Employment Relations Authority: "one stop shop" for all your employment needs and injunctions

Matt McGoldrick, Solicitor | Monday 16 April 2007

Case for clarity

A confusing issue for employers in recent years has been which court to turn to for an injunction to prevent an ex-employee from breaching continuing obligations under their employment agreements.

Most often, the issue arises over restraints of trade or confidentiality, particularly if the ex-employee sets up in business in competition to their former employer, or joins a competitor. 

Just this month it has been the subject of discussion in a decision of the Employment Court. The decision: the Employment Relations Authority has the power to provide injunctive relief in cases before it within its jurisdiction. 

The court has colloquially described the Authority as a "one stop shop" where employees and employers can seek low cost and convenient solutions to employment relationship problems. It maintains that injunctions form part of the suite of remedies that are open to the Authority in order to prevent breaches of contract.  Primarily, the impact of this decision will be an improved ability for employers to seek the assistance of the Authority to obtain injunctive relief, without having to go to the High Court.

The case

The important jurisdictional question was decided by the Court in the case of Credit Consultants Debt Services NZ Limited v Wilson.

Mr Wilson was employed by Credit Consultants Debt Services as its general manager for New Zealand’s central and southern regions, in December 2001. His employment agreement contained various restraints:

• preventing him from competing with CCDS for six months after leaving the job;
  
  
• preventing him from misusing confidential information obtained during his employment with CCDS; and
  
  
• him from soliciting CCDS employees or clients after leaving.

Some time later, Mr Wilson's role was disestablished and he was made redundant.  He then took up a job with EC Credit Control Limited, a company in direct competition with CCDS.

CCDS sought to bring proceedings in the Authority seeking various injunctions against both Mr Wilson and his new employer (on the basis that ECCC had procured Mr Wilson's alleged breaches of contract).

The proceedings were moved to the Employment Court as an important question of law, particularly in view of two recent decisions of the Employment Court and High Court.

This particular decision is the second part in a trilogy of decisions which will be issued by the Employment Court in this matter.  The first was a decision "on the papers" by Judge Travis on CCDS's application for interlocutory relief in order to preserve any rights that the company might have pending a further hearing. 

Judge Travis restrained Mr Wilson from soliciting CCDS's clients and employees, and misusing confidential information, and required him to return any copies of client lists that he may have.  Judge Travis did, however, refuse to make any injunctive orders against the new employer, simply because his view was that the Employment Relations Act 2000 does not give the Court the power to grant interim relief against a new employer in these circumstances.  This aspect of the decision is simply a confirmation of the previous case law on this point, and reinforces the requirement to seek relief from the High Court, not the employment institutions, in relation to third parties (most often, a new employer).

The second decision of the Court is concerned with the preliminary issue of whether the Authority and, by virtue of these proceedings, the court, has the power to grant injunctions under the Act. 

The Authority's jurisdiction

The Act provides that the Authority may, in any matter related to an employment agreement, make any order that the High Court or a District Court may make under any enactment or rule of law "relating to contracts".  As the Court states in its judgment, some doubt has been cast upon the Authority’s jurisdiction to make injunctive relief except in relation to interim reinstatement cases –arising from the Greenlea Premier Meats case in mid-2006. 

As well, in relation to "Anton Piller" orders, which essentially give a person the ability to enter premises for the purposes of inspecting or taking custody of documents, the Court in the Axiom Rolle case last year held that the Act does not give the Authority the power to make Anton Piller orders. These orders fell exclusively within the jurisdiction of a High Court judge, the Court said. 

The Court in Axiom Rolle did, however, go on to comment about the Authority's power to make injunctions restraining breaches of employment agreements – and thought that because the Authority was only empowered to make a "compliance order" to prevent a breach of an employment agreement, the injunctive powers under the High Court Rules could only be imported to the Court, not the Authority.

Here, the Court held that when the Act was passed, Parliament had expressly "carved out" the power to grant injunctions which had previously been exercised by the Court, and conferred them on the Authority, in an attempt to ensure that the Authority had appropriate remedial powers – and could extend to preserving contractual rights, including under employment contracts.

The Court undertook a review of the parliamentary materials at the Act's inception and placed heavy reliance on initial policy documents which indicated that the Authority should be a "one stop shop" including having the power to grant interim relief.

Although the Court initially felt that it was unlikely that Parliament would have intended a low level tribunal to have this power, on review, both the policy and interpretation of the Act had in fact granted it to the Authority and, in this particular case, the Court.   

The implications

This latest decision is a significant departure from the Court's earlier comments about the Authority's jurisdiction in injunctions.

The result of this decision is that, except in cases of the law's "nuclear weapons"  - Anton Piller orders and possibly Mareva injunctions (orders essentially “freezing” assets) - the Authority is a "one stop shop" for all employment matters. 

Employers will be able to seek interim relief from the Authority in similar matters to the Credit Consultants case, without the need for recourse to the High Court.  While both the Authority and Court have been robust about granting injunctive relief in the past, even before this issue was resolved, this is likely to mean a continued practice by both bodies to grant injunctive relief in appropriate cases.  In any event, the major benefit for employers faced with these circumstances is, of course, the ability to obtain such relief at a much lower cost than the High Court.

What the decision does not affect, however, is the requirement to seek the High Court's assistance where an employer believes that an Anton Piller order is required. 

In our experience, however, such actions are more likely to be concerned with the new employer's role in any breach of contract or otherwise.  This decision does not disturb earlier pronouncements that the Authority does not have jurisdiction in relation to third parties, and for that reason, employers wishing to seek injunctive relief against third parties will still be required to seek the assistance of the High Court. 

Ultimately, this matter is headed one of two ways: a decision of the Court of Appeal finally settling these issues, or a legislative change to provide some clarity as to whether the Authority is the employment relations equivalent of your corner store.  For the time being the decision gives improved clarity about where an employer can seek injunctive relief.

For further information, please contact your usual Bell Gully advisor or:

AUCKLAND

Rob Towner
Partner

WELLINGTON

Andrew Scott-Howman
Partner

Maria Berryman
Senior Associate

Matt McGoldrick
Solicitor