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Terms of Trade - Getting Paid


In the current economic environment getting paid in full and on time is critical. Now is a good time to review and update terms of trade, and debtor management practices. Trade debtors need to be conscious of their duties to creditors, and should act quickly if they start seeing signs of distress.

Your terms of trade should:

  • be in writing and signed (or assented to in writing) by the debtor;
  • enable you to undertake credit checks and require references;
  • may include a personal guarantee;
  • provide for interest on late payments at a rate that ensures you are not the "banker of last resort";
  • indemnify full solicitor/client costs and collection costs;
  • include a "retention of title" (to be effective you must register your security at and update it every 5 years. You should register the security before you provide goods to the debtor).
Consider if you should be reducing credit limits if these have not been used to the full extent. Also ensure your terms of trade are managed tightly. Ensure system generated arrears reports are prepared and reviewed regularly.

Consider offering an early discount if payments are made early. If payment reminders are needed, make sure they are sent on time, or (more preferably) telephone the debtor and obtain a specific date for payment.

You may also want to update your standard credit and other checks on key clients. Useful information can be found on Government websites such as

Employment Court Issues First Search Order


A search order (also known as an Anton Pillar order) allows an employer to search for and take away certain property - usually documents, computers or electronic storage devices containing information that rightfully belongs to the employer. The order assists employers to recover and retain their property, and to prevent important evidence from being destroyed (e.g. documents proving fraud or misuse of confidential information).

The Employment Court has released an important new decision confirming its ability to make search orders. Previously, an employer had to go to the High Court to obtain a search order. In Te Runanga o Ngati Whatua v Brence, the Employment Court granted its first ever search order and confirmed that, following changes to the High Court Rules in late 2008, the Employment Court now has the power to make search orders in employment related matters.

Facts: Mr Brence had been summarily dismissed for serious misconduct in February 2009. Prior to his dismissal he had threatened to disclose information about his employer's, Te Runanga, business. Following his dismissal, Mr Brence returned Te Runanga's laptop and mobile phone. He had been required to not delete information from either, but it was clear that 118 files had been transferred onto USB memory devices and 2,000 files and folders had been permanently erased. Data had also been removed from the mobile phone.

Decision: The Court also accepted that there was evidence of Mr Brence's association with a competitor of Te Runanga for the provision of health services to Maori. In those circumstances it was prepared to grant the search order for Te Runanga to search and take documents from the Mr Brence's home to recover the missing information.

Implication: If you have good reason to believe that one of your employees or former employees has information or property belonging to you, one of the most powerful tools you have as an employer is to obtain a search order from the Court.

Copyright in Slogans Acknowledged


In Sunlec International Pty Ltd v Electropar Ltd the High Court had to determine whether copyright could subsist in the caption 'Field Friendly - the best choice for field work'.

The judge started by looking at the definition of 'literary work' in the Copyright Act 1994, noting that a literary work is something intended to give information, instruction or pleasure. Subject to the requirement that the work be original, there is no requirement that the work have any literary merit. Generally it was thought that copyright cannot subsist in slogans.

The judge found, however, that copyright did in fact subsist in the slogan 'Field Friendly - the best choice for field work'. He made inquiry into the circumstances of the slogan's creation. If independent skill, labour and judgment have been involved in the slogan's creation such that it satisfies the requirement of originality, and if it conveys information, instruction, or pleasure, then a slogan can attract copyright protection.

On the evidence, the plaintiff proved that he had spent 'a lot of time' devising the slogan and exercised sufficient independent skill, labour, and judgment in the creation of the work. The slogan used language in a succinct and relatively memorable way which was not 'hackneyed' and conveyed information about both the product and the case in which it was contained. The judge then went on to find that inclusion of the Field Friendly slogan in relation to a competing travel case in an advertising flyer amounted to an infringement.

Implication: the Sunlec decision is in conflict with previous established authority that there is a presumption that a small expression is not of sufficient substantiality to warrant copyright protection. This presumption was not adequately rebutted by the judge in Sunlec. The decision is particularly difficult to justify in light of the slogan at issue, the relatively banal 'Field Friendly - the best choice for field work'. It is difficult to see why this slogan was regarded as sufficiently substantial to attract protection when more memorable titles such as 'The Man Who Broke the Bank of Monte Carlo' have been declined protection.

