Edmonds Judd

Commercial

Failure to return an employee’s personal information led to expensive results for an employer

Commercial, Employment, First Job, Latest news, Media, News, Online, Relationships, Social Media, Trusts
0

In a recent decision of the Human Rights Review Tribunal an employer has been ordered to pay an ex-employee damages of $60,000 for interfering with the employee’s privacy.

 

The CEO invited the employee out of the office for a coffee meeting. During that meeting, the CEO gave the employee a letter detailing concerns about the employee’s performance. While they were out of the office, a director of the employer took the employee’s work laptop, personal USB flash drive, and personal cell phone from the employee’s desk without the employee’s consent or knowledge.

 

About a week later, the employee’s employment was terminated.

 

The employer later returned the personal cell phone, but did not return the personal information that had been stored on the work laptop or the employee’s USB drive.

 

Despite several requests over a long period of time, the employer failed to return the employee’s personal information and USB drive. Instead, the employer effectively blocked the employee’s attempt to obtain the return of his information, engaging in a range of tactics that delayed the return of the information.

 

The Tribunal found that the employer had collected the employee’s personal information when uplifting the laptop, cell phone and USB. It went onto find that the employer had breached information privacy principles 1, 2, and 4 of the Privacy Act 1993 because the employer had not collected the personal information for a lawful purpose or directly from the employee, and the personal information was collected in circumstances that were unfair and constituted an unreasonable intrusion on the employee’s personal affairs.

 

The Tribunal went on to determine that the breaches were an interference with the employee’s privacy as they had caused significant humiliation, injury to feelings and loss of dignity to the employee. In support of this finding, evidence had been provided by the employee that three weeks after the collection of his information, he was formally diagnosed with acute anxiety and depression, prescribed antidepressants, and sleeping medication. The employee had also started attending counselling.

 

The employer argued that the health conditions were caused by the loss of work, not by breaches of the collection principles. However, the collection does not need to be the sole cause of the consequences suffered.

 

Emails and other correspondence in evidence showed that the health conditions were attributable to distress about the collection of the information, including the inability to retrieve it, and not knowing who had seen it, and who was using and sharing the personal information

 

The Tribunal also found that the collection had caused the employee loss and detriment when he couldn’t complete his tax return on time, leading to a penalty. It also negatively affected his interests as it impacted his health, his career prospects and removed access for him to a personal USB and he did not have access to all his personal information that had been on his laptop.

 

The Tribunal found that an award of damages of $60,000 appropriately reflected the significant level of humiliation, loss of dignity and injury to feelings experienced by the employee because of the wrongful collection of his personal information.

 

A prompt return of the personal information wrongly collected would have significantly reduced the humiliation, loss of dignity and injury to feelings experienced and therefore the amount of any award.

 

This claim was decided under the Privacy Act 1993 because the actions all occurred prior to that act being replaced by the Privacy Act 2020. However, it is still relevant to conduct under the 2020 Act – information privacy principles 1 – 4 and the test to show an interference with privacy has remained largely unchanged.

 

The decision is: BMN v Stonewood Group Ltd [2024] NZHRRT 64.

 

Joanne Dickson

Modernising the Companies Act

Commercial, News
0

In August 2024, the government announced that it would progress a package of reforms to the Companies Act 1993 and related legislation.

 

The reforms are designed to address several issues that are regularly encountered in practice, to make New Zealand an easier and safer place to do business and to increase uptake of the New Zealand Business Number (NZBN).

 

The reforms will be carried out in two phases:

  • Phase 1 will focus on modernising the Act, simplifying compliance, deterring poor and illegal business practices and making improvements to insolvency law to make outcomes fairer for creditors. The bill introducing these reforms is expected in early 2025, and
  • Phase 2 will take place after a Law Commission review of directors’ duties and liability issues, which is also due to begin in early 2025.

 

Phase 1

The first phase includes reforms that will address several practical issues. The key changes that have been suggested for Phase 1 include:

  • Introducing a simpler process for a company to reduce its share capital, modelled on Australian legislation
  • Amending the definition of ‘major transaction’ by excluding transactions relating solely to the capital structure of a company (for example: issuing shares, share buy-backs, dividends and redemptions) and by clarifying that a series of related transactions does constitute one ‘major transaction’
  • Extending the shareholder unanimous consent process in section 107 of the Act to cover issuing options or convertible securities, crediting unpaid share capital and acquiring shares to be held as treasury stock
  • Providing a process for dealing with unclaimed dividends
  • Providing for certain actions such as share buybacks and a company holding its own shares to be available by default (currently these actions are only allowed if expressly permitted by the company’s constitution)
  • Simplifying processes to reserve company names, restore companies to the register and correct mistakes on the register
  • Allowing companies to put certain shareholder and creditor information on a webpage rather than having to physically send out copies to each person
  • Introducing unique identifier numbers for directors and changing address requirements so directors’ residential addresses don’t have to be disclosed on the public register
  • Improving insolvency laws by extending the claw back period for related party transactions, and
  • Introducing various measures to improve the uptake of the NZBN.

