She had been dismissed because she had been charged with receiving wages from NZ post while, at the same time, receiving a domestic purposes benefit. She was therefore aware of the implications of inappropriate behaviour.

NZ Post concluded that it no longer had trust and confidence in her and dismissed her.

When dealing with her claim for unjustified dismissal Employment Relations Authority accepted that she held a position where a high level of trust, honesty and integrity was required.  Although there were no difficulties with the manner in which she performed her duties, the authority found that her dismissal was justified.

Compare this case with Kasey Pou v Alliance Group Limited CA 96/08 where a Quality Assurance Officer employed at meat works had been convicted of theft and receiving outside of her employment.

The incidents in fact occurred before she was employed by Alliance.  When she was interviewed, she was not asked to disclose any convictions.

She was held to be unjustifiably dismissed because the dishonesty offence did not affect her ability to perform the role for which she was employed.

On the other hand, in Murray v A-G (2002) 1ERNZ 184, Mr & Mrs Murray , both employees of the IRD, were convicted of benefit fraud. They were customer service officers at the IRD.  Their dismissals were upheld.

In another case, Dryden v The Radio Network of New Zealand Limited AA 9/09, a radio breakfast host was dismissed as a result of ill mannered behaviour at a public meeting and direct disobedience of his employer’s instructions.

The radio station maintained that his behaviour was unprofessional and inappropriate and brought the radio station into disrepute.

Although he was not representing the station at the meeting, he was wearing a jacket with the radio station’s logo.  He was also a public figure who lived in a small community and was strongly associated with the radio station.

The employment relations authority was satisfied that his conduct was injurious to the interests of his employer in the sense that it had the potential to impact on the employer’s business.

Conclusions

Misconduct outside working hours may justify disciplinary action, even dismissal.

Care must be taken because an employer has the burden of showing that the disciplinary action was justified — particularly in the case of a dismissal.

Although the cases referred to involved misconduct preceding employment, the general requirement is that the misconduct must occur following employment.  Those cases where misconduct occurred before employment were successfully defended by the employers by persuading the Employment Court to invoke jurisdiction in equity and conscience.

Any disciplinary action should be carefully supervised or at least reviewed — preferably by an independent consultant.

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Saturday, October 10th, 2009

Building disputes — claims against local authorities.

Although Central Otago has been somewhat lucky in that there have been very few leaky homes cases, there are lessons to be learned from these cases.

In many instances, homeowners have taken action against local authorities, architects, engineers, builders, project managers, suppliers and personnel working on the job.  Sometimes, all of these people are involved in the same proceedings.

Plaintiffs adopt a scattergun approach in the hope that some shops at least will hit a target.

Sometimes, I suspect, proceedings are issued on tenuous grounds in the hope that a party will compromise rather than go through the time and expense of litigation.

Sometimes, and to be fair more often than not, plaintiffs are driven to look wherever they can for remedies because everybody ducks for cover and disavows responsibility — or the means to satisfy any liability.

I propose posting a series of articles about potential liability of building companies, directors, employer’s and other people associated with the construction of a building.

It will become quite apparent that the Courts will not hesitate to impose liability on people responsible for any defects where those defects lead to property damage or danger to life or limb.

The courts will go behind the corporate structures of development companies or builders trading as an incorporated company and focus on who may be responsible.

Builders and those involved in the industry should be aware of the extent to which aggrieved leaky homeowners have been forced to pursue whatever remedies are available against whosoever may be solvent.  The legal principles apply to defective building work causing property damage or danger — not just to leaky homes.

There is another clear message.  Litigation is an extremely expensive way of resolving building disputes.  If there are problems, address them early.  Get the parties together and try to solve the problem.

Call in a mediator if there are communication problems.  There are few cases where a builder or homeowner can safely say that they are on to a sure thing by taking the matter to court.

My focus on this article is on the position of the territorial authority.  This is an opportune time to do that for two reasons.

Firstly, there have been a number of cases recently where the liability of a territorial authority in negligence has been addressed.  The most recent involved QLDC and Charterhall Trustees Ltd, trading as Blanket Bay Lodge near Glenorchy.

The second reason is that some builders seem to be under the misapprehension that the territorial authority is under some obligation to the builder to monitor the builder’s performance and point out any deficiencies.  The suggestion is that the territorial authority is, ultimately, responsible for quality control.