Employment Law - April 1 Updates


As of 1 April 2009, the following three changes have been put into place.

Firstly, the minimum wage will increase from $12 per hour to $12.50 per hour.

Secondly, there have been changes to Kiwisaver including:

  • the minimum employee contribution rate will reduce from 4% to 2% of gross salary or wages;
  • compulsory employer contributions will be capped at 2% (although employers can agree to pay more);
  • the exemption from Employer Superannuation Contribution Tax will be capped at 2% of the employee's gross salary or wages;
  • the employer tax credit will be discontinued; and
  • the member fee subsidy will be discontinued (leaving the employee tax credit of up to $20 a week, the $1,000 kick-start, mortgage diversion, deposit subsidy and the first-home withdrawal provisions).
Thirdly, the Employment Relations (Breaks, Infant Feeding, and Other Matters) Amendment Act 2008 comes into force. It introduces statutory requirements on employers to provide appropriate facilities and breaks for employees who wish to breastfeed or express milk in the workplace.

New Statutory Rest and Meal Breaks


Employers should take note of amendments to the Employment Relations Act as of today. These amendments relate to the implementation of statutory rest and meal breaks.

From 1 April 2009, employers must provide employees with paid rest breaks and unpaid meal breaks. Employees will be entitled to:

  • one paid 10 minute rest break when working for between two and four hours;
  • one paid 10 minute rest break and one unpaid 30 minute meal break when working between four and six hours; and
  • two paid 10 minute rest breaks, and one unpaid 30 minute meal break when working between six and eight hours.
These entitlements effectively re-start after the eighth hour of continuous work.

Employers should review any existing employment agreements or rosters to ensure they comply with the new law. Employers and employees can discuss and agree when breaks will be taken, how work will be managed during breaks and they are free to agree to observe the breaks outside the specified timeframes above. If no agreement is reached, breaks must be evenly spaced throughout the work period (as detailed in the legislation), as far as is reasonably practicable.

This legislation applies to all employees other than those, such as truck drivers, who have rest provisions pursuant to alternative legislation.

Penalties and/or compliance orders may result from non-compliance.

Job Support Scheme Announced for Nine-day Fortnight


Prime Minister John Key has announced details of a Job Support Scheme in which employees will be paid a fortnightly allowance of up to $62.50 if they agree to work a 9-day fortnight. Funds will be administered by the Ministry of Social Development.

Are you an eligible employer? The scheme will be:

  • available to private sector businesses only;
  • available to employers with more than 100 full-time employees.

Are you an eligible employee?

  • The scheme will only apply to employees who have been employed full-time for at least two months prior to going into the scheme;
  • The scheme will only apply to employees whose employer employs more than 100 people on a full-time basis.

How does the scheme work?

  • It will be available to employers from 27 March 2009 until 31 December 2010 - but only for a maximum period of six months to any employer within these dates;
  • Will be available to up to 10 employees for each averted redundancy (ie up to 10 employees can "benefit" from the scheme if one employee is not made redundant as a result of the scheme);
  • The Government's contribution will be paid direct to employers to give to employees it has negotiated a "voluntary agreement" with to reduce hours to a 9-day fortnight (ie employers cannot force employees to work a 9-day fortnight under the scheme. The employer's statutory obligation to consult with affected employees and to obtain their agreement before reducing hours of work will continue to be mandatory);
  • While employees are in the scheme they cannot be made redundant (although presumably, they can still be dismissed for serious misconduct or poor performance);
  • Employers are able to "top up" the allowance if they wish.

The scheme is not available to public sector employers or small employers (ie less than 100 FTEs); and is conditional on employees taking up training on the 10th day.

How the 90 Day Trial Period Will Affect Your Business


From 1 March 2009, employers of small and medium sized businesses will be able to take on new employees for trial periods (see Newspost 15/01/09). Provided you are an eligible employer, the new law will affect your business.

