In September 2022 Blackburn Transport Ltd was put into liquidation after having traded for 13 years. The latest liquidator’s report seems unremarkable, and the process is not yet complete. But we expect that Waterstone Insolvency’s next liquidator’s report due in October will show an unexpected windfall, thanks to a recent determination of the Employment Relations Authority (ERA).
A 20 May 2021 determination indicates that a former employee Sam Smith went out on his own in April or May, having bought a truck. Smith was a sole trader until incorporating his company SS Moving Ltd in May 2023 and the business now has three trucks.
While solvent, Blackburn Transport Ltd (trading as Urban Carriers) claimed that Smith had breached his employment agreement including a 12 month restraint of trade clause and filed in the ERA. Smith counter-sued for an unpaid bonus.
Noncompete agreements are only moderately enforceable in New Zealand but let’s face it – if every employee with a noncompete clause in their employment agreement obsequiously complied with it, not many businesses would get started!
Care should be taken by the entrepreneur, and it appears from the 2021 determination that Smith did take steps to try to avoid legal hassles. However, he entered into an informal agreement with Blackburn’s owner to continue working for Blackburn on a part-time casual basis for a few months. That appears to have been a mistake because in or about July 2019 three Blackburn customers approached Smith wanting a better deal, which created a conflict of interests.
On 30 August 2019 Blackburn and Smith parted ways because of that conflict – and on the basis that a few Blackburn clients had gone over to Smith’s new business while Smith was still doing a small amount of work for Blackburn, its owner filed in the ERA (after sending a cease and desist letter).
Things developed at a glacial pace from then on. The 20 May 2021 ERA determination made a finding that Smith breached his employment agreement. It also notes that he did not produce enough evidence that he was entitled to an unpaid bonus. Damages and penalties were to be determined at a later date – three years later, in fact.
In that three year period, Blackburn had gone bust, and Smith had bought a couple more trucks and incorporated his company (after a few years as a sole trader). Because the affairs of Blackburn Transport Ltd (in liq) are now under the control of Waterstone Insolvency, its director’s position in all of this is nowhere.
On 24 June 2024 Member Urlich ordered Sam Smith to pay damages of around $51,000 plus interest, and $20,000 in penalties to the liquidators of Blackburn, and when his contribution to the other side’s legal costs is added, that would bring the total amount to roughly $100,000.
We don’t know if Smith will challenge this determination to the Employment Court, but we hope SS Moving Ltd will survive this significant setback in this otherwise SME-friendly nation.
See also: Company liquidator’s strange fishing expedition (16 September 2021)
Tristam Price, Editor, Leighton Associates
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