If any builders are under that impression, particularly in the case of commercial buildings, they are in for a very rude awakening as the series of articles will disclose.

Blanket Bay Lodge was damaged by fire in 2003.  Its owner sued the council and the architect.  It claimed that the design of the tower which encased the exhaust flues from the fire was defective.

The company sued the architect claiming that the architect was negligent in preparing the detailed drawings.  It sued the council because the council issued a building consent without first considering the detailed drawings with care, skill and due regard to the requirements of the code.

The company also alleged that the council should have recognised the inherent fire risk, failed to conduct adequate inspections and improperly issued a code compliance certificate.

The council tried to get the High Court to strike out the claim against it but was unsuccessful.  The council appealed to the Court of Appeal.  The Court of Appeal found that there was no prospect of the claim succeeding and dismissed the claim.

Of particular significance is the Court’s consideration of the circumstances in which it will hold a local authority liable in the case of defective building work.

In New Zealand, there is a long line of cases involving actions against local authorities seeking to recover the costs of repairing defective construction work.  The early cases involved deficient foundations.  Later cases have involved leaky homes.

NZ Courts have held local authorities accountable to homeowners as a matter of policy.  The policy is based on the Court’s perception of six distinctive features of housing in the New Zealand.  They are:

  1. The high proportion of occupier-owned housing
  2. A high proportion of housing construction undertaken by small-scale cottage-builders for individual purchasers
  3. The nature and extent of government financial support for private house building and home ownership
  4. The surge in house building in the 1950s and 1960s
  5. The high level of central and local government support for private home building (building standards, bylaws etc)
  6. The fact that it was not common practice for new house-buyers to commission building surveys or seek other expert assistance.  Rather, local authorities were expected to provide a degree of expert oversight.

There have been a number of attempts to have council’s responsibilities extended to commercial properties.  However, the Courts have declined to do so.

A recent case against Hastings District Council involving a leaky motel was unsuccessful.

In another case, Mt Albert Grammar School unsuccessfully sued the Auckland City Council for damages resulting from the construction of school buildings which has suffered leaky home syndrome.

In each case, the Court refused to extend the duty of care owed by a territorial authority beyond the scope of an existing homeowner.

Charterhall was equally unsuccessful.

There is a strong policy reason for not extending the circumstances in which a territorial authority will be liable in negligence.  A commercial entity is capable of protecting its own interests.  It is not reliant on the territorial authority.  In this case, Charterhall retained two firms of architects as well as various other specialist advisers including fire protection engineers.

Although there was some attempt to argue that health and safety were involved, the Court of Appeal noted that Charterhall was not suing as a property occupier whose health and safety was at risk but as a commercial property owner suffering economic loss.

The New Zealand legal system does not see local authorities as carrying the ultimate burden for non-compliance  with appropriate building standards.  Local authorities can be liable to homeowners but only because the courts have recognised special policy considerations prompting liability.  Even so, the focus will be on the people primarily responsible for the defective workmanship.

In the next article, I will address the issue of personal liability of builders even though they are trading as incorporated companies.

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Saturday, October 10th, 2009

Have I got enough to fire him yet?

I doubt whether many employment advocates have not been asked that question from time to time.

In my experience, once the factual circumstances have been properly analysed and assessed, the answer will be” “no”. This is primarily because few employers really understand the need for a fair and thorough investigation, whether the issue is one of non-performance or misconduct.

So often there is some festering discontent about non-performance where the employee is unaware of the requisite standard or a sense of outrage over a particular event where judgement is made on an initial hypothesis (usually involving assumptions of wrongdoing) and facts are selected to fit that hypothesis.

This article emphasises the need for a thorough and fair investigation process.  A recent Employment Court case clearly illustrates the consequences of failing to meet the standard.

Allan v Transpacific Industries Group Limited[1]

Mr Allan was employed by Transpacific Industries Group Limited as a driver.  He was on the night shift.  His job involved collecting medical waste for disposal from various hospitals.

Employees used a card to clock in and clock out.  The company did not monitor hours worked.

On 24 January, 2007, Mr Allan clocked in at 9:30 PM but a supervisor reported that he appeared not to have arrived for work until at least 11 PM.