Eligible employers: Employers with 19 or fewer employees. This figure is calculated at the beginning of the day on which the employment agreement is entered into.

Trial periods do not apply to employees who have worked for the employer before - this is to prevent employers from hiring and firing the same employee every 90 days.

Getting started - trial periods in employment agreements: The new employee and employer must agree to the trial period. The agreement must be included in the employee's written employment contract which must state, or be to the effect, that:

  • for a specified period (not exceeding 90 days), the employee is to serve a trial period; and
  • during that period the employer may dismiss the employee; and
  • if the employer dismisses the employee, the employee is not entitled to bring a personal grievance or other legal proceedings in respect of the dismissal.
Event of Dismissal: If an employer wishes to terminate an employee's employment under a trial period they must give the employee notice of termination before the end of the trial period.

This is the case whether the dismissal takes affect before, at, or after the end of the trial period. If the trial period expires before the employer has informed the employee that their employment will be terminated, the employee is not deemed to be employed within the trial period and is therefore entitled to pursue a personal grievance for unjustified dismissal.

Employers must comply with any agreed notice period.

Employees under a trial period retain the right to access Mediation Services and mediation is "available" to parties in relation to the dismissal.

Employee rights: Employees can still bring a personal grievance or legal proceedings for an unjustified action, discrimination, sexual harassment, racial harassment, duress or if their employer has failed to comply with a requirement of Part 6A.

Employers wishing to include a trial period in their employment agreements should review their template employment agreement for legal compliance.

Employee Duties of Good Faith


Recent cases have shifted focus towards employees breaching their duty of good faith to their employer rather than the other way around. One such case is Craig v Carter Holt Harvey.

Ms Craig was employed as a receptionist/administrator at Carter Holt Harvey's Tasman Mill. She was responsible for management of company mobile phones. When a manager returned a phone to her with a small fault, Ms Craig organised for her personal mobile number to be transferred to the faulty phone. She used the phone for the next three months. A supervisor later discovered this and eventually, Ms Craig was dismissed for misuse of company property.

The Employment Court found Ms Craig had taken advantage of her responsibility for company mobile phones, to obtain a benefit to which she would not otherwise have been entitled (i.e. to have her personal number transferred to the company phone). Taking this into account, along with Ms Craig's knowledge of the company mobile phone policy, the Court held that a fair and reasonable employer would have dismissed Ms Craig for serious misconduct (as Carter Holt Harvey had done).

The duty of good faith put a positive onus on Ms Craig to conduct herself in a way that would not deceive or mislead Carter Holt Harvey. She breached this obligation. The Court concluded that Carter Holt Harvey could not continue to have trust and confidence in Ms Craig, even after her long and essentially unblemished period of service.

Implications for employers: Employers have a right to expect that their employees will act in good faith at all times. Specifically, where an employee has not been "up-front" with his or her employer and has failed to disclose an issue of importance (in this case, the fact that Ms Craig had transferred her personal number to the company mobile phone), this may give the employer grounds for taking disciplinary action against the employee, including, in appropriate cases, dismissal.

Statutory Protection for Affected Employees of Business Transfer


Adrienne Olsen v Carter Holt Harvey IT Limited (Employment Court, 24 November 2008) is the first case in which a "non-vulnerable" employee affected by a business restructuring has sought to enforce statutory protection provided under the Employment Relations Act. This case demonstrates that where there is a restructuring, and an arrangement between an employer and a new employer for the transfer of employees, employees may have an enforceable statutory right to elect to transfer to the new employer in accordance with that arrangement.

Facts: Mrs Olsen was a company accountant employed by Distribution Management Systems Limited ("DMS"). DMS was to be sold to a new company, Carter Holt Harvey IT Limited ("CHHIT"). CHHIT provided letters to all employees (including Mrs Olsen) offering them employment with CHHIT. CHHIT subsequently decided that Mrs Olsen's work could be undertaken by existing personnel and despite repeated assurances that all employees would be transferred, Mrs Olsen's was told her position would not be transferred to CHHIT.

