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Oracle scandal a stark case of broken job rules

the dominion post - tuesday, 17 september 2013

Many readers will be following the enthralling battle for the America's Cup between Emirates Team NZ and Oracle Team USA in San Francisco.

It has been 10 long years since Team NZ lost the cup to Swiss syndicate Alinghi, so here's hoping we will finally see it return.

It is not just the racing that has been in the news, however; many readers will also have followed the cheating scandal that enveloped the weeks leading up to the America's Cup match.

In short, the current holders of the America's Cup, Oracle, were accused of illegally altering their boats in the America's Cup World Series - a warmup for the main event. Oracle's senior leadership, led by former Team NZ skipper Sir Russell Coutts, has claimed it had no knowledge of the illegal modifications. Instead, Oracle say it was a small group of sailors and shore-crew who made the changes without authorisation from above.

The international jury convened to consider the allegations found several Oracle team members to be responsible for the modifications. Oracle's senior management was also criticised for not providing enough direction and supervision. However, there was no evidence the management was aware of, or ordered, the illegal modifications.

The jury banned three of the guilty crew members from participating in the America's Cup and suspended one for the first four races. The team have also been fined $250,000 and docked two race points in their match against Team NZ - the stiffest penalty handed out to a team in the 162-year history of the cup.

Oracle have come out swinging, labelling the jury's decision "shocking". As far as we know, no internal action has been taken against the guilty team members and if there were it is unlikely we will hear about it.

It is a term of the contracts between Oracle and its team members that they abide by the law and the rules governing the America's Cup. As the jury found the guilty team members had committed gross breaches of the America's Cup rules, Oracle would be well within their rights to take disciplinary action against them.

Dismissal would certainly be available. But would Oracle be able to seek compensation for the damage done?

Employees who breach express and implied terms of their employment agreement can be held liable for damages if there is loss suffered by the employer, as shown in a determination of the Employment Relations Authority.

Jared Steele worked for Brake and Transmission New Zealand (BNT), a supplier of automotive and other mechanical parts in Whanganui.

One day while driving a car belonging to his employer, Steele backed into another car, causing damage to both vehicles. BNT lodged an insurance claim. However, insurance did not cover all of the costs and the employer was left with a near $700 panel-beating bill.

Because Steele refused to cover the cost of the damage, the employer took a claim to the authority, which found that Steele failed to comply with an implied term of his employment agreement that he exercise due care and diligence in his work. Steele was therefore ordered to cover his employer's net loss.

The Oracle team members, by illegally modifying the team boats, appear to have breached their employment agreements. The result of their actions has been to engulf the team in controversy and deprive them of two points that they could desperately do with in the series against Team NZ.

How the courts would quantify the loss is a difficult question and for another day though.

Time will tell whether the damage done is enough to cost Oracle the America's Cup. But the plight of Oracle, as well as the story of Steele, are timely reminders of the need for employees to uphold their contractual obligations.

Cullen - The Employment Law Firm was one of the first eleven law firms in New Zealand approved to provide employment law services to Government and the public sector.

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