This research group owes its existence, in part, to a lawyer who allegedly “flipped” and contributed to the destruction of a law academic’s career.
That was in 2014, and last month we found out that an employment advocate was kicked out of an Incorporated Society for doing the same – betraying his client, a specialist heavy vehicle operator (driver).
A simple, common and legitimate tax deduction mechanism with respect to the costs of representation has become the catalyst for an unknown number of attempts to compromise employees’ representatives.
In September 2020 we explained how legal fees are often paid at the conclusion of a mediation that usually ends with the employee departing with a payout. To summarise:
The employer accepts partial responsibility for the employment relationship problem and proposes that the best way to resolve it is to pay the employee to leave. The employee’s lawyer or advocate usually agrees on the condition that the employer pony up a generous amount, while the employer’s counsel pushes for a more modest payout. Other conditions are negotiated.
Usually, both sides end up agreeing on an acceptable exit package (to avoid the hassle and expense of ERA proceedings).
The employer meets its own legal fees which are obviously tax deductible, but importantly the employee’s legal costs are also discussed in terms of how they will be paid.
Because legal costs and GST on legal costs are not normally tax deductible to the employee, the employer will usually pay the departing employee’s legal costs directly to the employee’s counsel as part of the settlement. The benefit to the employer is that the total settlement figure could be a little less than it would have been if the employee had to meet their own costs.
The pie chart below gives a rough indication of how a hypothetical $10,000 settlement might break down.
Using these figures the second option has the employee $1,400, or 41% better off, at no extra cost to the employer.
In the vast majority of cases, the system works well. Now we explain what happens if an employer decides, for whatever reason, that a conventional exit package negotiation is not going to solve its problems.
The main benefit sought by an employer engaging in mediation would range from a quick and clean fix to prevent costly and morale-sapping proceedings in the ERA, to the more sinister objective of gagging of a whistleblower through a non-disparagement and/or non-disclosure clause (NDA).
If an employee’s counsel suspects that serious wrongdoing is being covered up, that would theoretically put the employee-client in a better bargaining position, ie: the employee is going to expect to be adequately compensated for not only the loss of a job, but also the loss of the unfettered right of free speech when it comes to justifying their departure from the organisation.
But sometimes the compensation is far from adequate; we have heard of mediations where there was no payout for the employee, just threats to destroy their career (whether or not the employee signed, and if so, whether the employer kept its promise not to blacklist the employee). A lawyer or advocate who advises their client to sign away their job cheaply may have been bribed, under cover of the confidentiality provisions of the mediation process.
A lawyer acting for an employer would be keen to avoid getting caught and reported to the Law Society for procuring a secret commission to get the employee’s counsel to flip. So we think that because the employer usually pays the employee’s legal fees for tax reasons, an inflated fee offer, say double what the counsel would have earned if paid directly by their client, would be easier to conceal.
There are approximately 12,000 completed mediations per year, and because of the inherent secrecy of mediation we have no idea what percentage of these exit packages involve secret commissions or obviously inflated fees.
Which leads to our recent matter where a specialist driver went cheaply after raising a personal grievance for unjustified disadvantage. Counsel was not a lawyer but an advocate who we won’t name.
In the driver’s matter there is evidence of a secret commission being paid , which disadvantaged him. The advocate had name-dropped a large firm giving the impression that a lawyer for that firm was acting for the employer, although the driver did not meet or speak to that lawyer and was not given a name.
To start the ball rolling we contacted the Practice Manager of the law firm mentioned by the advocate and advised her of our suspicions that a lawyer from her firm may have procured a secret commission for the employer-client to pay to the driver’s advocate to flip. The Practice Manager was not particularly knowledgeable of employment law and had never heard of Section 149 (this is in no way a criticism!) so we explained that our investigation was ongoing and sent her some of our research material for context.
We then asked the driver if he was sure a lawyer from the named firm even existed. He wasn’t sure, and conceded it was possible that no lawyer acted for his employer!
It is certainly possible that a lawyer from the named firm gave legal advice over the phone or by email and billed for it, but did not act. That would create a paper trail showing that the employer sought legal advice, and the manager for the employer could run the mediation his own way, however unethically, without risking some “meddlesome” lawyer from a large firm being all proper and interfering with that process.
It must have come as a relief to the Practice Manager when we explained that this was the most likely scenario, although there is an issue around reputational harm the firm may suffer as a result of being wrongfully implicated in unethical conduct it never had a chance to prevent.
So, the manager(s) of employer must have paid a secret commission to the employee’s advocate without the assistance of a lawyer. We have no idea where an HR manager or similar might have been trained to do that.
The now unemployed and very aggrieved driver reflected on his “quickie mediation” experience which included finding out the advocate was paid more than the agreed amount. The advocate was a member of the Employment Law Institiute of New Zealand (ELINZ) so the driver complained to that organisation.
Long story short, ELINZ demanded that the advocate disclose how much he was actually paid, and he resigned his membership to avoid having to disclose that information. The advocate was already known to us for the wrong reasons.
ELINZ (an Incorporated Society) “was founded in 1995 by a group of like-minded individuals including retired judges, barristers, solicitors, employment law and industrial relations consultants, a law lecturer and employment law advocates”.
“ELINZ’s guiding principal is to promote and enhance professional standards of employment law advocacy”. Its current President is Kelly Coley.
In New Zealand anyone can appear in court unrepresented, although that is often unwise (depending on the circumstances and the court). The only jurisdiction that allows lay advocates to represent a party is employment. It basically means that under the Employment Relations Act 2000 anyone can represent an employee or employer provided they follow a number of rules.
ELINZ charges a modest annual fee, provides mentoring for its members and lobbies for regulation of advocates to weed out the cowboys. They have encountered opposition from advocates who don’t want to be regulated, and both the President and her predecessor Mark Nutsford have expressed their frustration at wayward members’ ability to simply resign their membership, escape the consequences of their misconduct and even continue that misconduct.
By contrast, the Law Society can hammer lawyers for misconduct including imposition of fines and suspension of the lawyer’s Practicing Certificate. In November I reported that a lawyer who was struck off for laundering drug money could theoretically set up shop as an employment advocate which we don’t think ELINZ would be too thrilled about. One such operation against a law academic in 2014, and the Law Society’s mishandling of it, led to the formation of Leighton Associates several years later, and we are aware of only one employment lawyer being punished by the Law Society for receiving a secret commission (Hooker, 2020). The client of Mr Hooker has been known to us since 2018.
New employment relations legislation is probably not far away and we will be interested to see ELINZ’s role in that legislation, given that it appears to have done all it could to deal with an alleged turncoat advocate.