Decision: The Court held that Mrs Olsen had become an employee of CHHIT because she accepted an explicit and unequivocal offer of employment by CHHIT. When Mrs Olsen was told that she would not be transferring to CHHIT, this constituted repudiation of her employment agreement by CHHIT and amounted to a dismissal. No proper procedure was adopted for the termination of her employment and therefore Mrs Olsen was unjustifiably dismissed.

In addition, Mrs Olsen claimed that she had a statutory right under s 69O of the Act to elect to transfer to CHHIT, and that CHHIT denied her this right. The Court agreed with her, stating that s 69O aims to encouraging employers to negotiate arrangements with new employers for the transfer of affected employees. Here, the arrangement was explicitly set out in the sale and purchase agreement between DMS and CHHIT which provided for the transfer of each of the employees to CHHIT. To the extent that CHHIT failed to act in accordance with the arrangement, it breached its obligations under s 69O and denied Mrs Olsen her statutory right to transfer to CHHIT.

Dealing With New Copyright Infringement Laws


If your business is reliant on internet access, you should be aware of the Copyright (New Technologies) Amendment Act 2008 which significantly changes how copyright infringement over the internet is dealt with. From 29 February 2009, Internet Service Providers (ISP) will now be required to have in place a policy for terminating the accounts of those customers using its services to repeatedly infringe copyright.

Common types of copyright infringement include downloads of music or movies/videos, image downloads, posting infringing copies of material on websites and blogs, unauthorised computer game and software transfers, and certain peer to peer file sharing.

The termination of a business's internet connection may be catastrophic so businesses should note that:

  • The repeat infringer does not need to be the same person in the organisation. This could mean that two or more separate people in a business may unknowingly infringe copyright, and it will be treated as a repeat infringement, resulting in the organisation's account being terminated.
  • Proof of infringement is not required. Furthermore, the ISP is not held accountable if it turns out there has been no actual breach of copyright.
  • In order to avoid liability, ISPs will probably take a conservative approach and terminate the accounts of users who are the subject of repeated complaints. Larger organisations are unlikely to be cut off without some form of consultation, but smaller organisations and home users will be the hardest hit. So when looking at the suitability of an ISP for your business, you should ask them what their "repeat infringer" policy is, what form of consultation or warning they will undertake, and what you have to do to resolve the issue.
  • Business owners should review their internal strategies for internet risk management, including consulting IT experts on available methods for blocking infringing behaviour. Most importantly, organisations need to review their employee internet use policies and make it clear to employees that internet copyright infringement is a disciplinary matter.

Guidance on Restraint of Trade Clauses


In Peninsular Real Estate Ltd v Harris, the Employment Court set out guidelines on the ability of a departing employee to compete with his or her former employer. The Court said that in the absence of a valid restraint of trade clause, an employer cannot prevent a former employee from competing, or contacting/soliciting clients or customers of the former employer.

These guidelines are particularly important in the electronic age where it is easy for an employee to "walk out the door" with confidential information simply by plugging a small device into their employer's computer and copying information within a matter of seconds.

An enforceable restraint of trade clause in employment contracts for senior or key employees can be used to restrict an employee from undertaking employment/having an interest in a competitor's business, for a specified period of time, within a specified geographical area, after termination of employment. It can also be used to prevent an ex-employee from soliciting clients or other employees for a specified period of time. The decision of the Employment Court demonstrates the value of having a well drafted restraint of trade clause.

Facts: An executive resigned from his position as Chief Financial Officer in October 2008 and informed his employer of his intention to take up employment with one of his employer's main competitors, immediately following the end of his notice period. The executive had extensive knowledge of his employer's business at all levels.

The executive's employment agreement contained both restraint of trade and confidentiality clauses. The restraint of trade clause prohibited the executive from working for a competitor for a period of 3 months after the end of his employment, and from soliciting clients for a period of 12 months. The executive had been paid $1,000 per annum in consideration for this restraint of trade.

