Air New Zealand Ltd v Kerr NZEmpC Auckland

• Jurisdiction: New Zealand
• Judge: A D Ford
• Judgment Date: 16 August 2013
• Court: Employment Court
• Docket Number: ARC 38/13
• Date: 16 August 2013

In the Matter of Proceedings removed from the Employment Relations Authority

Between

Air New Zealand Limited

Plaintiff

and

Andgrant Kerr

Defendant

[2013] NZEmpC 153

ARC 38/13

IN THE EMPLOYMENT COURT AUCKLAND

Application by Air New Zealand Ltd for an injunction enforcing a post-employment non-competition restraint of trade clause — defendant resigned Air NZ to take up employment with Jetstar Airways Ltd — employment agreement provided for six months' notice and six months' post termination restraint of trade — defendant advised Air NZ he did not intend to comply with the six-month post-termination restraint clause as he had received legal advice that it was unenforceable — defendant was in senior managerial position — Air NZ claimed he had access to information in which it had a legitimate proprietary interest — whether the information was of a kind to which protection could be extended — whether the garden leave should be considered when deciding whether the period of the restraint was reasonable — whether the defendant had breached implied terms of fidelity by refusing to comply with the restraint, publicising his new appointment while still an Air NZ employee and placing himself in a position of conflict by receiving confidential information from Jetstar while still employed by Air NZ.

Appearances:

Jennifer Mills and Christie Hall, counsel for the plaintiff

Peter Chemis and Jennifer Howes, counsel for the defendant

JUDGMENT OF JUDGE A D Ford

Introduction

1 The principal relief sought by Air New Zealand Limited (Air New Zealand) in this proceeding against its former employee, Mr Grant Kerr, is an injunction enforcing a post-employment six-month non-competition restraint of trade clause contained in his employment agreement. In general, the legal position is that any such contractual restraint of trade provision is prima facie unlawful unless the employer can establish that it extends no further than is reasonably necessary in order to protect the employer's legitimate business interests. Air New Zealand maintains that such is the situation in the present case. It is a proposition strongly denied by Mr Kerr.

2 The plaintiff filed a statement of problem along with an application for urgency with the Employment Relations Authority (the Authority) on 20 May 2013. On 4 June 2013, the defendant made application to the Authority pursuant to s 178 of the Employment Relations Act 2000 (the Act) for removal of the matter to this Court on the grounds that one or more important questions of law were likely to arise out of this other than incidentally. The questions of law were identified as:

• (a) whether a period of garden leave (involving the employee's complete removal from the relevant industry and his or her workplace) is in essence a restraint of trade; and

• (b) how and to what extent a period of garden leave should be taken into account when assessing the reasonableness of a post-employment restraint of trade.

3 The Authority dealt with the application for removal (which was opposed by the plaintiff) with urgency on the papers and on 10 June 2013 issued a determination 1 granting the application for removal. The Authority determination recorded that the parties had earlier attended (unsuccessfully) mediation. The plaintiff then made application to this Court pursuant to s 178(5) of the Act alleging that the Authority had removed the proceeding to the Court improperly. After an urgent hearing by way of telephone conference call, Chief Judge Colgan issued an interlocutory judgment 2 on 21 June 2013 dismissing the application and awarding costs to the defendant. The hearing of the substantive proceedings was allocated a fixture date for 31 July 2013.

4 Other interlocutory issues arose in the period leading up to the hearing. On 25 June 2013, an interlocutory judgment 3 was issued relating to the handling of confidential documents. On 9 July 2013, a further interlocutory judgment 4 was issued in response to a joint application filed by the parties seeking an order under s 219(1) validating certain informal steps taken to satisfy the requirements of s 164(a) – (c) of the Act. That judgment also referred to unresolved matters relating to disclosure and fixed a telephone directions conference for 11 July 2013 to deal with them. Then, virtually on the eve of the hearing, another issue arose in relation to disclosure which was explained in a further interlocutory judgment 5 dated

29 July 2013. I will need to come back to this last-minute disclosure development because it assumed some significance as the hearing progressed

The facts

5 Air New Zealand is a large public company with its head office in Auckland, carrying on business as a domestic and international airline. It has approximately 11,000 employees. The company also has three wholly owned subsidiary companies which carry on business as operators of air transport services providing both domestic passenger and cargo transport services. They are Air Nelson Limited (Air Nelson) which is based in Nelson; Mount Cook Airline Limited (Mount Cook) based in Christchurch; and Eagle Airways Limited (Eagle) based in Hamilton.