 

The bill containing the reforms will be introduced in early 2025, and the public will be able to make submissions on the legislation as it progresses through the select committee stage.

 

Phase 2

The second phase is expected to begin in parallel with Phase 1, starting with a Law Commission review of directors’ duties and liabilities. This is expected to address several concerns, including that the law related to reckless trading and incurring obligations is unclear and difficult to apply.

 

 

 

DISCLAIMER: All the information published in Fineprint is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Fineprint may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Assignment of commercial leases re-settlement property inspection

Commercial, Property, Your Own Business
0

When your tenant sells their business

A common question that arises for landlords owning commercial premises (or tenants leasing those premises) is what happens to the lease when your tenant sells their business. The answer to this is usually found in the deed of lease itself.

 

Assignment of the lease

When your tenant sells the assets of their business, the lease of their premises will usually be assigned to the purchaser on the settlement date. This is documented by you (as landlord), your tenant (as assignor) and the purchaser (as assignee) entering into a deed of assignment, which will assign the rights and obligations of the lease to the purchaser of their business. Your existing tenant will usually continue to be liable under the lease for the remainder of the current lease term. The assignee will also be liable to meet the lease obligations.

Under The Law Association (previously the ADLS) form of deed of lease, your tenant cannot assign the lease without your prior written consent, which you cannot unreasonably withhold. Your tenant must demonstrate to your (reasonable) satisfaction that the proposed assignee is respectable and has the financial resources to meet the obligations under the lease. Your tenant must also be up to date with rent and not be in breach of the lease. You can also require your tenant and the proposed assignee to sign a deed of assignment, and you may also be able to request a bank guarantee or a personal guarantee from the proposed assignee.

Your reasonable legal fees relating to the assignment of the lease will usually be paid by your tenant.

 

Deemed assignment

If your tenant is a company, the shareholding in that company may change. Existing shareholders may be selling some (or all) of their company shares to a third party, or transferring some (or all) of their company shares to other existing shareholders.

Where shares in your tenant’s company are being sold, you will not need a deed of assignment as the tenant will remain the same. However, if those shareholding changes result in a change in control of the company, which is a deemed assignment under the lease, your tenant is required to obtain your written consent before transferring the shares.

You will have the opportunity to assess the financial resources and experience of the incoming shareholder and propose reasonable conditions to your consent as part of the process. You, the exiting shareholders and the new shareholders will need to negotiate in relation to the release or replacement of any existing guarantees as part of your consent.

 

Agreement to lease

You may not have a deed of lease with your tenant, with the terms of your lease instead documented in an agreement to lease, which is a basic document setting out the broad material terms without going into detail about the day-to-day workings of the lease (which is contained in the deed of lease). A tenant’s rights and obligations under an agreement to lease cannot be assigned, so if your tenant is selling their business and wishes to assign its lease which is documented in an agreement to lease, they will first need to enter into a deed of lease with you, which can be assigned to the purchaser of the business (with your consent).

While agreements to lease can be helpful for the parties to initially agree material terms, they still technically require both parties to enter into a deed of lease reflecting those terms. We recommend that you promptly enter into a deed of lease after signing any agreement to lease so that both parties are aware of their full rights and obligations under all the terms of the lease.

 

We can help

Whether you are a landlord or a tenant negotiating through an assignment of the lease, we recommend early contact with us.

If you are a landlord, we can advise on what information you should request from any proposed assignee to allow you to make an informed decision on whether you consent to the assignment of the lease.

We can help both landlords and tenants in navigating what is and isn’t reasonable from each party in the circumstances.

 

 

 

 

DISCLAIMER: All the information published in Property Speaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Property Speaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Business briefs

Commercial, Employment, News, Your Own Business
0

Companies Act reforms announced

The government has announced a suite of changes to the Companies Act 1993 aiming to improve fairness and the ease of doing business in New Zealand. The reform is expected to take place in two phases.

 

Phase One: The first phase focuses on the modernisation and simplification of the Act to better reflect a more evolved business and technological landscape.

 

Specific proposed changes include:

  • Providing a process for reducing the share capital of a company that does not require court approval
  • Amending the definition of ‘major transaction’ to exclude transactions relating to the capital structure of a company and clarify that a series of related transactions are captured by the definition
  • Adding additional types of transactions that can be approved by unanimous shareholder consent
  • Allowing companies to mingle unclaimed dividends with other funds after two years
  • Assigning unique identifiers to directors to prevent ‘phoenixing’ (where a new company is registered to take over an insolvent or unsuccessful one), and
  • Allowing directors and shareholders to have their residential addresses removed from the Companies Register, resolving safety and privacy concerns.