Decision: The Employment Court upheld the restraint of trade clause on the basis that it was not unreasonable in the circumstances. There was a real risk of inadvertent and/or innocent disclosure of confidential information to the competitor if the executive was able to work during the 3 month restraint period. This was despite the existence of a confidentiality obligation in the executive's employment agreement, and his undertaking that he would comply with it.

Other factors which supported the enforcement of the restraint of trade included:

  • There was a genuine proprietary interest to protect in the knowledge of strategic and financial affairs;
  • The difficulty of establishing a breach of confidence if the executive did breach his obligations while working for the competitor;
  • The reasonableness of the other aspects of the restraint (3 month duration and geographical reach limited to the same geographical area in which the executive had worked);
  • The executive had freely entered into the restraint and was given a proper opportunity to take advice before agreeing to it;
  • The executive was a person of considerable business experience; and
  • The executive had been provided with $1,000 per annum as consideration for the restraint of trade.
This decision illustrates that a well drafted restraint of trade clause can be enforced against an employee where there is a genuine proprietary interest to protect, and the restraint is reasonable in the circumstances.

"Trial Periods" For New Employees


As of 1 March 2009 (as a result of an amendment to the Employment Relations Act 2000), employers in small and medium size businesses will be able to take on new employees for "trial periods". The Government intends these periods to enable employers "to determine the employees' suitability for permanent employment, without the risk of legal proceedings for unjustified dismissal in the event the employment is terminated".

To be eligible, the employer must have fewer than 20 staff at the time the relevant employee was employed (even if the employment of the relevant employee increases the total number of staff over the threshold of 20 employees). If the employer meets this requirement, a trial period may be implemented as follows:

  • the trial period is agreed to in good faith as part of a written employment agreement signed by both the employee and employer at the beginning of the employment relationship;
  • the trial period is up to 90 days (an employer and employee can agree to a shorter trial period);
  • the employer must still comply with any agreed notice period, or give a period of notice of termination of employment (i.e where the employment agreement is silent as to notice); and
  • a trial period can only be entered into once with the same employee.
If a trial period is agreed to, an employer may terminate the employee's employment on notice within the trial period and, as long as the notice is given within the trial period, an employee may not challenge the dismissal in the Employment Relations Authority or the Employment Court.

Unforeseen Agency Invalidates Security


The recent case of Dollars & Sense Finance Limited v Rerekohu Nathan [2008] 2 NZLR 557, sent a warning from the Supreme Court to lenders and their solicitors - tread carefully to ensure that you do not inadvertently appoint an agent whose actions you may be responsible for.

Facts: Dollars & Sense Finance Limited (DSFL) advanced money to Nathan (Borrower) on a condition that the Borrower's parents provide security for repayment by executing a memorandum of mortgage in favour of DSFL over the parents' jointly owned residential home. However, DSFL and their lawyers did not realise that the Borrower forged his mother's signature on the mortgage document. DSFL attempted to exercise its power of sale under its registered mortgage over the property.

The issue raised for consideration was whether DSFL expressly or impliedly appointed the Borrower as its agent to procure execution of the mortgage. A second issue was whether the forgery was committed within the scope of that agency.

Decision: The Supreme Court answered "yes" on both issues. The case reinforces the need for lenders and their solicitors to take care not to inadvertently appoint a third party as the agent of the lender by, for example, failing to actively facilitate the execution of loan and security documentation and compliance with relevant laws.

Costly Liability for Sleeping Directors


The recent decision of the High Court in Mason v Lewis [2008] NZHC 1535 provides a strong warning for sleeping directors (those not actively engaged in the management of or with an eye on the financial affairs of their company). The case highlights to directors that the court may impose very substantial penalties on them for breach of duties.

In the case, Mr and Mrs Lewis were sleeping directors of a printing company who failed to ensure that proper accounts of the company were kept and relied on financial advice of others rather than making their own proper enquiries. The company's manager, Mr Grant, was found to be a fraudster and the company had a woeful financial status. The liquidators commenced proceedings against the Lewises for alleged breaches of their directors' duties under the Companies Act 1993.

The Court of Appeal held the Lewises breached their duty to the company by paying little or no proper attention to the financial affairs of the company.

