Change in approach dealing with misconduct discovered after dismissal

A Court of Appeal decision concerning personal grievance remedies is set to benefit employers.

Taupo float plane company, Ark Aviation, employed Keith Newton as a manager and pilot. Mr Newton was a director of the company along with two others, Mr Campbell and Mr Harnish.

For many years, Mr Harnish had very little involvement with the running of the company. However, in 1997 Mr Campbell provided him with a set of accounts for the company covering the past 14 years. Mr Harnish was surprised to find that the company had made a net loss year after year, but was continuing to operate.

After closely analyzing the accounts, Mr Harnish became concerned that the company's continuing losses appeared to be connected to the aircraft's extraordinary and unusually high fuel usage, unauthorised overseas travel by Mr Newton, and an interest free loan to Mid Island Aviation Ltd, a company partly owned by Mr Newton. He was also concerned about the company's poor performance generally, an incident of engine failure on take off and the failure to report the matter to the Civil Aviation Authority, and the lack of insurance cover on the aircraft.

Mr Harnish called Mr Newton to a meeting to explain about these concerns. At the meeting, the first few items on the agenda were discussed, but when questioned about the shortfall in revenue, Mr Newton left the meeting and refused to justify himself further.

The company dismissed Mr Newton later that afternoon by letter, the reasons given being the company's poor performance, and his unwillingness or inability to explain the revenue shortfall.

After Mr Newton's dismissal, Mr Harnish and Mr Campbell continued going through the company's records and found other irregularities, including that the company car was registered in Mr Newton's name, fuel cards had been applied for in the company's name for aircraft operated by Mid Aviation Ltd, and that other aircraft had been refueled at the company's facility.

Mr Newton brought an unjustified dismissal claim against the company. The Employment Tribunal held his dismissal was unjustified due to procedural defects, but declined to award him any remedies because of his contributory conduct.

Mr Newton appealed. The Employment Court held that, when assessing contributory conduct, the Tribunal had incorrectly taken into account matters that had not been put to Mr Newton for explanation. These should not have been taken into account, and Mr Newton's remedies should therefore not have been reduced by 100 per cent.

The company appealed to the Court of Appeal. The Court of Appeal disagreed with the Employment Court. Matters of which an employer was aware at the time, which, directly or indirectly, impacted on the decision to dismiss, may be taken into account when assessing the reduction of remedies for contributory conduct. It did not matter whether or not those matters had been put to the worker for explanation, the Court of Appeal said. This has obvious benefits for employers, and reduces the financial consequences of procedural defects.

The Court of Appeal also explained how misconduct discovered after dismissal could also affect remedies awarded to dismissed workers. Such conduct did not fall within the statutory provisions of the Employment Contracts Act (now the Employment Relations Act) that dealt with contributory fault, but traditionally the Employment Tribunal and Court had used its "equity and good conscience" jurisdiction to reduce remedies in such cases.

The Court of Appeal pointed out that "equity and good conscience" could not be used for this purpose because it was inconsistent with section 41 (1) ERA which directed that, once a finding of unjustified dismissal is made, the Tribunal or Court must order the employer to reimburse the employee for lost wages.

The Court of Appeal said that the answer lay instead in the wording of the remedies sections themselves. "An employee guilty of a fundamental breach of [the obligations of confidence, trust and fair dealing] arguably cannot be said under s. 40 (1) to have lost wages or other money or any benefit, or under s. 41 (1)(b) to have lost remuneration, as a result of a personal grievance. Nor would reinstatement or compensation for humiliation, loss of dignity or injury to feelings, both of which are discretionary remedies, be appropriate", Justice McGarth said.

The Court of Appeal also went on to say "[t]he answer may also be implicit in the term grievance in the definition of "personal grievance" under s.27. The essence of a grievance in its ordinary meaning is the infliction of a wrong or hardship upon a person. An employee guilty of a fundamental breach of such central obligations to the employer justifying dismissal arguably cannot be said to have been subjected to a wrong or hardship and thus, to have a grievance at all."

This change in approach in dealing with misconduct discovered after dismissal may greatly benefit employers. Under the traditional "equity and good conscience" approach, the Employment Tribunal and Court could reduce remedies to such an extent that they considered appropriate. Accordingly, a partial reduction in remedies was possible. The new approach signaled by the Court of Appeal gives rise to an "all or nothing" situation - either the employee has "lost" wages or other benefits as a result of his or her personal grievance or they have not. There appears to be no room for discretion or partial reductions.

More on Termination & Dismissal

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Dealing with absent employees	Importance of procedural fairness
Must consult in redundancy dismissals	Dismissal must be procedurally fair
Misconduct discovered after dismissal	Another procedural fairness example
Dismissed for benefit fraud	Terminated before started
The danger of secret witnesses	Expired employment contract
Cannot intimidate employer	Cannot rely on police enquiry
Reasonable notice of redundancy	Contractural obligation must be met
Reinstatement and workplace democracy	Employment and criminal investigation
Attack not always good defence	Dismissal of persons in authority
Employee responds by going on offensive	Legality of secret video surveillance
ERA classifies contractor as employee	Redundancy law unchanged by ERA
Loss of use of company car	Significant difference
Resolution of criminal charges	Redundancy and changed hours
Discrimination for being non Asian	Cannot take retaliatory action
Failing to meet sales targets	Misconduct outside of work
Abuse of Internet & Email	Suicide and communication
Redundancy definition	Unjustified dismissal for pornography
Abandonment of employment

More on Employment Agreements

Employee trial periods	Can change pay frequency if properly managed
More on secret video cameras	Appeal Court decision on harsh and oppressive contracts
When is an employment relationship formed?	Employment contracts must be negotiated - they cannot just be presented
Employer can still be bound by oral agreements	Cannot limit remedies for personal grievances
Common problems with employment agreements	Cannot dismiss without reason even if written in agreement
Take care when preparing employment agreements	Can a collective employment contract negotiated with union members be applied to non union members?
Importance of disclosing correct employer	Employee must disclose information at interview only if asked
Disputes resolution procedure must be included in staff agreement	Cannot require all employees to apply for new positions
Renegotiation of employment contract on sale of business	What an offer of employment might look like
Expired contracts continue with same terms and conditions

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