 

Further insolvency law amendments are also being proposed, including extended claw back periods, preference for long service leave and greater honouring of gift cards.

 

Phase Two: The second phase will involve a Law Commission review of directors’ duties and related issues such as director liability, sanctions and enforcement.

 

The bill introducing Phase One is expected to be introduced in early 2025 and Phase Two will closely follow.

 

 

Siouxsie Wiles employment decision

In July, the Employment Court ruled that the University of Auckland had breached its health and safety, and good faith obligations to Associate Professor Siouxsie Wiles.[1]

 

Dr Wiles was prominent in the media during the Covid pandemic, communicating complex Covid information in an understandable way to the public. Dr Wiles received harassment and abuse, both online and offline, from those who disagreed with her. She sought help from the university, but was told that it was not part of her academic duties and that she should minimise further public statements until a security audit had been completed.

 

Although the university was commended for the actions it did take, ultimately, those actions were insufficient. The Employment Court was critical of the university’s delay in responding to safety concerns and the university’s misplaced focus on Dr Wiles’ outside activities. The court found that the onus was on the university to obtain the right health and safety advice, and proactively put a plan in place. By failing to do so, the university was not acting in good faith and was breaching its contractual obligations to be a good employer.

 

This ruling serves as a good reminder that employers, especially those in the public sector or that engage with the public, should consider health and safety risks in relation to employees’ work-related activities, including where those activities pose a risk of harassment. Employers may also be responsible for work related activities occurring outside of an employee’s work premises and normal working hours.

 

 

New bill to improve consumer data rights

Parliament is currently considering the Customer and Product Data Bill – a bill designed to increase consumer control over their data. It is currently with the select committee. If passed, the legislation will create an obligation for businesses that possess customer data to provide, on request, that data to those customers and certain third parties.

 

The bill will help consumers access their data to compare services and change providers, making it easier for new or smaller businesses in an industry to compete with the ‘big players.’ The bill introduces hefty fines for non-compliance, including a fine of up to $50,000 for failing to respond to a data request and a fine of up to $5 million for making an unauthorised data request. Initially, the bill will only apply to the banking, electricity, and telecommunications sectors.

 

 

Changes to insurance industry coming

The Contracts of Insurance Bill, that awaits its second reading, will make significant changes to the rights of policyholders and insurers to promote confidence in the insurance market and ensure that insurers operate fairly. The bill proposes several changes to insurance contracts legislation, including:

 

  • Disclosure duties: The bill draws a distinction between consumer policyholders (where the insurance contract is for personal, domestic or household purposes) and non-consumer policyholders. Consumer policyholders will have a duty to take reasonable care not to make a misrepresentation to the insurer.
    Non-consumer policyholders will have a duty to make a fair representation of the risk. This shifts the burden on insurers to ask the right questions to reveal all the information they need
  • Unfair contract terms: The bill removes the existing exception for standard form insurance contracts from the unfair contract term provisions in the Fair Trading Act 1986. In other words, the unfair contract terms regime will apply more widely to insurance contracts, meaning insurers must make sure that the provisions of their insurance contracts are fair.
    There are still some exceptions in insurance contracts that will not be subject to the unfair contract terms regime, including event, subject or risk insured, sum insured, the basis for settling claims, excess, and exclusions or limited liability in certain circumstances, and
  • Proportionate remedies: Insurers will no longer be able to avoid an insurance contract for any failure or misrepresentation of a policyholder. Instead, insurers will have proportionate remedies based on how it would have responded if it had known the relevant information, such as reducing the amount paid on a claim.

 

Uber appeal dismissed: drivers are employees

In 2022, the Employment Court made a landmark ruling against Uber when it found four Uber drivers were employees and not independent contractors.[2] Uber appealed the decision, and the Court of Appeal issued its decision in August.[3] The Court of Appeal criticised the Employment Court’s approach, stating that the first step should be to look at the parties’ agreement governing the relationship, rather than whether the individual is vulnerable or suffering from an imbalance of power. Ultimately, however, the focus should still be on the parties’ mutual rights and obligations, interpreted objectively.

 

Despite these criticisms, the Court of Appeal still dismissed the appeal affirming the finding that Uber drivers are employees. This means Uber must provide the drivers with employee benefits, including minimum wage, leave entitlements and holiday pay.

 

The decision only applies to the four Uber drivers, but it has implications for all businesses that engage contractors, particularly for those operating in the gig economy. It is a timely reminder for businesses that rely on contractor workforces to ensure their contracts accurately reflect the nature of the relationship with their workers.

