Worker claims business transfer happened without his knowledge
A cabinet maker worked for over a year before his employment transferred between two related companies without his knowledge or documentation.
The worker received a text message stating there would be no more work due to poor market conditions, with suggestions to find temporary work and promises of future re-employment.
The worker sought payment for lost wages, notice period, annual leave entitlements, and compensation for unjustified dismissal.
The dispute centered on whether proper consultation occurred, whether the worker received correct entitlements, and whether the director could be held personally liable.
Employment relationship and undocumented business transfer
The first company, trading as HY Kitchen, employed the worker as a cabinet maker from March 2023. He worked 40 hours per week throughout his employment. The business moved to new premises in March 2024, and the worker continued working at the new location.
Unknown to the worker, the operation of the business transferred from the first company to the second company. The worker's bank statements and IRD records showed he was paid by the first company for the first year and by the second company afterward. All payments from either company were labeled as "HY Kitchen wages."
Throughout his employment, the worker's work was arranged and directed by the director. The director was a director of the first company but not of the second company. The director and sole shareholder of the second company was the director's wife.
Text message termination and subsequent communications
The worker received a text message from the director in late June stating there would be no more work the following week.
The message, translated from Chinese, said the market had been bad and suggested the worker look for temporary work while they waited for business to improve. The message expressed sadness and promised future work together.
When the worker made inquiries in July and August about whether there was work, the director replied that there was not. In late July, the director again told the worker to look for work elsewhere and not be picky. From early July onward, the worker received no further pay from HY Kitchen.
In mid-August, the worker asked the director for his annual leave entitlement to be paid out. The director's reply said the business was reducing costs and would only bring another worker to do the work. The director told the worker to wait and see what would happen.
Director's mistaken belief and acknowledgment of error
The director's witness statement explained that the worker was "working with us" for about 12 weeks with the second company.
This period did not refer to the earlier employment with the first company.
His statement said that due to the business being newly started and the market being sluggish, they did not have much work or orders.
The director stated they were unable to pay the worker's wages at that time. He informed the worker to look for other jobs and that once business improved, the worker could return to the company. The director thought that since the employment period was less than three months, no written notice was required.
After consulting with a lawyer, he learned he should have provided written notice four weeks in advance. The director acknowledged his mistake and was willing to compensate by paying four weeks' wages.
In answering questions at the Authority investigation meeting, the director confirmed he had acted on the mistaken belief that the second company was entitled to dismiss the worker within 90 days.
Unjustified dismissal determination
In the absence of a written employment agreement, the worker was entitled to reasonable notice of termination and to be consulted if his employer wanted to end his employment.
The second company acted unjustifiably by not providing that notice and carrying out that consultation. The Employment Relations Act requires an employer to provide the worker with information about decisions likely to have adverse effects on employment and give the worker a real opportunity to comment before any decision is made.
The second company unilaterally imposed a suspension of work and pay without proper prior notice. Although the director's text suggested some work might be offered in the future, the failure to discuss and agree on terms meant his message was, in reality, a unilateral termination without notice.
The director's subsequent answers in July and August repeated that there was no work and told the worker to find work elsewhere.
By the time of their communications in July and August, the employment relationship had already ended as a matter of fact and law.
The reference to future work was really about the prospect of re-employment, which did not happen. The worker established the second company, but was unjustifiably dismissed by text message in late June.
Remedies awarded for unjustified dismissal
The period for which lost wages could be awarded was limited by two factors. The award of arrears of wages for a notice period covers part of the period following termination.
The worker's employment may have ended anyway in a relatively short time if the second company had properly carried out a redundancy process.
The worker's evidence showed he had taken reasonable steps after dismissal to seek work elsewhere. He made multiple inquiries of potential employers during the weeks following his dismissal.
Allowing for the contingency that employment could have ended by a properly conducted redundancy process, the period for lost wages was limited to four weeks, totaling $5,440.
