Employment Law: The ins and outs of the ERA’s decision involving Southern Taxis Ltd

9 Jul 19

Column written by Dunedin Partner John Farrow, published in the business section of the Otago Daily Times on Monday 8 July.

Last year I wrote an article on “Employment in the Gig Economy”. In that, I referred to the Employment Relations Authority decision involving Southern Taxis Ltd.

That case was brought by the Labour Inspector alleging that Southern Taxis failed to provide employment agreements; maintain wage and time records; pay minimum wages; pay holiday pay and keep holiday records. Southern Taxis argued it had no obligation to do any of these things as its workers were “contractors”. However, the authority found that the five workers were in fact employees and calculated Southern Taxis’ liability as being $97,753.00.

The Labour Inspector argued that the drivers were “part and parcel” of Southern Taxis rather than being drivers in business on their own account. Southern Taxis, however, said they were independent contractors and were engaged on commission only. Southern Taxis claimed it exercised only limited control over the drivers and did not direct them in such a way as to increase their fare yield. However, Southern Taxis acknowledged it exercised a measure of control over the drivers but said this was because of the requirements of its taxi service licence and in the interests of maintaining its brand.

Southern Taxis ceased trading but remains in the hands of its directors. The authority released its second determination on May 17. This determination dealt with applications by the Labour Inspector to join the directors to the primary proceedings. The Labour Inspector relied on Court of Appeal authority that once a Labour Inspector has established, on the balance of probabilities, that the company is unable to pay the full amount of monies owing, all that needs to be shown is a “tenable cause of action against a director” in order to join them to the proceedings. The Labour Inspector then must prove, on the balance of probabilities, that an officer, director or agent of the company directed or authorised default in payment of monies owing.

The Labour Inspector argued that the directors of Southern Taxis authorised default in payment of minimum wages and holiday pay because they ran the company on a day-to-day basis, knew what the minimum wage was and knew all the essential facts that made the drivers employees. The Labour Inspector further argued that as a result, the directors were making an intentional decision to pay the drivers less than the minimum wage. The directors argued that they should escape liability because they were not aware the drivers were employees. However, the Labour Inspector claimed that “wilful blindness” was enough for a finding of liability.

The directors further argued that they were confused about their legal obligations and were not alerted to any issue with their approach by any professional adviser. They also argued that there was no basis for finding they had knowledge that Southern Taxis was in breach of its legal obligations or that they deliberately set out to avoid, or cause Southern Taxis to avoid, any such obligations. They claimed that in order to make a “safe finding” that they knew they were breaching minimum standards, the Labour Inspector would need to point to specific direct evidence which argued against their evidence of honest belief.

The authority, however, found that the Labour Inspector had established a “tenable cause of action” on the basis that the directors clearly directed or authorised the default in payments of minimum wages and holiday pay to the drivers by Southern Taxis. The authority also accepted that the directors had knowledge of the essential facts or characteristics of an employee versus a contractor and rejected the directors’ evidence as ‘‘implausible post-fact reconstruction’’. The Authority found that the directors were the “controlling hands and minds” of the business. Fundamentally, ignorance of the correct legal position in respect of the drivers was no excuse. The directors had access to professional accounting services and could have sought legal advice if they wished.

The end result is that the authority found the directors were jointly and severally liable with Southern Taxis for the wage and holiday pay arrears. In its finding, the authority stated: “It is a fact so notorious it really requires no restating that body corporates, such as Southern, act through a human agent or agents”.

The actions of the directors and of Southern Taxis were effectively indistinguishable but for the ‘‘corporate veil’’ that separated them. The authority reserved one final issue. That is, whether the directors are liable for penalties for contraventions of the Employment Relations Act, Minimum Wages Act, Wages Protection Act and Holidays Act and, if so, in what quantum. That issue has been left for the Labour Inspector to decide whether or not it wishes to press these matters. Time will tell.


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