 

The Workplace Relations and Safety Minister Brooke van Velden has indicated that the coalition government intends to amend the Employment Relations Act in 2025 to increase certainty and clarity for contractors and businesses regarding employment status of workers. The changes will provide a four part gateway test which, if met, would mean a worker is a contractor. More information on the government’s announcement can be found here.

 

If you would like to know more about how any of the items in Business briefs may affect you and your business, please don’t hesitate to contact us.

[1] Wiles v University of Auckland [2024] NZEmpC 123.

[2] E Tū Inc v Rasier OperaAons BV [2022] NZEmpC 192.

[3] Rasier OperaAons BV v E Tū Inc [2024] NZCA 403.

 

 

DISCLAIMER: All the information published in Commercial eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Commercial eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Embracing Tikanga Māori in your commercial contracts

Commercial, Employment, Your Own Business
0

Seeking ways to respect and incorporate differences into business practices

In recent years, there has been a growing recognition of the importance of incorporating – and (more importantly) the desire to incorporate – Tikanga Māori into commercial contracts.

 

To some extent, this shift is due to the growing appreciation that contracts should not only be robust and enforceable, but also culturally inclusive and reflective of our collective New Zealand heritage. Many people, however, particularly those not brought up in Te Ao Māori (the Māori culture), can find this daunting and maybe a little scary.

 

What is Tikanga Māori?

Tikanga Māori refers to Māori customs, values and practices. The word ‘Tikanga’ comes from the word ‘tika’ that means ‘correct’ or ‘right’; essentially, it is the ‘right way’ to do things.

 

In the context of commercial contracts, Tikanga can cover a range of concepts, from the way you manage relationships, to how you carry out your obligations. However, Tikanga is not a one-size-fits-all concept; its meaning and application can vary depending on the region, the iwi (tribe) and the parties involved.

 

For non-Māori businesspeople who are used to clear, documented processes, this can be challenging, especially if you are worried about putting a foot wrong. Integrating Tikanga into commercial contracts, however, generally just involves the careful blending of Māori and Pākehā perspectives to create agreements that are long-term, community-focused and ethically grounded. Tikanga acknowledges the differences between Māori and Pākehā approaches but also actively seeks ways to respect and incorporate these differences into commercial practices.

 

Why incorporate Tikanga Māori?

There are several reasons we should consider incorporating Tikanga Māori elements into our contracts. These include:

 

  • Relationships: As Tikanga Māori places a high priority on relationships, emphasising trust, mutual respect and reciprocity, incorporating these values into contracts can help to strengthen the bonds between businesses and Māori partners, which can ensure longer-term, sustainable partnerships
  • Cultural competence and respect: Incorporating Tikanga Māori into contracts can help to show your business’ commitment to understand and respect Māori culture. This may not only enhance your reputation, but also help build trust within Māori communities and stakeholders
  • Enhanced dispute resolution: Tikanga Māori offers alternative dispute resolution methods, focused more on restoring harmony and balance than penalising/default mechanisms. This can lead to more agreeable and lasting solutions if there is disagreement, and
  • Alignment with Te Tiriti o Waitangi: One of the aims of Te Tiriti o Waitangi (Treaty of Waitangi) is to preserve the partnership between Māori and the Crown. Incorporating Tikanga Māori into contracts may help to demonstrate your commitment in upholding these values.

 

Looking ahead

If any of the above resonates with you, consider doing some of the following in your business:

  • Think longer time frames: In Te Ao Māori (the Māori worldview), time is often considered in generations rather than years. Māori organisations frequently plan with a longer-term perspective, focusing on the wellbeing of future generations rather than immediate short-term gains. This longer-term approach means that your contracts should ideally consider the broader implications, looking beyond the immediate benefits and considering longer-term issues such as community goals and sustainability, and
  • Focus on relationships: We tend to concentrate on our own individual obligations and financial outcomes when negotiating contracts. In a Tikanga Māori approach, however, the focus is more on relationships — both between the parties and with the wider community. This means that contracts should seek to prioritise, among other things, mutual respect, collective responsibility and the ongoing relationship between the parties.

 

You could consider including provisions that acknowledge the importance of whakapapa (genealogy) and manaakitanga (hospitality and respect), seeking to ensure that the contract strengthens, rather than undermines, relationships:

  • Consult with experts: Engage with Māori advisors, legal professionals or kaumātua (elders) while preparing your contracts. Their insights can ensure that the incorporation of Tikanga Māori is both authentic and appropriate in the context
  • Use Te Reo Māori: Where relevant and appropriate, consider including Te Reo Māori (Māori language) as part of the contract – whether as bilingual clauses or simply incorporating Te Reo Māori alongside the English words – as we have done in this article, and
  • Tweak your disputes clauses: Standard commercial contracts often include formal arbitration or court processes as dispute resolution mechanisms. Māori dispute resolution, however, leans more towards consensus and the restoration of harmony, as well as the concept of kanohi ki te kanohi (face-to-face) discussions rather than battling it out through lawyers or email. Incorporating these processes into contracts can help ensure that disputes are resolved in a manner consistent with Tikanga.

