Employers must balance their loss against reputational risk, difficulty to recover amount
Employers can bring a claim or counterclaim against an employee for a breach of their employment agreement or a breach of the duty of good faith (among other implied duties). These claims may seek compensation for damages and penalties under s. 4A of the Employment Relations Act 2000.
Employers faced with fraud or dishonesty must establish not only that the misconduct occurred but also that it led to measurable loss and that this loss can reasonably be recovered from the employee in question. This can be hard to establish.
In Houkamau v. Waste Management Limited [2025] NZERA 263, the employer sought to recover around $110,000 in losses. The Authority declined to award special damages, citing the lack of precise loss quantification, the employee’s limited financial means, and broader equity considerations. Instead, the employee was ordered to pay a $6,000 penalty for serious and sustained breaches of her employment agreement and duty of good faith — $4,000 of which went to the employer.
Reputational considerations before suing an employee
While the law provides a clear pathway for employers to bring claims against employees, in practice, such action is rare. Even with strong grounds, such as proven dishonesty or fraud, employers often hesitate to litigate.
Why? Because the optics matter. Employers are typically larger and better resourced, and suing an employee can easily be perceived as vindictive. Public perception may tilt toward seeing the employer as the aggressor, regardless of the facts.
The reputational risk can outweigh any potential financial recovery, particularly where the employee lacks the means to pay. This was evident in Houkamau, where the employer’s actual loss far exceeded the penalty awarded but broader considerations, including fairness and the employee’s financial position, ultimately shaped the outcome.
Are filing claims worth it?
In TradeZone Industrial Group Ltd v. Stanton [2025] NZERA 496, the employer successfully clawed back around $62,000 from an employee who falsified invoices and misappropriated payments. But that wasn’t the full story. The Authority acknowledged — but didn’t award — an additional $40,000 paid under a record of settlement (allegedly induced by misrepresentation), plus $18,555 in legal fees, forensic costs, and lost time. The issue of remedies and costs was left open for private settlement.
TradeZone’s recovery came through a mix of freezing orders and voluntary repayment. Even so, the company bore significant extra costs. Similarly, in Houkamau, the employer recovered just $10,000 from a third party and received $4,000 of a $6,000 penalty — far short of the $110,000 loss it claimed. Despite strong evidence, the employee’s limited financial capacity meant the loss went largely unrecovered.
Even in clear-cut cases of fraud, the cost of litigation can outweigh the return in some cases. Employers should weigh the legal merits against the practical realities and gain legal advice to consider reputational risks.
Scott Wilson is a Partner at Duncan Cotterill in Christchurch, specialising in in employment law. Kirsty Wallace is a Special Counsel at Duncan Cotterill in Wellington, specialising in employment law. Megan Blackwood is a Solicitor at Duncan Cotterill in Auckland. For more information visit duncancotterill.com.
