Facts trump employers’ beliefs, court says in Southern Taxis case

Employers claiming to genuinely believe they are not breaking employment law could still be held personally liable, the Court of Appeal has ruled.

In 2019, the two former directors of Dunedin company Southern Taxis were found personally liable for failing to pay minimum wages and holiday pay after the company was wound up, and it could not pay the $97,753 owed to the drivers.

The Employment Court later overturned that ruling.

The Employment Relations Authority had earlier found Ronald Grant and Maureen Grant treated four taxi drivers as contractors when they were actually employees of Southern Taxis in Dunedin.

In a ruling released on December 20, the Court of Appeal said it was irrelevant that the Grants believed the drivers were contractors, and referred the case back to the Employment Court. The key was whether the Grants knew the facts that led to the finding that the drivers were employees, said Justice David Goddard on behalf of the Court of Appeal. The court agreed with the lawyer for the Ministry of Business, Innovation and Employment’s Labour Inspector that it was a test case.

Southern Taxis, which operated between 2002 and 2016, referred to its drivers as independent contractors and paid them a flat commission of 40 per cent from what they earned while driving vehicles owned by the company.

After four of the drivers complained to MBIE’s Labour Inspectorate, the Employment Relations Authority determined in July 2018 that they were employees and were owed about $80,000 in minimum wages, holidays, rest breaks and unlawful deductions.

About two months earlier, the limited liability company had wound up, and its surplus assets were paid to its shareholders and directors, the Grants.

The company declared it had discharged its liabilities in full to its known creditors.

The authority said the directors were personally liable for the money owed to the drivers, but the Employment Court found in May 2020 that they were not personally liable after the directors appealed.

The inspectorate went to the Court of Appeal seeking a judgment on what level of knowledge was needed to establish a person’s liability.

Under the Employment Relations Act 2000, the Grants may be found personally liable for the amounts that Southern Taxis failed to pay to employees if they were ‘‘involved in’’ Southern Taxis’ breaches of its obligations.

‘‘In this case, that depends on whether they were ‘‘knowingly concerned in’’ the breaches,’’ Goddard said in the judgment.

‘‘Mr and Mrs Grant genuinely believed that the drivers were independent contractors, not employees. The genuineness of that belief is not challenged.’’