Can individuals be held liable for unjustified dismissal?

Earlier this year, we published an article outlining how individuals can be held personally liable for breaching employment standards.

Under the Employment Relations Act 2000 (Act), employment standards are a set list of obligations concerning the likes of minimum wage, holiday pay and sick leave. However, employment standards do not include a number of broader employment law obligations, such as ensuring employees are not subject to unjustifiable dismissal.

So, this begs the question, can individuals also be held personally liable for unjustified dismissal?

What does the law say?

Section 134(2) of the Act states that every person who incites, instigates, aids, or abets a breach of an employment agreement is liable to a penalty imposed by the Employment Relations Authority (Authority) of up to $10,000.

Why does this matter?

The Employment Court has confirmed that a breach of an employment agreement includes a breach of any document incorporated by reference into the agreement.[1] This includes the likes of company policies, handbooks and house rules.

Many employers’ employment agreements and policies prescribe the steps they will take when dealing with misconduct, redundancy, medical incapacity, etc. As such, if an individual incites, instigates, aids, or abets a breach of these steps, they can be held personally liable for a penalty.

Moreover, the Employment Relations Authority has suggested that a breach of an employment agreement also includes a breach of an implied term, such as the implied duty of fair treatment.[2] This means that even if an individual doesn’t breach an express term of an employee’s employment agreement or workplace policy, they could still be held personally liable for unjustified dismissal.

Have individuals been held liable for this?

Yes. In Nicholson v Ford, the employee was unable to pursue a personal grievance for unjustified dismissal because the employer was in liquidation.[3] As such, the employee sought a penalty against the company’s CEO for instigating breaches of his employment agreement.

The Employment Court found that the CEO had deliberately breached the employee’s employment agreement by undertaking a flawed redundancy process. As such, the CEO was found liable to a penalty of $7,500, 75% of which was to be paid to the employee.

What level of wrongdoing is required?

The Employment Court has held that to be found liable for inciting, instigating, aiding, or abetting a breach of an employment agreement, an individual must have known of the employment agreement and deliberately intended to interfere with it.[4]

For the avoidance of doubt, knowledge of the employment agreement need not be of the exact contractual terms – it is sufficient if the individual knows of the general contractual situation.[5]

What does this mean for me?

When dismissing an employee, individuals who deliberately breach express and implied terms in the employee’s employment agreement are unable to avail themselves of the protections of a limited liability company.

As such, those dismissing employees should be acutely aware of such terms. Where uncertain, individuals should seek legal advice to protect both the company’s liability and their own.

Please feel free to get in touch with our employment team if you have any questions or concerns. We would be happy to talk through your options with you.

Click here for more Employment law articles.

 

[1] Salt v Fell [2006] ERNZ 449 at [123].

[2] Ford v New Zealand Dental Partners Ltd Partnership (in liq) t/a Clinico Denture and Hearing [2018] NZERA Auckland 68 at [10]. While this determination was set aside, the Employment Court did not appear to contest this point.

[3] Nicholson v Ford [2018] NZEmpC 132.

[4] Credit Consultants Debt Services NZ Ltd v Wilson (No 3) [2007] ERNZ 252; Aarts v Barnardos New Zealand [2012] NZERA Auckland 22.

[5] Credit Consultants Debt Services NZ Ltd v Wilson (No 3) [2007] ERNZ 252.

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