On 25 January, 2007, Mr Allan clocked in at approximately 9:30 PM.  He was not, however, present and his truck had not left the plant.  Attempts were made to contact him unsuccessfully.  Eventually he made contact at approximately 10:40 PM and arrived back at work at 10:45 PM.

The company convened an investigation hearing shortly after the end of his shift.  He was suspended and another meeting convened.  That meeting appears to have been relatively brief.  Mr Allan gave an explanation for his absence.  The Company did not believe him and summarily dismissed him for falsifying company records (his time sheets)

The company concluded that there was a high probability of collusion — somebody else was clocking him in.

Mr Allan was unsuccessful before the Employment Relations Authority but was successful in the Employment Court.

Lessons to be learned

The Employment Court decision  highlights the approach that will be taken by the Employment Relations Authority when considering the decision of the employer.

The Employment Relations Authority will not review all of the evidence and make a decision on the merits of the case.  Its function is to look at the substance and procedures leading to the decision made by the employer.  Having done that, the Employment Relations Authority must apply an objective standard to that decision and decide what a fair and reasonable employer would have done and how the employer would have done it, in all the circumstances at the time.

You may well ask whether there is a difference between the two approaches . The critical difference is that except to a limited extent, the Employment Relations Authority cannot take into account evidence which second guesses the employer’s decision (either by reinforcement or condemnation).  The Employment Relations Authority can only look at the evidence that the employer relied on at the time.

The exceptions are:

  1. The Employment Relations Authority will consider evidence that the employer ought reasonably to have known but did not (for example, as a result of an inadequate investigation) and
  2. The Employment Relations Authority may take into account previously unknown evidence when deciding on remedies.

An  employer cannot look at the personal grievance process as an opportunity to have a second bite at the cherry.  A bad process is likely to lead to a bad decision.  An employer takes a considerable risk by ignoring process.

The Employment Court has previously indicated that where an employer has failed to carry out a fair and full investigation, it will usually not be possible for the employer to show that the decision to dismiss was one of that a  fair and reasonable employer would have taken.  That is simply because a fair and reasonable employer would not make a decision to dismiss except as a result of a full and fair investigation.

In the Allan case, the Employment Court made the following findings:

  1. The employer did not comply with the procedure contained in the employment agreement.  That agreement contained a process of investigation.  The employment agreement is the first port of call.  Failure to comply with the provisions of employment agreement as to process may even result in the imposition of penalties.
  2. At the first investigation meeting, the employer mentioned only one of the alleged incidents.  The employer asked for an explanation of the events of 25 January.  It did not mention the events of 24 January.  An employer must advise the employee of all matters of concern so that the employee has the opportunity to comment.
  3. The employer conducted the first investigation meeting very shortly after a 12 hour shift.  This was inadequate notice.  The inadequacy was compounded by the fact that not all allegations were put to the employee.
  4. The employer did not believe the employee’s explanations but made no comment to the employee.  The employer should have advised the employee that it had difficulty accepting the explanations and why.  The employee must be given the opportunity of clearing up any doubt if possible.
  5. The employer had failed to interview other staff members who could have given evidence that would have assisted the employer’s decision.
  6. The employer had made various assumptions about the behaviour of the employee.  All assumptions were consistent with the hypothesis that employees were involved in some form of rort which involved clocking up hours that were not worked.  Evidence inconsistent with those assumptions were either ignored or not sought out.  An employer must test all assumptions in order to ensure that they are based on sound fact.
  7. The focus is on what the employer honestly believed from the information that it knew or ought reasonably to have known had it conducted a fair and reasonable enquiry.
  8. The Employment Court did make some findings against Mr Allan.  For example, on one of the  days in question, Mr Allan had forgotten his keys.  He returned home.  He did not clock out when returning home.  He had expected his employer to meet the cost of his mistake.  When returning home he was not working for his employer.  He was paying the price of  having forgotten to bring the keys.  Although he had a reasonable explanation for his absence, he did not have a reasonable explanation for not recording, properly, his absence from work for personal reasons.
  9. On the second occasion, he said that he was having a meal break.  He acknowledged that his meal break was excessive.
  10. These criticisms were relevant in reducing the compensation payable to him.  They were not relevant to the issue of justification of his dismissal.  He was dismissed for falsifying his time records by having somebody else clocking in for him.  He was not dismissed for having an excessive meal break or charging his employer for the time he spent collecting keys left by mistake.

