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Picking up the Tab - When Do Employers Have to Cover Employees for Losses or Expenses?

Written by Glenn Finnigan, PARTNER on April 23rd, 2012.    

The duty of indemnification

The law in New Zealand places a duty on an employer to indemnify their employees for costs/ liabilities which arise during the reasonable performance of their duties. These liabilities can be for such things as the legal costs of defending Court proceedings or fines imposed as a result of certain conduct. This duty applies even when there is no specific term in the employment agreement (though some employment agreements may contain clauses which codify or extend the duty).
The duty to indemnify is not open ended. An employer may not have to meet an employee’s employment related costs or loss if those are as a result of the employee’s own negligence, breach of duty or general fault.

Recent case – Katz v Mana Coach Services

The Court of Appeal has confirmed the above principles by holding that an employee’s liability (in that case for legal costs) was incurred because of conduct outside of the reasonable performance of their work.

Ms Katz was employed by Mana Coach Services (Mana) as a bus driver.  During her normal driving duties she hit a car waiting to turn at an intersection.  Ms Katz admitted that it was her fault that she had struck the car as she had simply not seen it.

Ms Katz pleaded guilty to a charge of operating a vehicle carelessly and was discharged without conviction.  Ms Katz attempted to recover her legal fees, relating to her defence against the prosecution, from Mana under the implied indemnity principles.  Mana refused to pay, claiming that the accident was as a result of her own negligence.

The Court of Appeal agreed with Mana.  It said that Ms Katz’ legal costs were the result of conduct which was outside of the reasonable performance of her duties.  This was due to Ms Katz’ admission of fault and (effectively) her negligence in not seeing/ avoiding the car she ran into.

One of the Court of Appeal Judges reached the conclusion that Ms Katz wasn’t entitled to indemnity for a different reason.  She stated that, for public policy reasons, the right to indemnification should not be available for defending a criminal charge where the employee is guilty of the offending.  While this is a minority judgment it will be interesting to see whether it affects the duty of indemnity in the future – watch this space!

How the duty may apply to you

If your business involves employees operating in an area where they might themselves incur costs or other liabilities then you may find yourself asked to indemnify those employees for those costs.

How we can help

The duty to indemnify employees exists without a specific contractual provision.  However, it is easier to work out when it applies where an employee’s role and standards of care are clearly defined in their employment agreement.

Jackson Russell’s employment team can give you cost-effective advice, tailored to your needs regarding employment agreements or a potential indemnity situation.


The information contained in this publication is of a general nature and is not intended as legal advice.  It is important that you seek legal advice that is specific to your circumstances.
All rights reserved © Jackson Russell 2012

Glenn Finnigan Publications2
Glenn Finnigan,
Topics: All, Business, Employment

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