21 Jul 2017

Govt urged to close payout obligation 'loophole'

10:41 am on 21 July 2017

Companies are using a legal loophole to avoid paying settlements to unfairly dismissed employees, an employment law consultant says.

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Photo: 123rf

The comments follow a case in which an insurance company was ordered to pay a former employee more than $40,000 but, one year later, the man says he hasn't seen a cent.

In May last year, Mustafa Bhamji's ex-employer, Global Cover Insurance, stopped paying his salary because of cashflow problems.

Mr Bhamji was asked to take out a loan on the company's behalf so it could continue trading, and was dismissed when he refused.

He took the case to the Employment Relations Authority (ERA), which ruled in his favour and ordered him to be paid $40,883.95 in lost wages and pay arrears (PDF, 225KB).

The Employment Court upheld the ruling when Global Cover Insurance appealed.

But Mr Bhamji said he had not seen a cent, because the company no longer existed.

According to the companies' register, Global Cover Insurance is in the process of being struck off. That means all its liabilities - including the money it owes to Mr Bhamji - will be wiped out.

In a separate case, in 2014, the ERA ruled Thames woman Carol Baker had been constructively dismissed after she was assaulted by former employer and HRT director Peter Maynard. She was awarded nearly $20,000.

But, before the ruling was made, the company's assets were sold. It is no longer trading.

She said she had spent the past three years chasing that money.

"The people who run the company, the people who benefit from the company, tend to wriggle out of their obligations by either liquidating or changing their name. It just seems so wrong."

Employment consultant David Collins, who has been supporting Ms Baker, said he had seen many cash-poor companies shut themselves down if an ERA decision went against them.

It was most common for them to go into voluntary liquidation, he said. In one case, a company went into liquidation in the week before a hearing he was involved in.

"The Employment Relations Authority wouldn't hear our case because the company had gone into liquidation - something that would happen reasonably often because there's that loophole."

Wellington employment lawyer Peter Cullen said there wasn't much people could do in that situation.

"If you get judgment against a company and the company goes bust then you've got real problems.

"Sometimes you can attack the directors, although that's going to be difficult and expensive if there's no obvious way of holding them to blame. But if they've disappeared as well, then the future is gloomy I think. I can't see that there's much hope for someone in that situation."

Mr Collins said the government needed to close the loophole allowing companies to avoid payouts.

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