Family employment relationships can be tricky

DOMINION POST - MONDAY, 7 FEBRUARY 2011

Employment relationships are extremely personal, those that involve family members are even more personal and generally commence with a lot more trust than those with strangers. When family employment relationships go wrong the damage is likely to be much worse than in a normal employment relationship. Firstly, trust in a family member might mean the normal checks and balances are not maintained. Secondly, the ripple effect will have a further reach. The case involving Ann Goodwin and Kapiti Coast Diesel Services Limited is a case in point.

The case was decided relatively recently. Ms Goodwin is a sister of one of the owners of Kapiti Coast Diesel Services Limited (“Kapiti Diesel”) and she apparently stole some $443, 000 from her brother’s mechanical repair business over the course of 7 years.

The owners of Kapiti Diesel employed Ms Goodwin to help run their business and in particular to manage the accounts. In order to carry out this task, Ms Goodwin was given the power to sign cheques without a second signature and to make electronic funds transfers.

It was Kapiti Diesel’s own bank that tipped the company off about the transactions. Earlier in the year the bank contacted Kapiti Diesel and informed it that it believed that Ms Goodwin had been paying company monies into her own accounts, but recording them as payments to legitimate suppliers. When confronted about the matter by Kapiti Diesel, Ms Goodwin admitted taking some money, but did not accept the sums suggested by the company. However, in the Authority Ms Goodwin accepted the evidence that $443, 271 was not accounted for.

Although the unauthorised transfers started in 2003 and continued until 2010, a period of 7 years, the Authority had no jurisdiction to deal with the unauthorised transfers that took place before May 2004 because of a limitation period that bars the Authority from dealing with matters that took place more than 6 years ago. In addition to the unauthorised transfers and interest on these, Kapiti Diesel also claimed a penalty against Ms Goodwin for breach of her statutory duty of good faith.

Breach of good faith penalties apply if an employee fails to comply with the obligation of good faith and that failure is deliberate, serious and sustained. The maximum liability is $5,000, although a claim for more than one penalty against the same person may exist within the same employment relationship problem. If a claim for a penalty is made, the Authority may order payment to the Crown or the applicant, depending on the circumstances.

In this case, the Authority ordered that all the penalty was to be paid to Kapiti Diesel. The Authority said that “the unauthorised payments were deliberate, serious and sustained and indeed at the highest level in terms of amount, and degree of breach of trust (involving a trusted employee and close family member taking money from her employer) that the duty of good faith envisages.” Further, the Authority said that the circumstances of the case made it “the sort of rare case whereby all of the penalty ought to be paid to the applicant.”

In addition to the $5,000 penalty, the Authority ordered Ms Goodwin to pay Kapiti Diesel $418,165 for the unauthorised transfers and $60,634 in interest.

Quite aside from the huge amounts that were taken from Kapiti Diesel and then ordered to be repaid, the case raises an interesting issue about the duty of good faith and how it operates in a family employment context. In the case, it seemed that the close family relationship was relevant to the duty of good faith.

In another family employment case, Mr Kumar employed his brother-in-law Mr Malik and unjustifiably dismissed him after only 3 days.

The two men’s respective wives were sisters, but the two men did not know each other very well prior to Mr Malik coming to New Zealand from Fiji. Mr Malik first arrived in New Zealand on a visitor’s permit and stayed with Mr Kumar, while Mr Malik’s family remained in Fiji. Mr Malik did odd jobs around his brother-in-law’s house and business to repay him for his hospitality. Mr Kulmar eventually sponsored Mr Malik’s application for a work permit on the grounds that Mr Kulmar had been unable to recruit a Safety Officer for his business despite having advertised the position. The permit was granted and shortly after Mr Malik started work for Mr Kulmar. On the third day, Mr Kulmar dismissed Mr Malik.

In the Authority Mr Malik argued that he was unjustifiably dismissed from his employment. Mr Kulmar argued that no employment agreement existed and therefore there was no employment relationship. Mr Kulmar also argued that Mr Malik completed an unsatisfactory work trial and failed to produce sufficient evidence of his qualifications.

The Authority found that the parties had indeed entered into an employment agreement as evidenced in documents supplied to Immigration New Zealand. The Authority held that the employment agreement did not provide for a trial period and there was no evidence that procedural fairness requirements had been met. The evidence did not support Mr Kumar’s assertion that Mr Malik misrepresented his skills and qualifications or that Mr Malik’s actual skill level was different to what he claimed to have in his immigration application. The Authority held that Mr Malik’s dismissal from his employment was unjustified.

Although Mr Malik sought reinstatement, the Authority said that would not be practicable given the small size of the business and the family issues between them. The Authority awarded Mr Malik three month’s lost earnings, which equated to $7,800 gross and $1,000 for hurt and humiliation. A modest sum compared to that awarded in Kapiti Diesel.

Again, in this case, the fact of a family relationship was relevant to the decision of award, in that reinstatement, which is the primary remedy under the Act, was deemed impracticable.

The lesson is to have proper checks and balances in place, even when your employees are family members.