The worker's evidence established that he was upset and humiliated by the sudden termination. He experienced anxiety during the following weeks as he sought work elsewhere and asked the director about returning to work.
He and his wife had a young child and relied on his income, and the situation was made worse by being shortchanged in payment of notice and annual leave entitlements.
Compensation and contributory conduct assessment
Taking account of the shock of sudden dismissal and accompanying financial distress, the sum of $15,000 was appropriate compensation.
The range of amounts awarded as compensation in similar cases supported this figure. The ERA considered the worker's evidence of humiliation, loss of dignity, and injury to feelings.
No actions of the worker contributed to the second company failing to follow its fundamental obligations as an employer. The worker was entitled to be consulted about any necessary termination of his employment. No reduction of his remedies was required under the contributory conduct provisions.
The ERA found the worker bore no blame for the situation giving rise to his grievance. The worker had performed his duties throughout his employment. The failure to consult was entirely attributable to the employer's actions.
Notice period and holiday pay arrears
The worker's employment ended without payment of a notice period. In the absence of a written employment agreement, the law deems that a reasonable notice period applies. The director's witness statement said he had taken legal advice and considered that he should have provided four weeks' written notice.
Relying on the director's evidence, four weeks was the appropriate notice period. Four weeks' wages for that notice were due as arrears totaling $5,440. The second company transferred funds to the worker's bank account in late August as outstanding holiday pay.
This payment of $4,011.60 included a deduction of $500 for kitchen cabinet materials the worker allegedly used for personal benefit. Authority for that deduction was not established by the employer. The net amount of holiday pay the second company identified as due was $4,511.60.
Holiday pay calculations and transfer of liability
Relying on IRD records showing payments of wages, both companies reported that the worker's holiday pay entitlement was greater than the amount paid.
The second company was liable for any holiday leave entitlements the worker accrued with the first company before the transfer. His earnings with the first company totaled $70,969 gross, which, when calculated at 8 percent, generated a holiday pay entitlement of $5,655.68.
His earnings with the second company, excluding the holiday payment made in August, totaled $17,680. This generated a holiday pay entitlement of $1,414.40. The amounts added up to $7,070.08 due as holiday pay.
The payment of $5,132.64 calculated by the second company was short by $1,937.44. This was the remainder of the amount due but not paid when employment was terminated.
There was no information suggesting the worker had any paid annual holidays during his employment with either company.
Employment standards breaches and personal liability
According to the ERA, both companies breached employment standards in several ways. They failed to provide a copy of the worker's written employment agreement when requested by the worker's advocate.
The second company failed to pay the wages comprising the worker's notice at employment's end and failed to pay all of the worker's annual leave entitlements.
Both companies failed to provide immediate access to wage and time records when requested. This resulted in the worker's claims having to be assessed from information available in his bank statements, IRD records, and some pay slips.
There was no dispute that the director was knowingly concerned in each of those breaches in his role as a director of the first company and as manager of the business.
The director was the person responsible for making all relevant decisions about the worker's employment and payments.
His text messages to the worker confirmed he was a person involved in making and communicating decisions about all matters that comprised breaches of employment standards.
The ERA granted leave to the worker to seek recovery from the director personally if the second company was unable to pay arrears.
Penalties imposed and public interest considerations
The worker sought orders for penalties against both companies. Weighing the relevant factors and the range of penalties awarded in similar circumstances, the second company must pay penalties totaling $7,000.
The penalties comprised $2,000 for failing to provide a written employment agreement, $2,000 for failing to pay wages when due, $2,000 for failing to pay full annual leave entitlements, and $1,000 for failing to provide wage and time records.
The first company must pay a penalty of $1,000 for failing to provide wage and time records. As a cross-check, the total penalties of $8,000 against both companies were not disproportionate to the nature of breaches affecting the whole of the employment relationship and the amount of arrears awarded.
The full amount of penalties imposed are to be paid to the Crown.
