Suing Your Employee
The employment relationship is regulated by both contract and the Employment Relations Act. Both can be used by the employer, as well as employee, if either fails to abide by, or ends up breaking, the prescribed rules. There are a variety of actions which are available to an employer and the severity of the breach will dictate the severity of the action taken against the employee.
1. Suing for Property damage
Damage or loss to the property owned by the employer is one of the most common employee (mis)conducts.
The employer is responsible for the damage or loss of equipment that occurs in the ordinary course of employment, as there is an implied indemnity in the employment relationship. However, where the employee has intentionally damaged or negligently lost equipment, it is arguable that an employer may be able to bring a claim against the employee.
In an unreported Authority case, the employee backed into another vehicle while driving a work car, resulting in $686.25 in panel beating costs. The employer chose not to claim on insurance as there was a $2000 excess.
The issue was that the employer had not paid out ‘insurance excess,’ which the employee was liable for in terms of the Vehicle Policy. The Authority ruled that as it was the employee’s negligence that caused the accident, he could be held accountable to pay the sum of the repairs for breach of the implied term that an employee will exercise due care and diligence in his work.
2. Suing if an employee fails to perform his obligations
Employment comes with various obligations and an employee is paid by the employer to perform the tasks to the best of his ability. An employer can sue an employee who fails to perform his duty or obligations.
In Masonry Design Solutions Limited v Bettany 2009 EmpC, an employer sued for seriously poor architectural designs drawn by the employee, that had to be redone at a cost of $18 000. The court held that to successfully sue for substandard work, an employer needed to satisfy the principles of foreseeability as set out in the Court of Appeal in Attorney-General v Gilbert [2002]: The test is -
· Did the employee breach his employment agreement?
· Did the employer suffer financial loss?
· Was that loss was attributable to the breach?
· Was it reasonably foreseeable that inadequate performance of his employment agreement to the appropriate standard by the employee would result in loss to the employer?
In this case, the employer made out the legal elements of its claim for damages for breach of contract and the employee was ordered to pay $12 000.
3. Suing for breach of confidentiality /Restraint of Trade/ non-solicitation
The mutual duties of trust and confidence are implied terms of all employment agreements. More often than not there are express terms in the employment agreement to keep business information confidential and to avoid conflicts of interest and prevent unfair competition. These clauses are effective during the relationship, and often survive its termination.
A breach of one of these duties during the employment relationship will substantively justify a decision to dismiss an employee, for either a serious breach of the employment agreement or serious misconduct.
Post employment breach of these duties may be pursued in contract in the Employment Relations Authority or Employment Court. Alternatively, depending on the action, it may be pursued in tort (civil wrong) in the District and High Courts. The damages can be substantial, and employers who sue ex-employees for these types of breaches are strongly advised to seek specialist advice as these breaches may involve complex considerations with multiple parties eg, employer, ex-employee, new competitor employer -
Zeald New Zealand Ltd v Bernard 2013 NZERA - Mr Bernard had acted in breach of his restraint clause 263 times. The Authority ordered a penalty of $50,000 in acknowledgement of the harm he had caused to his previous employer
Sunair Aviation Limited v Walters 2017 NZERA - a former worker at a Tauranga aviation firm was ordered to pay more than $66,000 in damages after bidding against his employer and winning a contract with Tauranga Airport
Nova Energy Ltd v Mitchell (No.6) 2015 NZERA the Authority awarded a total of $50,000 against the new employer for aiding and abetting the breaches by the former employee.
4. Suing for not providing notice before resignation
Under s 134 of the Employment Relations Act 2000, any breach of any employment agreement will render the party in breach liable to a penalty, including a walk-out employee who leaves you in the lurch.
In most walk-out cases, the employer will be forced to hire in a contractor, or pay another employee a higher rate to cover the work. The employer may have to temporarily close their business if that employee fills a critical role and it is too late to arrange cover, losing the sales that would have otherwise been received.
An employer has two remedies in this situation -
· reimbursement for the financial loss suffered by the employer by deducting the amount from the final pay (only possible if that is provided for in the employment agreement), or
· apply to the Employment Relations Authority to impose a penalty on the ex-employee for breaching their employment agreement by not working the required notice
The second course of action is less usual, as most employers include a forfeiture of wages provision in the employment agreement. If you have forgotten this, s134 can compensate your losses. For individual employees, the penalty fine can be up to $10,000.
In GL Freeman Holdings Ltd v Diane Livingston 2015 NZEmpC, Judge Couch considered two questions when determining the amount of penalty:
How much harm has the breach occasioned? How important is it to bring home to the party in default that such behaviour is acceptable or to deter others from it?
The next question focuses on the perpetrator's culpability. Was the breach technical and inadvertent or was it flagrant and deliberate?
The employee had resigned with short notice, being two weeks instead of the contractually agreed six weeks. However, the harm to the employer was minimal – and a deterrent penalty to this employee was determined at $500. This was forfeited to the Crown, as the Judge found no harm or damage had been suffered by the employer.
CONCLUSION
The Authority has jurisdiction to hear claims by employers against employees under s 161(1)(b) and to award damages under s133. Should you require advise or assistance in ascertaining your options, please contact Bev at Straighttalk.
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