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Disasters don't remove employers' duty of good faith to workers

The Dominion Post - Thursday, 19 May 2011

The Christchurch earthquakes, the Auckland tornado and the Hawkes Bay floods are sharp reminders of the abrupt and extensive damage that natural disasters can cause to lives, homes and workplaces.

In an effort to deal with the situation of damaged workplaces and employees left without work as a result of natural disasters, there has been renewed talk of invoking an old doctrine called frustration of contract.

A contract is said to be “frustrated” where it has become impossible to perform because of some unexpected event, such as an “act of God” not attributable to either party. The parties are then discharged from further performance of the contract.

An obvious example of a “frustration” in the employment context is where an employee dies. The employment agreement terminates and the employer is released from all obligations, except to pay the employee’s estate wages or other monies owed that were due at the time of the employee’s death.

In a recent case that went all the way to the Court of Appeal, a farmer argued that he was justified in dismissing his farmhand worker because the employment agreement had been “frustrated.”

The farmer and his wife owned and ran a farm where they lived with their two pre-school children. While the farmer operated the farm, his wife worked part-time outside the farm. The farmhand lived in a sleep-out about 20 metres from the family home in an area accessible to their children. The relationship between the family and the worker was “congenial” involving lunch, occasional drinks and sporting activities.

Although oral agreements were made between the farmer and worker about the conditions of employment, there was no written employment agreement as required by law.

Five months after the worker started, the farmer sacked him after the farmer’s toddler accused the worker of indecent assault. When the toddler repeatedly grabbed his father’s testicles, the father asked: “Who does this to you?” The toddler replied that the worker had done it to him. The farmer and his wife believed the toddler.

Later that night, just before midnight, the farmer and his friend woke the worker in the sleep-out and threw him off the farm. The worker denied the allegations.

The police investigated the matter, but because the toddler did not repeat the allegations or say anything else to suggest inappropriate behaviour by the worker, no charges were laid. The farmer called the worker 11 days later to inform him he was “off the hook”.

After this phone call the farmer and his wife had no further contact with the worker. The allegations of the indecent assault became widely known in the community and the worker was subjected to verbal abuse, assault and had his car damaged.

In the first instance, the Employment Relations Authority decided that the farmer was justified in initially sending the worker away from the farm, but was unjustified in failing to take further steps and did not follow the proper procedures.

The Authority ordered the farmer to pay the worker $6,571 in lost wages, $917 in holiday pay and $12,000 for humiliation, loss of dignity and injury to feelings. The farmer appealed to the Employment Court.

In the Employment Court the farmer argued that regardless of the outcome of the police investigation, the family could never trust the worker or have him back on the farm again. The Employment Court found that the worker was not dismissed, rather the employment agreement was “frustrated”. When the toddler made his allegation of indecent assault the performance of the agreement became impossible.

The worker, legally aided, appealed to the Court of Appeal, which held that it was “not correct to conclude the contract was frustrated” and the Employment Court judge should have considered whether the dismissal was justified or not.

The Court said that “it was only if the employment contract did not make sufficient provision for what occurred that the doctrine of frustration will apply.”

The Court of Appeal had sympathy for the farmer and his wife who were “left in a difficult situation” however, “it was not such that the farmer could not afford the worker the benefit of the statutory processes for dismissal.” On this basis, the appeal was allowed and remitted back to the Employment Court.

The Court of Appeal said statutory requirements such as good faith and fair process are imported into the contract to deal with these sorts of occurrences. The indecent assault allegations were not beyond what the imported statutory obligations could deal with. Other options such as voluntary suspension may have been appropriate but were never considered. It must be remembered that statutory entitlements and requirements cannot be easily be “done away with”.

If an employer, whose workplace is affected by a natural disaster, is considering relying on the doctrine of frustration of contract they should seek legal advice beforehand. An employer must look at the employment agreement between the parties to see whether the situation is provided for in the agreement and at all times comply with the duty of good faith and the duty to treat employees fairly and reasonably.

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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