6 Before joining Air New Zealand, Mr Kerr had spent 23 years in the electricity distribution sector in both New Zealand and Australia with a company called Energex Limited (Energex). The Court was told that Energex was owned by the Queensland government and it operated the electricity network in that state. Mr Kerr-was one of three Energex employees who, in 1999, extended the business into New Zealand. The three individuals expanded the business in New Zealand and at the time Mr Kerr left to join Air New Zealand in 2004, Energex had just over 250 staff.

7 Towards the end of 2004, Mr Kerr was approached by an executive search company on behalf of Air New Zealand and asked whether he would be interested in the role of International Cargo Operations Manager, based in Auckland. Mr Kerr-ended up accepting that position. Then in October 2007 he was appointed General Manager of Eagle Airways based in Hamilton. His employment agreement with Eagle Airways contained a three-month notice provision along with a three-month restraint of trade clause.

8 In May 2009, Mr Kerr was offered a new position as General Manager of Air Nelson. Air Nelson is the largest of the three regional airlines. Mr Kerr accepted the position and moved to Nelson taking up his new role in July 2009. In consideration of an increase in salary and benefits Mr Kerr entered into a new individual employment agreement (the employment agreement) which increased his notice period and restraint period respectively from three to six months. The following express provisions in the employment agreement formed the basis of the pleadings and I set them out in full:

3.2 Confidentiality

You shall not at any time or for any reason, whether during the term of this agreement or after its termination, use or disclose to any person any confidential information of the Company except as may be reasonably necessary to enable you to fulfil your obligations under this agreement. This clause shall not apply to information that has entered the public domain other than through yourself. Confidential information means information obtained during the course of your employment about the Company or related companies, or which in any way relates to the business of the Company or related companies, which is not available to the public at large.

…

4.2 Employee Termination

You may terminate your employment at any time by giving six (6) months' written notice to Air New Zealand, or a lesser period by agreement with the Chief Executive Officer.

…

4.5 Payment in Lieu of Notice/Alternative Duties

If you give notice of termination of your employment, or if Air New Zealand gives you notice of termination under clause 4.3, Air New Zealand may, at its sole discretion:

• (a) pay your Total Fixed Remuneration to you in lieu of some or all of any period of notice; or

• (b) place you on “garden leave” for some or all of the notice period; or

• (c) direct you during some or all of your notice period to perform such alternate duties as Air New Zealand may reasonably require having regard to the best interests of Air New Zealand and its business (and you acknowledge that such alternate duties may be less in status and responsibility than your duties and responsibilities prior to notice being given).

…

5. NON-COMPETITION AFTER EMPLOYMENT

In consideration of entering into this agreement, including the resultant benefits to you, you agree that for six (6) months after termination of your employment (regardless of the reason it was terminated), you will not do any of the following without the written consent of the Chief Executive:

• (a) be directly or indirectly involved in any capacity whether as an employee, contractor, principal, agent, shareholder, self employed person or otherwise, in any business or activity which was in any way in competition with the Company or its related Companies at the time your employment terminated, or enters into competition with the Company or its related Companies in the six (6) months following the date of termination. This applies anywhere in Australia or New Zealand. However, you are not prevented from holding shares listed on a recognised stock exchange as long as you do not hold more than 10% of the issued capital of any company;

• (b) attempt to entice away from the Company or its related companies any client or supplier of the Company or its related companies;

• (c) employ or attempt to entice away any employee or contractor of the Company or its related companies;

• (d) assist anyone to do any of the acts in (b) or (c).

You also acknowledge that upon termination of your employment for whatever reason, the Company may seek a further restraint which will be for consideration. Any such restraint will be by...