Despite the criticisms, Mr Allan received compensation for loss of wages in the summer $17,000 and compensation for non-economic losses (embarrassment, humiliation etc) amounting to $20,000.

Conclusion

It is possible that employees were involved in a rort.  The employer made that assumption.  However, it did not carry out a proper investigation.  It did not test its assumptions.  It did not satisfy itself on the balance of probabilities that allegations against the employee were correct.  It did not have regard to the gravity of the allegation and the need for the proof to be as convincing as the charge was grave.

These failings were fatal and extremely expensive.

[1] Employment Court ARC 30/08

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Saturday, October 10th, 2009

Employment –Make the agreement fit the facts

Employers who prepare employment agreements frequently make the mistake of using a document that bears little resemblance to the reality of the workplace.

Fixed term agreements are used inappropriately.  Employees are referred to as independent contractors and not employees.  Permanent employees are incorrectly referred to as casual employees. In many cases, employers will use a precedent on the assumption that if it works for somebody else, it will work for them.  This can be dangerous.

When it comes to the crunch, the Employment Relations Authority will look at the reality of the situation — not just the document that purports to describe it.

Such a situation recently occurred in the case of Jinkinson v Oceana Gold (Employment Court, Christchurch, CC9/09, 13 August, 2009, Judge Couch.

An employee, described in the employment agreement as a casual employee, was dismissed on the ground of redundancy.  She brought a personal grievance claim — maintaining that she was unjustifiably dismissed and that, in reality, she was a permanent employee.

She argued that the redundancy was not genuine and that she was unfairly selected.

This is what the employment agreement said about her employment:

You are employed on a casual basis to support our permanent workforce at peak times, to provide cover when required, or to undertake work that is only required irregularly. You are employed hour by hour to work as and when required. There is no guarantee any hours of work will be offered to you, unless an offer of a specific engagement for hours within a particular period of days has been given by us in writing. These terms of employment apply to each hour’s engagement.

And this is what the employment Court found:

  1. There was a regular pattern of work — averaging 45 hours per week.
  2. Bonuses were paid.
  3. Her performance was reviewed annually.
  4. As a result of a performance review, she was promoted.
  5. She was required to apply for annual leave.
  6. She was provided with alternative work when normal work was unavailable.
  7. She received notice and compensation when made redundant.
  8. She worked to a roster.  This was enough, in itself, to establish her as a permanent employee.

The very fact that an employer is considering redundancy in the context of a casual employee should , of itself, set the alarm bells ringing.  A casual employment relationship exists only during periods of work or engagement.  In between times, there is no relationship and neither party has any expectation of the other.  Periods of engagement are usually brief.

As is always the case, there is a dividing line which is often difficult to identify.  The following factors are taken into account:

  1. The number of hours worked each week.
  2. Whether work is allocated in advance by a roster.
  3. Whether there is a regular pattern of work.
  4. Whether there is a mutual expectation of continuity of employment.
  5. Whether the employer requires notice before an employee is absent or on leave.
  6. Whether the employee works to consistent starting and finishing times.

The Employment Court found that the employment agreement was fundamentally inconsistent with the reality of her employment and that she was a permanent employee.  The case has been adjourned for a further statement of claim and an enquiry as to whether she was unfairly singled out for redundancy.

Lessons to be learned:

  1. Ensure that your employment agreement accurately reflects the reality of the workplace situation.
  2. There are clear dangers in adopting a “one suit fits all” form of agreement .  Each agreement must be tailor-made or, at least, vetted to make sure that it is appropriate to each individual situation.
  3. If necessary, get professional advice on the appropriate terminology.
  4. Review the agreement from time to time in order to ensure that it still applies.  An employment relationship that genuinely starts off as a casual relationship may well evolve into a permanent relationship.  If that happens, a new agreement should be negotiated.

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Friday, July 3rd, 2009

Property Pitfalls

Introduction.

Over the last 25 years, Wanaka has expanded extensively.  At one stage, it was one of the fastest-growing towns in Australasia.  Maybe it still is.  This  has meant  a huge demand for residential property and this in turn has put pressure on zoning, infrastructure and development.

Sections within subdivisions have sold out even before they came on title and in some instances, even before resource consent was granted — meaning that much greater care became necessary.

