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May 2007

Recent Employment Law decisions

In recent months, there have been a number of developments in Court cases concerning employment law issues. Some of the more significant cases include cases dealing with:

• Restraints of trade;
• Communications during collective bargaining;
• Public holidays.

Restraints of Trade

In Fuel Espresso Limited v Hsieh the Court of Appeal clarified the issue of whether or not additional consideration was needed in order for a restraint of trade provision in an employment agreement to be enforceable. Generally speaking, in order for a restraint of trade clause to be enforceable, the employer seeking to enforce the restraint of trade provision must have a legitimate proprietary interest to be protected (such as for example the employee having access to confidential information or having built up a strong customer/client/supplier relationships) and the restraint must be reasonable in terms of both its duration and scope. However, in this case, the Employment Court had held that where the restraint of trade provision was contained in an initial employment agreement, there also needed to be some form of additional consideration or “extra payment” for that restraint, over and above the consideration for the underlying employment agreement.

The Court of Appeal observed that the Employment Court had referred to an earlier decision where the restraint of trade provision was contained in a subsequent variation to an employment agreement where it had been found that there was no consideration for the restraint of trade. However, the Court of Appeal observed that that case was simply an illustration of the point that a variation of an agreement requires consideration just as much as the initial agreement.

The traditional definition of consideration requires that there be “something of value” which must be given, and that consideration is either some detriment to the promisee or some benefit to the promisor. However, the law does not enquire into the adequacy of the consideration. The Court of Appeal also noted that the law does not require an extra “premium” for a restraint of trade clause and that it is a well settled principle of contract law that mutual promises can be consideration for each other. The Court of Appeal noted:

“A person who makes a commercial promise expects to have to perform it … correspondingly, one who receives such a promise expects it to be kept. These expectations can properly be called a detriment and a benefit and they satisfy the requirement of consideration in the case of mutual promises.”

The Court of Appeal concluded that the exchange of promises in an employment agreement can certainly satisfy the requirement for consideration in respect of a restraint of trade provision and that no extra payment over and above the mutual promises contained in the employment agreement was required.

Communication During Collective Bargaining
The Court of Appeal has recently clarified the extent to which employers may communicate with employees during collective bargaining. The case concerned was Christchurch City Council v Southern Local Government Offices Union [2007] NZCA 11. The Employment Court had held that employers could not communicate with union-member employees about collective bargaining unless the union expressly agreed. The Court of Appeal held that employees can communicate statements of fact or reasonably held opinions to union-member employees during the bargaining process provided that such communications do not otherwise breach the employer’s obligations of good faith. There is no complete ban on communications to persons for whom an authorised person is acting, but the employer must not bargain or negotiate directly with such persons.
In the result, the Court of Appeal held that whilst there are provisions in the Employment Relations Act that prohibit the employer from bargaining direct with represented persons and from doing anything likely to undermine the bargaining of the other party, the prohibition on communication applies only insofar as:

  • Such communication amounted, directly or indirectly, to negotiation with those employees about the terms and conditions of their employment; or
  • The communication undermined or is likely to undermine the bargaining with the union or the union’s authority in the bargaining.

Public Holidays No. 1

In our Autumn 2007 Business Law Update, we referred to the Air New Zealand Limited v New Zealand Airline Pilots’ Association Industrial Union of Workers Inc case, which dealt with the transfer of entitlements on public holidays and held that the provisions of the Holidays Act 2003 allowed the parties to exchange the public holidays referred to in the Act for another day on which the public holiday would be observed, but indicated that the exchanged day must be identified or clearly able to be identified. However, the union has recently sought and have been granted leave to appeal the decision to the Supreme Court. The case is likely to be heard later this year and we will report on the decision once it is released.

Public Holidays No. 2

In another decision dealing with similar issues, New Zealand Fire Service Commission v New Zealand Professional Fire Fighters Union, the Court of Appeal held that the contractual arrangements did comply with the provisions of the Holidays Act 2003.

The relevant provisions of the fire fighters collective agreement were somewhat different to that of the airline pilots. Fire fighters work on a 160 day roster comprising 18 cycles of 8 days (during which days 6 and 8 are rostered days off) followed by 14 days’ leave, followed by a further two days’ which are “rostered days off which are not leave”. Therefore the 16 days off at the end of each 160 period comprise a mixture of annual leave and public holidays in lieu. When fire fighters were required to work on public holidays, they were paid double time and also became entitled to a day off in lieu.

The issue under consideration was whether or not the provisions of the agreement complied with the Holidays Act, requiring alternative holidays to be observed on days that would otherwise be working days for the employee. The Employment Court had held that the agreement did not comply with the Holidays Act, because none of the 16 days at the end of each 16 day roster would otherwise have been working days for the employee. A majority of the Court of Appeal disagreed, saying that the alternative days are days that would have otherwise been working days.
The case also considered the issue that determined the pilots’ case, namely the need to identify the specific alternative days on which the day in lieu would be observed. In the fire fighters’ case, the majority of the Court of Appeal held that it was sufficient that the parties had agreed a time slot within which any alternative day must be taken.

This case is also to be the subject of an appeal to the Supreme Court.