The High Court assessed the quantum of liability for the Lewises at NZ$1,261,330 in compensation and contribution towards the company's creditors and debts.

PM Plans Major Reforms


Prime Minister John Key has announced an intention to "hit the ground running" by passing major reforms within the National party's first 100 days in office.

This includes the introduction of a "transitional relief package" to support individuals made redundant - an initiative differing significantly from the recommendations released under Labour in October for statutory redundancy compensation.

National proposes to introduce government-funded support by way of top-ups to Working for Families payments (where eligibility for the in-work tax credit is lost as a result of the redundancy) and increases to the maximum weekly accommodation supplement. Such assistance may be provided to redundant individuals for up to 16 weeks.

Other proposed changes announced by National prior to the election included:

  • Allowing 90-day trial periods for new employees (by agreement between employer and employee) in workplaces employing fewer than 20 staff;
  • Allowing workers to bargain collectively without having to belong to a union;
  • Requiring injunctions and important questions of law to be heard in the first instance by the Employment Court;
  • Allowing employees to elect to "trade" their fourth week of annual leave for cash; and
  • Reviewing the Holidays Act.
Notice has not been given as to when these changes will take effect.

Dismissal For Offensive Email Justified


In Arthur D Riley & Co Limited v Wood (Employment Court, 8 October 2008), Jessica Wood was dismissed from her position as an administrative assistant with Arthur D Riley & Co Limited after forwarding an email on her work computer in late August 2006 with the subject line "Eleven Most hot People!!!!!!!".

The email contained images of people either completely nude or scantily clad, with the comment "ewww", added by Ms Wood before being sent.

Arthur D Riley's internet and email policy prohibited the accessing, downloading, uploading, saving, requesting, transmitting, storing or purposely viewing of offensive or inappropriate material. Ms Wood's breach of this prohibition warranted dismissal, according to the company.

On appeal, the Employment Court took a "comprehensive and flexible objective approach". The Court found the company's inconsistent application of its policy did not preclude it from referring to that policy in the course of the disciplinary investigation.

The Court noted that whether an employer's decision to dismiss is justified will be dependent upon the surrounding environment, including "the values, culture and expectations" of the specific workplace. Overall, the company was found to have acted as a fair and reasonable employer and Ms Wood's dismissal was justified.

Major Overhaul to Copyright Ownership


New Zealand's Parliament is poised to make a radical overhaul to the rules about copyright ownership in a move that will turn current expectations and understandings on their head for a wide and diverse range of industries which contract for the creation of copyright works.

A Bill to amend the Copyright Act 1994, which would abolish the so-called "commissioning rule", has recently been introduced to Parliament. The commissioning rule provides that those who commission and agree to pay for the creation of computer programs, designs and other artistic works, photographs, films and sound recordings, are the first owners of any copyright in the works created. The rule applies subject to agreement to the contrary.

The Explanatory Note to the Bill states that the Bill aims to:

a) provide consistency in the default rules for copyright ownership of commissioned works;

b) facilitate clarity about the rules for both the creator and the commissioner; and

c) assist creators in retaining copyright in their works so as to expand their ability to create future works, while maintaining the same number of works commissioned.

Lab Tests Wins Back Contract


A recent decision of the Court of Appeal has quashed the decision of the High Court which invalidated not only the decision of the Auckland Regional District Health Boards (ARDHBs) to award the contract to provide primary referred pathology services to Lab Tests but also the contract itself which was due to commence on 1 July 2007.

The Court of Appeal has ruled that Lab Tests' contract be reinstated and that it commence to supply services under its contract for the remainder of the term. Having said that, Diagnostic Medlab Limited has indicated that it is considering seeking leave to appeal to the Supreme Court.

The decision is a rejection of what the Court of Appeal described as a broad based 'probity in public decision-making approach' and is a return to the more traditional approach to judicial review. It will provide board members of public sector organisations, procurement managers and their advisers with a greater degree of certainty around their procurement and tendering processes where commercial contracts are involved, and will hopefully reduce the ability of an unsuccessful tenderer to challenge the award of a commercial contract using the judicial review process.

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