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Pitfalls of family law disputes

7 July 2015

Family law disputes are often the most bitterly contested. Perhaps next in line would be employment law.

People in a close and trusting relationship who part company often end up getting hurt, and the ferocity of the argument and any subsequent litigation often reflects this.

Combine a family dispute with an employment one and you have dynamite.

Most businesses in New Zealand are small with a handful of staff; many of them are run by a family. All is well until there is a bust up.

Two cases show what can follow.

Mlete Asfaw worked at the Wellington Meeting Tree Ethiopian Restaurant. She started there in January 2014. Despite working 258 hours as a part time waitress she only received $480 in wages. 

The mathematicians will know that that doesn't add up. At the time she started working, the minimum wage was $11 an hour. It then increased on 1 April 2014 to $11.40 an hour.

The set up of the restaurant is an interesting one. It was established by a small number of Ethiopian immigrants as a joint business venture. 

Asfaw's mother became a shareholder in the business. The company's sole director, Dagaga Gamachu, said each shareholder had entered into a written agreement where they would volunteer an additional family member to assist in developing the restaurant.

Asfaw argued that that was not so for her. She said Gamachu had offered her a rate of $10 an hour and had said that once the business started generating income she would be paid.

The Employment Relations Authority did not accept that she was a volunteer. It said that she gave coherent evidence that she was offered wages in exchange for work.

One victory for Gamachu was that the Authority held that as the restaurant was a limited liability company it was the company that had to pay the outstanding wages, not Gamachu personally. 

The young waitress was awarded $2,635 in unpaid wages and holiday pay.

In another cautionary case, a father who helped out his son's business, found himself defending a claim for lost wages from that same son.

Michael Orr was the owner of a company called Magic Bait. It was suggested by Michael's mother that he allow his father, Raymond Orr, to help out so that Michael could focus on growing the business. Michael agreed and Raymond took over the financial affairs of the business.

Steps Raymond took when assisting the company included opening fresh bank accounts and personally guaranteeing a $10,000 overdraft so that the business could buy equipment to assist in its expansion.

He returned financial control to his son about three years later. 

Following that change, the two men started discussing tax issues for the business. 

Inland Revenue became involved and told Michael that his father Raymond was the owner of the business and as a consequence owed him wages. He refused to pay his father's $10,000 overdraft and sued Dad.

The Employment Relations Authority disagreed with the IRD and Michael. It was not convinced on the balance of probabilities that the father ever employed the son.

Despite the fact that the father changed bank accounts and GST numbers, this was not determinative of the father being the employer. 

Rather, the change was designed to reflect the change in the financial management of the business.

The son's claim was unsuccessful and he never received any wages during the period in question because the business wasn't successful enough to pay them, and not because the son or the father was an employer and holding back money.

It is always sad to see family members falling out and suing one another.

It is hard to escape the conclusion that the human and emotional cost of internecine warfare within a family will be far far greater than the monetary sums the parties are fighting over.

It is well worth putting in the effort to have clear, transparent and agreed business relationships where agreements are reduced to writing - all the more so when family members are involved.

We all know of cases where family disputes have not got to court but where the resentment caused by misunderstandings can fester on for years.

Openness and transparency may well be worth its weight in gold and will certainly worth its weight in terms of the emotional well being of the family.

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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