 

Using Tikanga Māori principles is advantageous

Incorporating Tikanga Māori principles into commercial contracts is a growing practice in this country. Doing so can result in agreements that are not only legally robust, but also culturally inclusive and ethically grounded. This approach can be beneficial to all parties, enhancing the relationship and supporting longer-term, sustainable partnerships.

 

Whaowhia te kete mātauranga:

Fill the basket with knowledge.

 

DISCLAIMER: All the information published in Commercial eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Commercial eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Voidable transactions

Commercial, Your Own Business
0

Liquidator can claw back payments

The number of companies going into liquidation in New Zealand is on the rise after a Covid lull. According to Centrix,[1] 642 companies were placed into liquidation during the second quarter of 2024. This represents a year-on-year increase of 19%.

 

Most people in business know there is a substantial risk of not being paid by a company that goes into liquidation unless they have a secured debt. However, a payment made by a company before it goes into liquidation may also be at risk.

 

The liquidator can ‘claw back’ a payment made by the company to a creditor up to six months before the company was placed into liquidation by its shareholders or liquidation proceedings were filed in the High Court.[2] The liquidator may claw back the payment if it was made at a time when the company could not pay its debts, and the payment enabled the creditor to receive more than they would have received in the liquidation. Such a payment is known as a ‘voidable transaction.’

 

Pari passu rule

If a company has insufficient assets to meet all its debts, its available assets should be divided between its creditors in proportion to the debts they are owed. This is known as the pari passu rule.

 

There are several limits on the liquidator’s power to unwind voidable transactions. These are intended to strike a balance between upholding the pari passu rule and the conflicting objective of encouraging businesses to continue to trade out of their difficulties when facing financial problems.

 

Running account exception

The running account exception is one significant limitation on the liquidator’s power to claw back voidable transactions. It requires the liquidator to consider the net effect of a series of transactions between a creditor and the company, and to treat this as a single transaction.

 

In practice, if a company has a trading account with your business before it goes into liquidation, then any amount your business receives during the six months prior to liquidation that exceeds the value of any goods or services supplied during this period may be treated as a voidable transaction. For example, suppose your business supplies $10,000 worth of goods to a company during the six months before it is placed into liquidation, and you receive payments totalling $15,000 during the same period. Of that $15,000, $5,000 of the money you received went towards the debt that existed before the start of the six-month period. In that case, it is possible that a payment of $5,000 to your business was a voidable transaction, but the rest is safe.

 

The effect of the running account exception is that your business can keep any payment received for any goods or services supplied during the six months before liquidation.

 

Section 296 defence

This section[3] contains a ‘good faith’ defence available to creditors facing a claim to repay a voidable transaction. This statutory defence has three elements that must be satisfied:

 

  1. The creditor must have acted in good faith
  2. There was no reason for them to suspect the company was insolvent, and
  3. They gave something of value for the payment or changed their position due to the payment. The value does not have to be provided at the same time as the payment.

 

The claw back procedure

The Companies Act sets out the procedure a liquidator must follow when seeking to claw back a payment.

 

If the liquidator cannot resolve the issues through correspondence with the creditors, the liquidator may issue a formal notice to set aside the transaction. The recipient has 20 working days to respond to the notice. If they do not respond, the payment automatically becomes a voidable transaction at the end of this period and must be paid back. If the recipient does respond, then the liquidator may still apply to the court to set aside the payment.

 

It is difficult to fully protect your business from claw backs for voidable transactions. One option is to seek a security or personal guarantee at the start of any trading relationship. You should talk with us before continuing to trade with a company you suspect may have financial difficulties,

or if you are contacted by liquidators seeking to claw back a payment.

[1] Centrix August 2024 Credit Indicator Report.

[2] Section 292, Companies Act 1993.

[3] Section 296, Companies Act 1993.

 

 

DISCLAIMER: All the information published in Commercial eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Commercial eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Are Uber drivers employees and why does that matter for you?

Commercial, Employment, First Job, Uncategorized, Your Own Business
0

A case from the Court of Appeal on Monday acts as an urgent reminder that you can’t contract out of the Employment Relations Act (the Act) and that includes by calling the relationship an independent contract when it is not. The case involved four Uber drivers and the companies that own and run Uber Drive and Uber Eats.

Uber argued that they were not employers but provided an introduction service. Interestingly, adapting to new ways of working, the Court held that the drivers were all employees when they were logged in to the Uber Drive App.

Using an independent contractor rather than taking on an employee is attractive because it cuts out a whole swathe of costs, paperwork, responsibility and inconvenience: holidays, sick leave, termination issues and PAYE to name a few.  If you get the nature of the relationship wrong however, it can have an enormous impact on the employer: investigation, prosecution, fines and penalties, PAYE arrears, holiday pay arrears and much, much more.

