National Business Review invited us to weigh in last week, and here’s the link to the ERA Determination that was publicised soon after. Text of the article follows...
Much has been written about Tova O’Brien’s employment dispute, but it was particularly interesting watching this issue unfold as someone who has tracked Employment Court cases for several years.
Noncompete disputes I have written about – in relation to noncompete disputes that ended up in the Employment Relations Authority or Employment Court – in no particular order, involved Davis Trading, Caci Clinic Nelson, New Era IT, Bananaworks, and a really aberrational one about 15 years ago, Fuel Espresso.
Until around 2016 the Employment Court used to be the initial go-to for interim injunctions; the court would then kick the matter down to the ERA to determine enforceability for the rest of the term, penalties, and costs. But now the ERA issues compliance orders. The change seems to have come about ostensibly to save money but also because I think the ERA has been gradually helping itself to powers Parliament didn’t give it.
The Fuel Espresso case went to the Employment Court in 2007 which found the noncompete not quite enforceable. This was because the court found it impossible that a café worker's modest hourly rate should include a consideration that might support a noncompete. The Court of Appeal then ruled that it was enforceable anyway, which got legal bloggers at the time all excited. But history has found the Fuel Espresso case to be aberrational rather than precedential, and Victor Hsieh, the café worker in question, was just unlucky.
Overall, in my lay opinion, and based solely on reported ERA determinations, noncompetes are moderately enforceable in New Zealand regardless of economic conditions. In some American states like Florida, they're very enforceable, and rampant. In California they're almost unenforceable.
Interest Generally, it's hard to find anything interesting in the reporting of noncompete disputes.
However – and this is important – there are about 15 times as many mediations as ERA proceedings. Overall, there are approximately 11,000 mediations and 650 proceedings in the ERA each year. We know that 80-90% of mediations result in the parties signing a Section 149 Record of Settlement (RoS), and these are so watertight that spectacular abuses have been developing and escalating over several years. For example, RoS’s can be, and are, used to cover up serious wrongdoing, by overriding the Protected Disclosures Act, especially in the public sector. One such case traversing some of these issues was Oranga Tamariki v Win in 2021, where OT has claimed a former employee had breached non-disparagement clauses in a mediated settlement agreement.
Similarly, it's likely that a large percentage of noncompete disputes that went to the ERA went to mediation first and failed, as O’Brien's apparently did. What's scary is that an employee can be bullied into signing a RoS that has a ‘beefed-up’ version of the noncompete that is in the original Employment Agreement, expanded in terms of scope, duration and distance from the place of employment.
Tova I was a little surprised at ERA member Marija Urlich's decision in the O’Brien case, but note the modest penalty and the noncompete period being brought forward by five weeks. Discovery got a friendly member but made a dumb choice, damaging its brand as its martyred competitor is expected to thrive (from March).
In the background, O’Brien got promoted by MediaWorks in early 2018, to 3News political editor, and reluctantly agreed to a restraint of trade clause (noncompete) that came with her new employment agreement.
In December 2020 MediaWorks sold 3News to Discovery. O’Brien’s employment, along with the benefit of the noncompete, transferred to Discovery.
To be enforceable, a noncompete has to be supported by a valuable consideration, and reasonable in terms of duration, geography and scope.
In late 2021 O’Brien was looking for a change from political reporting and attempted to progress her career within Discovery. After her efforts there failed, she accepted a job offer with her old employer, MediaWorks.
The restraint applied nationwide, this being the nature of media. Three months is modest for a restraint period and it can safely be assumed she was well remunerated. But O’Brien appears to have believed, as would any reasonable person, that even if the activity to be restrained included all television, surely it could not include radio because that would make the noncompete overly broad.
Despite this, O’Brien’s manager expressed concern that she would be in breach of her noncompete if she started at MediaWorks on January 25, or any time before April 21, 2022. O’Brien disagreed, asserting that the activity to be restrained was too broad to be enforceable. For the same reason she took part in a photo shoot for Mediaworks’ promotional video on her day off, November 19.
Urgent mediation Discovery sought urgent mediation on November 30.This was unsuccessful. From January 17, media started reporting that O’Brien had applied for an ERA determination that her noncompete was unenforceable.
Indeed, the high profile of the employee party generated unprecedented media interest. Helen White MP even launched a private members’ bill to ban noncompetes altogether.
On January 25 ERA member Urlich determined that the restraint of trade was enforceable but started the three-month period from mid-December when O’Brien had taken annual leave. She is now prevented, by way of a compliance order (similar to an injunction), from working for MediaWorks until March 14, 2022. In addition, the MediaWorks photo shoot and subsequent broadcast was deemed to be a conflict of interests and for this O’Brien was ordered to pay a $2000 penalty to Discovery.
The penalty was modest and the end of the restraint was brought forward by five weeks, so I’m going to assume that Member Urlich found the noncompete to be enforceable by a fine margin. As with any borderline decision many people are going to think it was unfair.
Most noncompete enforcement proceedings are brought by employers after the departing employee has been evasive about their next job. But being in the media industry, this dispute did not have that character.
Better off So, who is going to be better off one year from now? Discovery, who successfully made an example of a departing senior employee?
Unlikely.
O’Brien is very popular and has the support of her new MediaWorks colleagues. She should come out of this reputationally unscathed, and the significant legal bills coming her way should be a price worth paying for the higher public profile she will soon enjoy.
Discovery forced O’Brien to seek relief in the ERA, creating a media frenzy even before member Urlich’s investigation meeting had started. That made Discovery look mean-spirited even as it denied that enforcing the noncompete was a punitive measure. Future job candidates might play hardball on noncompete clauses, or be put off applying altogether. And that’s not on member Urlich.
While HR advisers Google shortlisted candidates for evidence of having taken a personal grievance claim in the past, candidates can just as easily look at their prospective employers’ online profiles and ‘stumble upon’ publicised ERA determinations that could be offputting. Being seen as a noncompete enforcer, win or lose, is not a good way to attract talented staff.
Clearly, Tova O’Brien wins.
Tristam Price is a founding member of Leighton Associates, an employment law and AML research and reporting think tank that identifies issues with the employment dispute resolution industry.
This supplied content has not been paid for by NBR.