'Powdergate' case raises rare issues

The Dominion Post 3 October 2009

Sean Miller was an employee of Fonterra until November 2002 when his employment was terminated on the grounds of redundancy.

In 2004, he, along with others, were charged with an offence under the Crimes Act in relation to the "Powdergate" dairy product export scandal.

At the time when the charges arose, he was employed by Kiwi Co-Operative Dairies Limited, which subsequently merged with Fonterra.

The charges were withdrawn and replaced with charges under the Customs and Excise Act. Mr Miller pleaded guilty to some of the charges. They all concerned the production of export entries that were wrong. Mr Miller was discharged without conviction on all counts.

Mr Miller's defence was that he was not the architect of the scheme, nor was he involved in the conception of its details. He was aware the scheme was devised with the object of circumventing the Dairy Board Act, but didn't feel it was his place to challenge senior managers' decisions.

Mr Miller subsequently sued Fonterra, claiming that the charges restricted his ability to obtain employment. Among other things, he is claiming damages from Fonterra in respect of the resulting loss in his earnings.

The case is still to be heard by the Employment Court on its merits. The facts emerged at a Employment Relations Authority removal hearing.

The Employment Court had been asked to decide whether Mr Miller's contract of employment contained a term that Fonterra would reimburse Mr Miller with respect to all expenses, and all losses suffered as a result of him obeying his employer's orders or arising out of the reasonable performance of his employer's work.

He claims he is entitled to be reimbursed for the loss of remuneration suffered as a consequence of having been a defendant to a criminal proceeding arising out of the ways in which his ex-employer sold its product to customers.

Did his employer have an obligation to disclose sufficient of the facts known to it to relevant agencies, so as to protect Mr Miller from being drawn into criminal proceedings when a criminal prosecution would likely not have ever started had the relevant agencies been aware of the facts?

The issues raised in this very interesting case are not commonly argued in New Zealand courts.

There are a couple of related cases, one involving a Christchurch creche case. Readers may remember that as long ago as 1991, parents made complaints about Peter Ellis, a former employee of the creche who was suspended and dismissed, and later charged and convicted of sexual offences.

The police advised John Grey, the city manager of the Christchurch City Council running the creche, that there were ongoing investigations concerning the creche and that it should be closed.

They were satisfied that the children were in serious danger. The creche closed. Grievances were taken. Four of the workers claimed indemnity for the costs incurred in defending criminal charges brought against them involving alleged child abuse at the creche. The four were acquitted of sexual offences.

The court said while it was unable to hold that the activities of the police should be inflicted upon the council, there was something in the workers' complaint that the police may have been more circumspect if the council had not abandoned its employees.

Chief Judge Goddard agreed and said the remedies in the case not only reflected the established recognition that the right to work was a valuable asset. He said it included the right not to be prevented unjustifiably from continuing to work at one's calling. He granted reimbursement of lost income.

The chief judge commented that an indemnity against an employer for costs incurred in defending a charge that a crime was committed during the course of a worker's employment does not extend to cases where criminal conduct was established.

However, there was no reason why workers shouldn't be indemnified for the cost in defending themselves against an allegation which was never established. The court was simply indemnifying for the consequences of the person working in the employer's interests.

In another case, Chief Judge Goddard compensated a worker for the costs of defamation proceedings. These were brought by an aggrieved fellow employee who took exception to the content of a confidential memorandum to the employer's deputy chief executive which he said defamed him.

The chief judge said if the worker in question had acted unlawfully, she did not know that this was so, and that she had acted at the behest of the employer and from a sense of duty in writing the report. The chief judge held that the employer was obliged to meet the report writer's legal costs.

Readers will watch with interest Mr Miller's fate and whether he is successful in recovering losses arising as a result of charges laid in circumstances that he says were as a result of his employment.

Peter Cullen is a partner at Cullen - the Employment Law Firm

Email: peter@cullenlaw.co.nz