So how do we know when a relationship is actually employment if we can’t rely on what the parties themselves agree in the contract? The answer is section 6 of the Act. Section 6 requires the court to focus on the realities of the parties’ mutual rights and obligations. In particular: how is the relationship working in practice (especially if that differs from the contract)?

Three key issues that the Court must weigh up are:

  • the extent of the control over the worker,
  • the degree of integration of the worker into the business, and
  • the “fundamental test” of whether the worker is carrying on their own (independent) business.

 The Uber case in particular emphasised Uber’s control of the workers which included Uber controlling fare setting and performance management, and right to discipline. They looked at the practice as it varied from the contract: even though the drivers could theoretically choose when and where they worked, they were penalised for not working regularly. They were not an independent business as the drivers were restrained by Uber from expanding their business. For example, there was a ban on contacting clients independently.

This situation might not be substantially different from many ‘independent contracts’ on our farms or in a small business setting.

If you have an independent contractor and that worker only works for you (perhaps because you do not permit subcontracting or them taking on other jobs, or simply because the job takes up all available time), if you can dictate what that worker must do from day to day and how they do it, if you can discipline them, if they work on your site and you provide most of the equipment, then it might be time to take a second look and seek independent professional advice.

Nicolette Brodnax
Nicolette Brodnax, Special Counsel

Preparing your business for sale

Commercial, Your Own Business
0

Whether you’re retiring, pursuing new ventures or looking to cash in on your hard work, selling a business is a significant milestone and one that needs careful planning and preparation.

To ensure the greatest return on your investment, your business should be at its best when it goes on sale. Building value in your business is important in attaining an optimum result.

 

 

Strengthening operations

As a starting point, you should ensure the business can operate successfully without you. All its operations and processes should be well-implemented and running smoothly.

It’s important to delegate responsibilities to capable managers early on. Work to reduce the business’s reliance on you and have a management succession plan in place detailing who will support the incoming owner and what pre-settlement training will be provided.

 

Sales are critical to the success of any business. It’s therefore important that before you put your business up for sale, you focus on increasing the volume of sales. Tighten up on all expenses and eliminate any shrinkage.

Give your premises a thorough clean. Ensure all physical and digital assets are in good condition, and that sensitive data is secure. Tidy your database and ensure you have favourable terms in place with suppliers, or consider the need to transfer distributor or dealership rights if that’s applicable. Damaged and obsolete stock should be disposed of and not included in the sale.

 

Collate the information concerning the business’s website, phone numbers, social media information, passwords and an up-to-date client database. Consider compiling this into a ‘starter’ document (operations manual) that will make it easy for the buyer to be up and running early on.

A potential buyer will want to see that the business has an existing marketing strategy for the next year and beyond. This will add value and may lead to a quicker sale.

 

Although this is a matter for the buyer of your business to consider, you should think about your current employees. Are they likely to be transitioned across to the new owner or will there be redundancies? Good communication with the buyer is important in respect of all employment issues. Existing employees are not likely to be notified of the sale until after the sale and purchase agreement is signed and/or it becomes unconditional.

 

Discuss with the buyer how customers will be notified of the business sale. The retention of customers is a major part of the goodwill of a business; to ensure a smooth transition, thought needs to be put into this process. Both parties should work together and plan on how your customers will be notified of the change of ownership. In the case of significant customers or clients or referrers of work, it may be necessary to arrange for personal introductions.

 

 

Marketing your business

When marketing your business to prospective buyers, you want to showcase its unique selling points. Engaging the services of independent professional advisors who specialise in business sales will be very helpful and provide invaluable assistance.

Considering who your potential purchasers are and negotiating with them can be very time-consuming. Professional advisers understand the market, can identify prospective purchasers, will assist with marketing your business and advise you on the sale process.

It is important to establish the right sale price. Advisers will look at the nature of the business including the value of its assets and its profitability to ensure an appropriate price is set.

If an inflated price is set at the outset, this will deter potential buyers.

 

 

Finance

Buyers will want to review the historical performance of your business to ensure they are buying a sound and profitable operation. The sale price should reflect the financial position of the business.

Financial statements and tax returns of the business should be formally reviewed by your accountant rather than being generated in-house to ensure their accuracy and to address any red flags. This will make the due diligence process easier for buyers, who will be assured that records are accurate.

 

Buyers’ lenders will be interested in cash flow and the ability to service any loans a buyer may have or need.

In preparation, formalise deals with customers and suppliers, and update your business forecasts. Search the Personal Property Securities Register to identify security interests registered over your business assets. Seek the removal of any that are no longer required and others that can be removed as part of the sale process.

