Employment Court can ban employers from hiring staff in serious cases

1 May 18

Column written by Dunedin Partner John Farrow, published in the business section of the Otago Daily Times on Monday, April 30th 2018

How is an employer meant to continue operating its business if it is banned by the Employment Court from hiring staff? The simple answer is it can’t.

In March this year the Employment Court banned the former owner of popular Christchurch buffet restaurant Sequoia 88 and The Watershed Bar and Restaurant from hiring staff for three years. Mr Freeman, the owner, was the first person in the country to face a banning order after intentionally and persistently breaching employment law.

The Labour Inspectorate national manager claimed that Mr Freeman had “cynically abused the trust placed in employers and disregarded the basic rules put in place to ensure everyone in the workplace is getting a fair deal. This ban should serve as a clear warning to any other employers who are not taking their obligations seriously”.

Mr Freeman had already sold the business when he was made aware of the proceedings. However, it is hard to imagine how he could have continued operating the business without the ability to hire staff.

A number of companies owned and operated by Mr Freeman had been involved in employment proceedings before the Employment Relations Authority and Court from 2013 through until 2015.

Those proceedings involved the same issue as in the present case. The employment agreements contained a term requiring employees to give six weeks’ written notice of resignation. If they failed to give the required notice then equivalent wages would be forfeited and deducted from their final pay, including holiday pay.

In the previous proceedings the Authority and Court had found this clause to amount to a penalty provision. The Court found that the purpose of the clause was to compel the employee to give six weeks’ notice by holding over them the threat of losing wages if they did not comply. The provision was found to be unlawful.   Despite this, Mr Freeman continued to deduct holiday pay from employees who had not given six weeks’ notice. The Labour Inspector applied to the Employment Court for declarations that the employer was in breach of minimum entitlement provisions under the Holidays Act 2003. The Inspector also applied for penalty orders and banning orders.

In April 2016 Parliament introduced additional provisions relating to the enforcement of employment standards. These were intended to promote the more effective enforcement of employment standards (especially minimum entitlement provisions).

As the Court noted, the making of a banning order is a “very significant step”. Banning orders can be made against a person if:

  • The Court has made a declaration of breach;
  • The Court is satisfied that the person has persistently breached one or more employment standard; or
  • The person has been convicted of an offence under the Immigration Act.

Banning orders can prohibit a person from entering into an employment agreement as an employer; from being an officer of an employer; or from being involved in the employment of employees. A banning order can have effect for up to 10 years. A person breaching a banning order is liable for a fine not exceeding $200,000, a term of imprisonment not exceeding three years or both.

When the additional provisions relating to enforcement of employment standards were first proposed, the Minister of Workplace Relations referred to the fact that they were similar to certain provisions in the Companies Act and Financial Markets Conduct Act. Those provisions related to denial of the privilege of participating in the conduct of business under the shelter of limited liability. While the provisions were punitive in nature, the focus is on protection of the public rather than punishment.

Judge Corkill in delivering his decision recognised that a banning order amounts to a significant limitation on any potential employer and affects the individual’s reputation. It should only be made where there is a serious breach or breaches of minimum standards. Such banning orders are likely to be rare.

Judge Corkill considered that penalties totalling $20,000 (which would have to be paid by Mr Freeman since Sequoia 88 could not) would have a deterrent effect both specific and general. The orders would appropriately express the community’s disapproval of the serious breaches of minimum standards which occurred. The Court used its power to order that the whole or any part of the penalty be paid by Mr Freeman himself.

The Court also issued declarations that Sequoia 88 had breached a minimum entitlement provision by failing to pay holiday pay owed to staff and that Mr Freeman was the director of Sequoia 88 and was a person involved in a breach of a minimum entitlement provision.

Sequoia 88 was banned from entering into any employment agreement as an employer or from being involved in employment of employees for a period of three years.
Mr Freeman was also prohibited from entering into an employment agreement as an officer, or from being an officer of an employer, or from being involved in the hiring or employment of employees for a period of three years.

This is first time the Court has resorted to the use of a banning order. It did not do so lightly. However, it is clear that where an employer persistently breaches employment standards the powers available to the Court really have some teeth.


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