All too often an employer may claim it had fair grounds for the actions it took to dismiss or discipline an employee, but did so too quickly or used a one sided process, and in doing faces a difficultly in justifying its actions before an Employment Relations Authority.  In this article James D Turner, Partner, McVeagh Fleming lawyers, looks at the opportunity for an employer to consider bringing a counterclaim and 2 recent cases holding employees responsible for their conduct.

Where an employee fails or refuses to comply with clear obligations under the employment agreement (or statute), and is then sanctioned or dismissed, that employee may easily bring a personal grievance and seek redress through the relatively quick and inexpensive mediation and investigation procedures. Those with deserving claims often succeed with an award of compensation. Those employees with less than deserving claims may also seek compensation, and the employer is often faced with making a settlement payment at mediation or incurring the expense of attempting to justify its acts or omissions before the Authority.  It is often cold comfort for an employer to justify itself at an investigation hearing, when it will spend hours of non-productive time to investigate the issue, then prepare for and attend, often incurring legal fees in doing so, whilst still running a business and employing staff.

An employer also runs the risk of being caught by the nebulous concept of “fair process” where its decision to dismiss or discipline was otherwise warranted.   Fair process generally requires an employer to communicate the relevant policy to its staff, consultation, fairly implementing and applying that policy, openly investigating any transgressions, asking for an explanation prior to any corrective action, with an proper opportunity given for improvement or to comply before any dismissal.  In practice it is not easy to apply it with perfection.

However there is the opportunity for a company to consider bringing a counterclaim against an employee where that person has acted in a less than honest or bad faith manner or has engaged in conduct that causes loss, where it is reasonably foreseeable that the employer will sustain loss by such conduct. Recently the Authority determined an employee was in breach of the terms of his employment agreement including his implied obligations of trust and fidelity, failing to disclose a conflict of interest, failing to follow understood procedures for engaging contractors, misuse of funds, abuse of delegated authority, fraud, and an inference of dishonesty. The Authority ordered that the employee pay over $40,000.00 to the employer (ARC v Tilialo)

The Employment Relations Act 2000 (“the Act”)) also expressly requires both parties in the relationship to act in good faith towards one another. Often an allegation is made against an employer that it has acted without “good faith”, but in some circumstances there is the opportunity for an employer to raise a counterclaim by focusing on the employee’s breach of his or her good faith obligations.

The Employment Court has also recently overturned a decision of an Authority including its conclusions on “fair process” and awarded compensation to the employer. The Authority had earlier held that the dismissal was unjustified because of the process that the company had used was unfair.  In Masonry Design Solutions Limited v Bettany the Court was not convinced that the clear overuse of the internet by an employee could justify the dismissal because the employer had not given clear guidelines to the employee on what reasonable use was permissible.  The same point was upheld with respect to overuse of the company’s cellphone.  However the Court thought that persistent time keeping failures, following a warning about them, was sufficiently serious misconduct.

The company also counterclaimed that the employee’s performance of his work was of such poor quality that the work had to be redone and to a significant cost, which would have been foreseeable. The Court upheld this claim and reviewed the figures closely and awarded $12,000.00 to the employer to be paid by the employee, rather than the actual $18,000.00 which was claimed.

In many cases we have defended employees from counterclaims by employers where there is little or no evidence to support such claims.  If, however, an employer acts fairly and reasonably throughout, keeps records of the policy guidance given to staff, and of the warnings issued, and where it can quantify the loss resulting from any breach, misuse or misconduct, where that loss is a foreseeable consequence, then that employer may be successful in obtaining an award for a counterclaim for those losses.