 

Give some thought to work in progress/partially completed projects; we will include provisions in the sale contract to cover this situation. It may be that payments made by customers and clients following settlement could be apportioned between the parties. If you have issued gift vouchers and they are redeemed after the sale, a mechanism should be included in the sale agreement to cover this.

Sometimes when selling, a proportion of the sale price is contingent on the performance of the business following its sale. This is often referred to as an ‘earn-out.’ If this is the case, there should be a carefully worded formula included in the sale agreement. This will often include the involvement of an independent assessor. We will help draft any necessary clauses.

 

Check with your accountant about any taxes, GST and other obligations that may affect the sale. Your options when selling can differ depending on the business structure you have. Getting this wrong can lead to an unexpected tax bill; advice from your accountant is essential.

 

 

Legal

When selling your business, there are many legal considerations. You should talk with us early to ensure there are no complications down the line. You do not want any issues to arise with the buyer that have the potential to lead to a dispute.

Review your existing contracts, leases and any business compliance obligations. Make sure any trademarks and copyrights are updated, and that patents and licenses are secured and transferrable. You may want to renew these as their expiry could devalue your business. Completing an audit of your intellectual property and legal obligations reduces any risks for buyers, and for you.

 

The information provided to prospective buyers that relates to your business’s processes, finances and intellectual property is important and should be protected. Entering into a non-disclosure agreement with them will ensure that any confidential information about your business remains secure even if a sale falls through.

It is likely that the buyer will insist on a restraint of trade clause in the agreement. You should consult with us to ensure it is worded correctly and will not significantly impact your future plans.

 

Finally, it is important to keep your business running well when it is on the market as it may take time to sell. Be honest and realistic in your dealings, and keep up the marketing. Investing effort into thorough planning will increase the likelihood of achieving a successful outcome.

 

 

DISCLAIMER: All the information published in Fineprint is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Fineprint may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Commercial leases

Commercial, Property, Your Own Business
0

Reinstatement obligations for tenants

There are many rights and obligations that affect both tenants and landlords at the beginning, during and at the expiry or earlier termination of a commercial property lease.

 

The obligations on a tenant to reinstate the premises are usually set out in clause 20.1 of the ADLS Deed of Lease[1] and are important terms for both tenants and landlords to understand. Essentially the tenant is obligated to return the premises to the landlord in the same condition and state that it was at the beginning of the lease.

 

 

Tenants be careful before undertaking work

It is crucial that tenants understand their obligations before undertaking any work, and that your landlord must approve any alterations in writing. Having written approval does not mean that you won’t be required to remove any fixtures or alterations that have been made to suit your business needs or use of the space.

 

However, it is not an automatic requirement for you to reinstate the premises. Only where your landlord requires it to be reinstated does this obligation apply to you.

 

If your landlord does require reinstatement of the premises, you have a number of things to consider when deciding whether to make any alterations to complete a customised or business-specific fitout. These include the cost of potentially having to remove fixtures or reverse alterations, the benefit that any such alterations or fitout will have for your business, the length of your lease and/or how many rights of renewal there may be. These aspects of the lease are essential for you to consider before you complete any works given that you may be required to reinstate the premises.

 

As a tenant, you also need to understand that any reinstatement is entirely at your cost, and any fixtures or fittings you do not remove by the expiry or termination of the lease may become your landlord’s property without any need for them to compensate you.

 

Further to this, any cost that your landlord incurs in removing your fixtures or fittings or carrying out reinstatement work you have not completed can be recovered from you by your landlord.

 

Finally, you must also repair any damage caused in the process of removing your fixtures and fittings from the premises. This can be problematic if you have completed significant structural alterations where reinstatement may be difficult or even impossible to complete without causing some damage to the building or premises you are vacating.

 

Disputes

Where a dispute arises about the cost or compensation claimed by either party to the lease for reinstatement or damage caused in the process, the default position in the lease is that the parties submit the dispute for arbitration.[2]

 

Arbitration can be a costly and drawn-out process so having a firm grasp on obligations around reinstatement either at the beginning of the lease or before undertaking any fitout works or alterations is absolutely essential. This is particularly important if you are considering significant alterations that could be costly to remove to reinstate the premises.

 

Take care

The proposed lease should be carefully reviewed. This includes the standard terms of the deed of lease[3] as they relate to reinstatement and the dispute resolution process and any specific terms or variations to the default terms which may reduce liability or impose stricter obligations on both parties.

 

Commercial leases can be tricky things and it’s essential to get advice to avoid costly mistakes.

 

If you are a prospective tenant or landlord, we will work with you through this process.

[1] ADLS Deed of Lease Sixth Edition 2012 (5).

[2] Clause 43.

[3] Clauses 20 and 43.

