ERA orders $7,000 penalty after worker commenced employment during paid garden leave
The Employment Relations Authority (ERA) ordered a senior financial officer to pay a $7,000 penalty to his former employer after he breached a settlement agreement by commencing employment with a competitor one month into a three-month paid garden leave period.
The worker sought enforcement of the settlement to receive two lump sum payments that the employer withheld, while the employer counterclaimed for penalties alleging the worker breached multiple settlement terms, including starting competitor employment during garden leave, accessing digital files for improper purposes, and disclosing confidential circumstances.
The ERA found the worker breached the settlement by starting new employment without consent, but dismissed claims regarding file access and confidentiality disclosure. The Authority awarded the penalty entirely to the employer, given that the breach triggered the long-running dispute.
Settlement terms and discovery of breach
The worker's employment ended on terms contained in a Record of Settlement signed by parties and certified in June 2024, providing for employment to terminate on 30 September 2024 after a three-month garden leave period.
During garden leave, the worker would continue receiving full pay and benefits while remaining bound by obligations and restrictions in his employment contract, including remaining available to assist with handover activities.
The employment agreement contained a restraint provision that for three months from the termination date, the worker could not directly or indirectly become involved with any business competing with the company in the meat industry in New Zealand without express consent.
The employer discovered the worker commenced employment with a competitor on 29 July 2024, one month into his garden leave period.
The employer withheld two lump sum payments due under the settlement on the basis of an alleged set-off for the worker's breaches.
The worker responded, saying he made a mistake or did not realise he could not commence work during garden leave for the competitor, and when pointed out, he apologized and agreed to waive the remaining two months of paid garden leave.
File access allegations and investigation
After discovering the competitor employment and retrieving the worker's company laptop, the employer discovered activity during garden leave showing movement of a significant number of files that had been accessed.
The employer drew an inference that this was concerning, given the worker had applied for and been interviewed for competitor employment around the same time he was accessing computer files.
The worker explained he was accessing files because he was at home, needed something to do, and enjoyed "deep diving into data."
His early responses were that he needed to access files to be ready to answer handover requests, though these requests were not numerous and did not support the amount of activity on his computer.
The employer's technology operations head produced spreadsheets showing laptop activity and examples of files open for viewing for a significant length of time. He conceded he did not know exactly what the worker was doing, and his investigation did not explore whether files were transferred, emailed or copied, or confirm what the actual content of files were exactly.
Breach findings and penalty determination
The ERA found the worker commenced work for the competitor employer one month into garden leave without written consent.
While the worker said this was his misunderstanding of settlement terms, the Authority found the action constituted a breach for which he could be liable to pay a penalty, finding his explanation that he didn't understand he was bound by a restraint implausible.
The worker conceded in cross-examination that he hoped the employer would not find out about gaining new employment through a recruitment agent, and in oral evidence said he thought he could probably get away with obtaining two salaries during garden leave.
The ERA found this was not an inadvertent breach with a level of deliberateness about not engaging with the employer about the intention to obtain new employment.
Regarding file access allegations, the ERA accepted that the employer reasonably drew an inference about concern but found the settlement terms required action beyond just looking at files.
The Authority found the evidence did not show anything more beyond the worker accessing and moving files around, and found the worker's evidence that he was just filling in time not completely implausible after hearing from him.
Penalty assessment and outcome
The ERA considered factors under the Employment Relations Act, including the objective of promoting mediation as a primary problem-solving mechanism. The Authority found the worker breached what ought to have been a clear duty known to him, and had he communicated constructively about wanting to obtain further work, the matter likely would not have proceeded.
The ERA found that some mitigation occurred as the worker agreed to waive the final two months of employment and salary by bringing the termination date forward.
However, his apology should be considered in light of his likely deliberate non-communication about starting new jobs and likelihood he ought to have known about the linked restraint.
The ERA determined $7,000 was appropriate as the penalty amount. In circumstances of this breach effectively starting what became a long-running dispute, and there being little other remedy available to the employer, the Authority ordered the whole penalty paid to the employer rather than the Crown.
The application to order compliance with ongoing confidentiality was dismissed, given that no breach was found regarding file access or settlement disclosure.
