Employment disputes can be very expensive – how to do it right

Earlier this year a builder who resigned following a heated argument with his boss was awarded more than $17,000 by the Employment Relations Authority. The Authority found despite the employee resigning, his employer breached employment law, including failure to keep holiday pay and leave records, pay annual holiday pay and failing to provide an employment agreement. They were ordered to pay $12,000 in penalties for breaching employment law and $5,000 plus 5 per cent interest in unpaid and underpaid holiday pay.

As an employer you have legal obligations towards your employees. As the example on page 12 shows, failure to meet your obligations can be very expensive.

Some of your responsibilities include:

  • Pay employees what their employment contract states, and at least the legal minimum wage.
  • Give the employee at least four weeks’ annual holidays.
  • Give the employee the day off on 11 public holidays or give them an alternative holiday if they work, if it is a normal working day for them.
  • Pay at least time and a half if an employee works on a public holiday.
  • Give employees at least five days’ sick leave per year.
  • Act in good faith and with honesty.
  • Provide a safe workplace.
  • Do not deduct money from wages unlawfully


An example of unjustified dismissal

A Christchurch man was awarded nearly $30,000 for unjustified dismissal after he was sacked for sharing details of his salary with a co-worker.

James was hired in June 2017 as a salesman for a Christchurch building firm, along with two other sales staff. After his base salary was reduced he discussed this with another staff member, who confronted the employer and subsequently resigned.

The employer claimed he had not dismissed James but had told him to go so that there was some space for them both to cool off. However, the ERA found James was unjustifiably dismissed and suffered an unjustifiable disadvantage in his employment by having had his pay reduced unilaterally and was entitled to a payout.

James was awarded $28,630, after a 30 per cent reduction was applied due to breaching good faith by revealing his salary.

The case above is just one of far too many examples of trade firms being penalised for not following the right processes when dealing with an employment issue. The key message is that, regardless of the merit of the dispute, if you don’t follow the right procedures, you could be in trouble.

If you do experience an issue or dispute with an employee, there are three things you must do as an employer:

  1. Always act in good faith.
  2. Have a genuine or valid reason for taking action.
  3. Follow a fair process.


Always act in good faith

When an employer is making a decision which might cause an employee to lose their job (such as a disciplinary process), the employer must:

  • Provide the employee with access to relevant information about the decision.
  • Give them an opportunity to comment on this information.

MBIE has a very helpful website with information and guidance on the disciplinary process: www.employment.govt.nz/resolving-problems.

Good reason

An employer’s reasons for the action must be what a fair and reasonable employer could have done at the time of the dismissal or action. To ensure fairness in the circumstances, before making a decision, the employer needs to ensure that they have:

  • All of the facts that they can reasonably gather.
  • Heard the employee’s response to those facts.
  • Considered how they have acted in similar circumstances.
  • Taken any other relevant considerations (such as length of service, any mitigating circumstances etc). Every situation must be considered on its own facts and in context of your workplace.


Fair process

When taking action against the employee, the employer must follow the requirements of the Employment Relations Act 2000 and natural justice. This means that the employer must:

  • Fully investigate the concerns, taking into account the resources that they have to do this.
  • Properly raise their concerns with the employee. This involves telling the employee exactly what the problem is, providing all relevant supporting information and telling them that disciplinary action is a possibility.
  • Give the employee a reasonable opportunity to tell their side of the story.
  • Genuinely consider the employee’s explanations (if provided).

The employer should also:

  • Make sure the decision maker is as impartial as possible.
  • Tell the employee that they may have a representative or support person present at any disciplinary meetings.
  • Give the employee an opportunity to seek independent advice throughout the process.
  • Give the employee an opportunity to give their explanation or response to the person who will make the final decision.
  • Not make the decision on what action to take until after hearing and considering the employee’s response to the proposed course of action.
  • Treat employees without bias and in a way that takes into account any similar situations that have occurred.
  • Consider all options before making a final decision.

It is important to note that both parties must also comply with the duty of good faith during this process. In particular, the parties must be responsive and communicative.

Employee Disputes Insurance

Even with the best processes in place you may at some point have to deal with a disgruntled employee and have to face the Employment Relations Authority. At the very least you will need to engage professional legal services to help you through a dispute.

Employee disputes insurance provides protection from allegations of wrongful acts committed by you against an employee. The policy covers the cost of defending these actions and any damages awarded against the directors, management or company. The average cost of a claim from one specialist insurer is $14,000. Common areas of exposure include:

  • personal grievance actions,
  • claims for unjustified dismissal or demotion,
  • discrimination or harassment (with sexual harassment claims in particular on the rise),
  • unlawful constructive or actual termination,
  • emotional distress,
  • failure or refusal to hire potential employees,
  • invasion or breach of privacy rights under the Privacy Act, or
  • other alleged disadvantage under the Employment Relations Act.

Typically, employee disputes insurance comes as part of a 'management liability' package, which includes a whole bunch of good stuff to protect businesses from the cost of liability. Employee disputes claims can represent up to 40% of all management liability claims. With Builtin you can simply add it when you take out a public liability policy.


In a nutshell

Employment law is a minefield and can easily trip you up if you get it wrong. Following the right processes is critical if there is a dispute, and good professional advice could save your bacon. Employee disputes cover will help pay the bills if it does turn to custard.

by Ben Rickard
Builtin Insurance Advisor

Builtin Insurance are New Zealand’s trade insurance experts. For more information and an instant quote visit builtininsurance.co.nz or contact Ben Rickard at ben@builtin.co.nz or 0800 BUILTIN