At Wanaka law, we have acted for subdividers and purchasers.  We are familiar with almost all major subdivisions — having either prepared or reviewed the memorials registered against the various titles.

Our experience tells us that there are very few simple conveyancing transactions and, in most cases, particular care and expertise is necessary in order to ensure the protection of our clients.

This is the first in a number of articles relating to conveyancing in the Southern Lakes area.  We deal with title problems and the need for expert assistance

Title

We often hear people say that conveyancing is simple, just a matter of filling in forms. Form filling may get your name on the title, but you may end up wishing that it wasn’t, and that your purchase money was still in your bank account, not someone else’s.

When you are spending hundreds of thousands of dollars, you want to be sure the property you buy is free of any problems and that title restrictions do not inhibit your use of the land.

A title search is essential when buying property. Over the years we have built up a sound knowledge of property in the Wanaka area. It is rare to find property that is not subject to covenants or easements, or both. Some of these covenants and easement can be the source of a lot of problems.

We have acted for many people who have purchased property only to find out that there have been problems. We have experienced :

  1. A covenant on the title that restricted building to one house per lot created by the subdivision. The land was further subdivided. Because of the covenant, only one section could be built on.
  2. Rural land that had been subdivided, but easements had not been put in place to ensure that every lot had access to water.
  3. Unformed legal roads were stopped and amalgamated with adjoining titles without ensuring that easements were created for the services that ran through that land.
  4. Easements running down one side of a property boundary magically jumping the fence
  5. Water tanks that were restricted, by easement instrument, to serving three lots and which ended up serving water to 5 or more lots following subdivision
  6. A property operated as a bed and breakfast had a covenant prohibiting commercial use
  7. Unit title developments with unenforceable rules.
  8. Houses built in breach of height restrictions
  9. A house built on the wrong title.
  10. Rights of way where one owner has to pay to fix damage caused by another owner because of deficiencies in the easement document.
  11. An expensive subdivision where the subdivider and that the Council certified that all appropriate infrastructural services were in place only to find that there was no electricity.

These are only some of the issues with which we have had to deal or of which we have become aware.  They are not problems which typify the district.  Most of them have been fixed but there are still many traps for the unwary.

Before buying property, we recommend you talk to us. We can recommend clauses for your purchase contract that will ensure that you are not bound to purchase property which you will regret owning. The chances are that we have personal knowledge of the subdivision and the reasons for the various covenants.

We can also make sure that you are aware how these restrictions may affect you.

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Friday, July 3rd, 2009

Trusts and Creditors

Trusts — getting it right from the start.

There is nothing like a good recession to test the strength of an estate plan, particularly where assets are transferred to a family trust to put them out of harm’s way.

A recent Supreme Court Decision and an amendment to the law relating to prejudicial dispositions put the spotlight on the integrity of asset transfers which may have the effect of defeating creditors.

If you intend to set up a trust or if you have been asked to be a trustee, read this first.

A practical example.

The Supreme Court decision is Regal Castings Ltd v Lightbody SC 72/2007.

Mr. Lightbody was a jeweller. He was a director of a company which carried on the business.  Most of his supplies came from Regal Castings to which his company owed a considerable amount of money.

Mr. Lightbody had guaranteed that debt.

Mr. and Mrs Lightbody set up a family trust to which they transferred their jointly owned home.  The trust signed an acknowledgement of debt and Mr. and Mrs Lightbody released that debt by gifting.

At the time of the transfer, Regal Castings and Mr. Lightbody had agreed that Mr. Lightbody’s company would repay the debt to Regal Castings by monthly instalments.

Mr. Lightbody’s company made substantial inroads into the debt.  However, he was subsequently declared bankrupt with a balance still payable to Regal Castings.

Regal Castings then tried to recover the remaining debt from the family trust on the basis that Mr. Lightbody had transferred his share in the home to the trust with the intention of defrauding creditors and in particular Regal Castings.

Intention to defraud

The old legislation allowed the Court to set aside transactions undertaken “with intent to defraud creditors”.  Mr. Lightbody said he had no intention of defrauding anybody.

Regal Castings was unaware of the transfer of the home to the trust at the time that it occurred.

The Supreme Court said that it was not necessary to go so far as to prove an intention to cause loss to a creditor nor was it necessary to show that the debtor acted dishonestly.