 

 

 

DISCLAIMER: All the information published in Property Speaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Property Speaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Business briefs

Commercial, News, Uncategorized
0

Five companies sentenced over Whakaari/White Island eruption

In our Summer 2024 edition published in early February, we wrote on the Whakaari/White Island prosecutions brought by WorkSafe; in this Winter issue we report on the court’s late February sentencing.

Almost five years after the Whakaari/White Island eruption that left 22 people dead and 25 others severely injured, the District Court delivered its sentence for safety failings under the Health and Safety at Work Act 2015.[1]

Five companies were collectively fined $2 million for failing to assess and mitigate risk, and three of the five have been ordered to pay a collective total of $10.21 million in reparations to victims and their families. GNS Science was also fined $54,000 for failing to adequately communicate risk to contractors.[2]

Whakaari Management Limited (WML), one of the five companies sentenced and responsible for managing access to the land, was held liable for a significant portion of the penalties. WML has claimed it is unable to pay the penalties as it has no assets or bank account, even though evidence at trial indicated WML received about $1 million annually from island tours. The judge acknowledged he cannot make orders against WML’s shareholders, but appealed to their ‘inescapable’ moral duty to advance the necessary funds – even if this means reaching into their own pockets.

These penalties are a strong reminder for businesses to take seriously their health and safety obligations or risk hefty penalties.

 

Navigating financial distress

What should you do if your business is in rough financial waters? If you feel financial strain creeping into your business, it is important to take action early to address the situation rather than hoping it improves on its own. Below we suggest some options to help you navigate financial distress.

  • Engage with lenders: Communicate transparently with your lenders early on. This will maximise available options and strengthen your relationship. Most lenders are willing to agree to an approach where borrowers are transparent and can demonstrate a plan

 

  • Reach out to suppliers and customers: Have open conversations, where appropriate. Clarity around payment timeframes, late payment fees and other expectations will provide certainty for all parties involved

 

  • Review business contracts: Understand the terms of your business contracts, what obligations are owed and the implications if you default

 

  • Keep directors’ duties in mind: Ensure you are complying with your director duties, including avoiding trading recklessly or incurring obligations the company is not able to perform. You can be found personally liable if you breach your director duties. Maybe you have to make the difficult decision of winding up your business to avoid breaching your duties, and

 

  • Seek professional advice: Speak to your accountant or financial advisor to assess the financial position and solvency of your business. We can also advise on your options at any stage.

 

Commerce Commission win over Viagogo

In a recent judgment, the High Court provided useful guidance on misleading and deceptive conduct, and unfair contract terms under the Fair Trading Act 1986 (FTA). The decision followed a six-year legal battle between Viagogo and the Commerce Commission.[3]

The Commission commenced proceedings against Viagogo in 2018 after receiving thousands of complaints by consumers who had purchased event tickets from Viagogo, only to be refused entry at the events because their tickets were not authentic.

The High Court found that Viagogo had misled consumers in breach of the FTA by:

  • Failing to adequately disclose its status as a resale platform
  • Guaranteeing customers’ tickets to events, when in practice it often refunded invalid tickets after a customer had already missed the event
  • Creating a false sense of urgency for prospective purchasers seeking tickets
  • Disclosing additional ticket fees at a late stage of the purchase process, and
  • Stating it was an official or authorised source of tickets when it was not.

A clause in Viagogo’s terms and conditions requiring customer disputes to be resolved in Switzerland was also found to be unfair and unenforceable.

Viagogo was ordered to correct the misleading information on its website and update its terms and conditions.

This judgment emphasises the importance of using honest and fair trading practices, and ensuring your terms and conditions comply with the FTA.

Viagogo has appealed the judgment.

 

CCCFA update

The government recently announced changes to the Credit Contracts and Consumer Finance Act 2003 (CCCFA) as part of a larger, two-phase financial reforms package to address concerns about the accessibility of credit and burdensome obligations on lenders.

Phase 1: Already underway, this phase includes the removal of overly prescriptive requirements around loan affordability assessments, and exemptions for local authorities and providers of non-financial goods and services (such as certain car dealers).

Phase 2: As this phase is rolled out, it is expected the CCCFA will be updated to further streamline the lending process and continue to support more accessible lending practices.

The Ministry of Business, Innovation and Employment will publicly consult on revisions to the Responsible Lending Code and possible amendments to the CCCFA as they become available.

[1] WorkSafe New Zealand v Whakaari Management Limited, White Island Tours Limited,
Volcanic Air Safaris Limited, Aerius Limited, Kahu (NZ) Limited [2024] NZDC 4119.

[2] WorkSafe New Zealand v Institution of Geological Nuclear Sciences Limited [2024] NZDC 4149.

[3] Commerce Commission v Viagogo AG [2024] NZHC 713.

 

 

 

DISCLAIMER: All the information published in Commercial eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Commercial eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650