Transpacific Industries Group (Nz) Ltd v Harris and Anor

 
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[2012] NZEmpC 17

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

ARC 96/11

In The Matter Of an application for special leave for removal of a matter to the Employment Court

BETWEEN
Transpacific Industries Group (NZ) Limited
Applicant
and
Kaine Harris
First Respondent
Smart Environmental Limited
Second Respondent
Counsel:

Stephen Langton and Alex Chadwick counsel for the applicant

Gretchen Stone, counsel for the respondents

Application for special leave for removal of matter to the Employment Court under s178 Employment Relations Act 2000 (“ERA”) (removal to court — important question of law arising other than incidentally) — employment agreement contained restraint of trade clause — in previous interim decision involving different employee of same company, Employment Court (“EC”) ruled clause probably not enforceable — Employment Relations Authority declined interim relief in this case stating that clause was anti-competitive and unenforceable and it had to follow EC ruling in earlier case — whether proceedings raised important question of law — whether comments by Authority in respect of earlier decision meant had already determined that the applicant could not succeed in substantive claim for relief — whether jurisdiction for removal existed under s178 ERA as Authority had already begun investigating and section referred to removal without Authority investigating matter

The issues were: whether the proceedings raised an important question of law; whether the Authority's comments in respect of earlier decision meant it had already determined that the Applicant could not succeed in its substantive claim for relief; and whether there was jurisdiction for removal under s178 ERA as the Authority had already begun investigating and the section referred to removal without the Authority investigating matter.

Held: Transpacific had to show that the proceedings raised an important question of law that arose other than incidentally. The principal issue in the case was whether or not the restraint of trade clause was enforceable. This not only involved construction of the contractual clause but also issues of public policy. It was undoubtedly a question of law. The answer to this would determine whether Transpacific had any prospect of enforcing the clause.

The evidence was that there were 1400 other Transpacific employees who had an identical clause and there was good movement of employees within the industry. In the sense that the substantive decision might affect a substantial number of employees, it was an important question. The irony of this from H's point of view was that his best outcome would be that the clause was found to be entirely unenforceable as contrary to public policy, and that would be a question of law. There was therefore, undoubtedly a question of law which arose other than incidentally.

The Authority had apparently reached a final conclusion that Transpacific could not succeed in its substantive claim as it said that the clause was unenforceable and that it had to follow the earlier EC ruling. It has stated that the restraint of trade clause was arguably void. Transpacific said that it had elected to challenge the EC's determination in this case rather than the earlier one. It wanted a fully reasoned substantive decision on the enforceability of the clause. That being so, it was more economical for it to be done in one hearing of the matter removed to the Court rather than an investigation meeting and a hearing de novo of a challenge. Although to do so would deprive the parties of their right to appeal, that was the consequence whenever a matter was removed under s178 EA and the legislature must have regarded it as an acceptable consequence.

As stated in Auckland District Health Board v X (No 2), the use of the phrase ““without the Authority investigating the matter” in s178(1) showed that Parliament did not intend to fix the time when an application could or could not be made. The phrase was intended to convey that a matter removed would not require an Authority investigation or certainly a concluded Authority investigation so that it would, in effect, be heard by the Court at first instance. Only the interim relief claim had been determined in this case. The investigation of the substantive claims had not begun. The Authority had declined an application for removal and special leave was sought.

By way of comment, H had been chosen by Transpacific to be the individual defendant for its test case and that was unfortunate for him. The wider importance of the test case was of no value to H and he had been subjected to prolonged stress. It was a matter of concern that Transpacific had delayed the progress of the case on at least two occasions. There were to be no further unnecessary delays.

Application for order for removal granted

JUDGMENT OF JUDGE A A Couch

1

The issue decided in this judgment is whether the Court should order a matter which is currently before the Employment Relations Authority to be removed into the Court for hearing and decision without further investigation by the Authority.

Facts and the history of litigation
2

Transpacific Industries Group (NZ) Ltd (Transpacific) operates a waste management business. It is one of the largest operators in that field in New Zealand. Mr Harris was employed by Transpacific in Auckland. Clause 7 of their employment agreement was headed “COVENANT NOT TO COMPETE”. It contained several paragraphs. Clause 7.1 purported to comprise an agreement that Mr Harris would not work for any competitor of Transpacific in the Auckland region for a period of three months after he left the employment of Transpacific. Clause 7.2 imposed a restraint on Mr Harris soliciting the business of any customer of Transpacific.

3

In March 2011, Mr Harris gave Transpacific notice of his resignation. On 11 April 2011, he commenced employment with Smart Environmental Ltd (Smart), which operates a waste management business in competition with Transpacific.

4

Transpacific applied to the Authority for an interim injunction. It alleged that, by accepting employment with Smart, Mr Harris was in breach of clause 7.1 of the employment agreement. It also alleged that, by actively soliciting business from Transpacific's customers on behalf of Smart, Mr Harris was in breach of clause 7.2.

5

In addition to that interim relief, Transpacific also sought permanent relief in the form of a declaration that Mr Harris had breached the terms of the employment agreement and penalties for those breaches pursuant to s 134(1) of the Employment Relations Act 2000 (the Act). Transpacific sought to have penalties imposed on Smart pursuant to s 134(2) of the Act.

6

The background to these claims against Mr Harris was a series of similar claims made against another former employee of Transpacific, Stephen Green. The employment agreement between Transpacific and Mr Green contained provisions identical to those in the agreement with Mr Harris. Mr Green also left Transpacific to work for Smart and Transpacific initiated very similar proceedings in the Authority against him.

7

The Authority granted an interim injunction requiring Mr Green to comply with the terms of all aspects of clause 7, including clauses 7. 1 and 7.2. 1 Mr Green challenged that determination and the matter came before the Chief Judge. Allowing the challenge in part, he decided 2 that an interim injunction should be issued in

reliance on clause 7.2 of the employment agreement but not clause 7.1. His reasons were:

[26] I now move to the grounds for the claim to injunctive relief. I have concluded that Transpacific has a sufficient arguable case for breach of cl 7.2 of the employment agreement but no arguable case of liability by Mr Green for breach of cl 7.1. In this latter regard I respectfully disagree with a part of the conclusion of the Employment Relations Authority.

[27] Clause 7.1 set out earlier in this judgment purports to prohibit Mr Green from engaging in competitive economic activity with Transpacific both for the period of three months following the end of his employment and within the geographic area of the North Island of New Zealand. The effect of cl 7.1 is that all that the company is required to establish is the fact of competition in business. As it stands, cl 7.1 purports to prohibit competition by Mr Green even in respect of customers or potential customers who are or were not customers of Transpacific. Whilst a restraint may be lawful to the extent that it protects reasonably a proprietary interest that the employer has, including in business with its customers, the law does not extend to prohibiting competition alone as cl 7.1 purports to do. Clause 7.1, if it were valid, would prohibit Mr Green from engaging in economic activity (including being an employee of another waste disposal enterprise) if that entity competes for business with Transpacific irrespective of whether there was an actual or had ever been a previous commercial relationship between Transpacific and the potential customer of Mr Green or his new employer. The title to cl 7 of the employment agreement (“COVENANT NOT TO COMPETE”) illustrates the misunderstanding of what the law allows and prohibits: competition per se is not able to prohibited. The preamble to that prohibition in cl 7.1 also reinforces its flaw. It expresses Transpacific's concern that it might suffer “serious injury” if Mr Green were to use “the knowledge and skills acquired during your employment with us and apply [them] for the benefit of a competitor of ours”. “[K]nowledge and skills acquired” are much broader than proprietary...

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