The Court took the view that Mr. Lightbody must have known that by disposing of the property, he would hinder, delay or defeat a Regal Castings’ recourse to Mr. Lightbody’s share of the home and, as a result, there was a significantly enhanced risk of Regal Castings not recovering the amount owing.  Once this knowledge was imputed to Mr. Lightbody, the Court concluded that he must have intended that consequence. This was enough to satisfy the test of “intention to defraud”.

No need to prove insolvency

It was not necessary to show that the debtor was insolvent at the time of the transfer.  It was enough to show that even though a debtor may be able to pay debts when and as they fall due at the time, there was a high level of probability that this situation would not continue.

Mr. Lightbody’s company had agreed to make monthly instalments and, indeed, made those instalments for quite some time.  However, its financial position was precarious and it was relying on the goodwill of Regal Castings to provide working capital.

In the circumstances, the Supreme Court appeared to have little difficulty in finding for Regal Castings and directing the trustee to transfer one half share of the property to the official assignee.

Property Law Act 2007.

The new legislation clarifies the law.

Firstly, it does away with the term “intent to defraud”. Most people establishing a family trust in order to protect their assets do not see themselves as fraudulent.  They see the protection of, for example, the family home as a sensible precaution.

Mr. Lightbody, for example, did not think he was defrauding Regal Castings when he transferred his house to the trust.  He was probably quite confident that he could continue trading and pay off the debt over a period of time.

Had the new legislation been in place at the time he established his trust, his advisers may well have investigated circumstances more thoroughly.

Section 344 succinctly sets out the purpose of the new legislation.  That purpose is to:

enable a Court to order that property acquired or received under or through certain prejudicial dispositions made by a debtor (or its value) being restored for the benefit of creditors…”

A disposition prejudices a creditor if it hinders delays or defeats the creditor’s right of recourse against property belonging to the debtor.

A matter of timing.

The timing of any estate plan is critical.  The new provisions apply where a prejudicial distribution is made where:

  • a debtor is insolvent at the time of the disposition or becomes insolvent as a result of the disposition or
  • the debtor is engaged or is about to engage in a business or transaction for which the remaining assets of the debtor are unreasonably small having regard to the nature of the business or the transaction or
  • the debtor intends to incur or believes or reasonably should believe that the debtor will incur debts beyond the debtor’s ability to pay.

There cannot be much room to argue over dispositions which occur when a debtor is insolvent or which will render a debtor insolvent.

Nor can there be much room to argue about dispositions that take place at the same time that a debtor is about to incur liabilities beyond the debtor’s means to pay.  It is probable that both of those instances would have been caught by the old legislation.

The second limb — transactions where a debtor is about to engage in a business or a transaction for which the remaining assets are unreasonably small — involves careful consideration.

Many trusts are established at the same time that a Settlor commences business.  In order to avoid problems in the future, it would be very helpful if a Settlor could produce a cash flow, independently reviewed, establishing that the Settlor is unlikely to need recourse to other assets in the foreseeable future.

What can the Court do?

If a disposition is caught by the section the Court can:

  • vest the property in the official assignee in the case of a bankrupt;
  • vest the property in the debtor if the debtor is a company in liquidation;
  • vest the property in a trustee for creditors;
  • vest the property in the debtor so that a creditor can have recourse to that property;
  • order that the person who received the property pay compensation.

Who should take notice?

Obviously, anybody establishing a trust should do so before there are any clouds of financial uncertainty or risk on the horizon.

When establishing a trust, make sure that you have a statement of assets and liabilities and, if you are about to embark on any business venture, prepare a cash flow, identify any areas of risk and identify any assumptions such as market demand.  Build in a contingency allowance.

If you are a trustee, you may be liable to transfer property received from a Settlor or pay compensation.

The Court may decline to make an order against a trustee or any other person who receives property if that person acted in good faith and without knowledge that the disposition was caught by the Act.  This is not an absolute defence.

The Court can still make an order if a trustee acted innocently.  Trustees, particularly independent trustees, must therefore make a proper enquiry before receiving assets.

Creditors, faced with a plea of poverty from debtors, should not overlook the possibility that dispositions to a trust can be set aside.

Advisers — lawyers, accountants etc — should advise clients of the practical implications of the section before making any transfers to a trust.

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