Mr McLachlan was hired by Ms Crabb who was trading under the name Communication Gurus.  They signed an individual employment agreement to that effect.  Several months after Mr McLachlan commenced work, Ms Crabb incorporated a company, Communication Gurus Limited, intending this company to now become the employer.  Shortly after the incorporation, Mr McLachlan left the employment relationship without having signed a new agreement with the company.  His final pay was paid by the company.
 
Mr McLachlan sued Ms Crabb and Communication Gurus Limited in the Authority for non-payment of wages.  In its decision, the Authority stated that Ms Crabb was personally responsible for the wages up to the date of the incorporation, and the company was responsible thereafter.  This is despite the only employment agreement recording Ms Crabb as the employer.
 
The decision was based on the evidence as to the true nature of the employment “in all the circumstances”.

Enosa v Black & White Fire Systems Limited

In 2011 the Authority ordered that Black and White Fire Systems Ltd (Black and White) pay Mr Enosa approximately $10,000.  About a third of that amount was paid and the remainder withheld by Black and White.  Shortly afterwards, Black and White ceased trading and its sole director, Mr Vaisevuraki, moved to Wellington and incorporated a new company – Black and White Fire Systems (2011) Limited (Black and White 2011).
 
The Authority referred to Clause 4 of Schedule 2 of the Employment Relations Act 2000 which allows the Authority to reopen an investigation, and to the ability the Authority has to join other parties to a proceeding.
 
The Authority suggested that the investigation may be reopened and Black and White 2011 and Mr Vaisevuraki personally joined as parties to the matter.  This view was based on the principles set out by the Employment Court in the case of Square 1 Service Group v Butler.  In that case Judge Colgan suggested that the corporate veil could be lifted to examine whether the incorporation of a new company was a sham or façade created for the purpose of avoiding lawful or proper obligations.
 
The Authority deferred making a joinder order while it requested further evidence to allow it to decide on the real reason for the incorporation of Black and White 2011.  This evidence included financial details, the nature of the new company’s business and whether any assets of Black and White were sold to the new company.

How we can help

Jackson Russell is experienced in dealing with all aspects of employment law.  The cases above discuss two situations which highlight the potential difficulties there can be in identifying the legal entity liable to disgruntled employees.  To attempt to avoid situations like this it is important to ensure that you have employment agreements that are clear and that these are regularly reviewed to ensure they accurately reflect the employment relationship.

If you would like further information about this article or require advice on anything related to employment matters, please contact your usual Jackson Russell advisor or our Employment Law specialists.