There is a particular kind of courage that becomes much easier when someone else is paying for it.
A manager decides a former employee’s claim must be fought. HR agrees. Lawyers are instructed. Settlement is dismissed as giving in, and anyone who suggests a commercial compromise is reminded that the company has principles. Curiously, most discussions like these don’t seem to actually name the principles in play.
Months later, the Employment Relations Authority finds in the employer’s favour. Congratulations all round. Then the legal bill arrives.
The company has spent $40,000 defending a claim it might have resolved for $15,000. It has diverted management time, distracted staff and spent months dealing with an issue that could have been put to bed. The Authority awards it $4,500 in costs, which the former employee cannot afford to pay.
The numbers in this example are hypothetical, but the problem is real enough. A legal victory can leave a business considerably worse off, and the person who insisted on the fight may have had a rather different stake in the outcome from the company itself.
Who is making the call?
Employment disputes do not arrive at a board meeting with all the facts neatly arranged and labelled.
They usually travel up through the organisation. A complaint is made about a manager, or about a process HR handled. Someone gathers the documents, prepares a summary and briefs the person with authority to make the decisions. That person may then brief the company’s lawyers, who provide advice based on the information they have received.
At every stage, somebody decides what is relevant.
That somebody might have been involved in the events complained about. They might be protecting a colleague, defending a process they designed, or hoping to keep an uncomfortable issue from becoming a bigger one. Their own conduct might deserve closer scrutiny, even if nobody has yet thought to scrutinise it.
They might also see a successful defence as personally valuable. A win at the ERA can make a manager look decisive, vindicate an earlier dismissal and provide a tidy answer to anyone who questioned their judgment. “The Authority agreed with us” sounds much better in a performance review than “we paid to settle a complaint about my handling of the situation”.
The company’s interests may be rather less dramatic. It may simply want the dispute resolved sensibly, its legal exposure understood and its money spent on something useful.
None of this requires a conspiracy. People are perfectly capable of believing their own version of events, especially where the alternative involves admitting that they handled something badly. A document that complicates the story can be treated as unimportant. An employee’s account can be described as unreliable before anyone independent has tested it. A settlement offer can be dismissed as unreasonable because accepting it would feel like a personal defeat.
By the time the matter reaches the person who holds the purse strings, the case can appear much clearer than it actually is.
A win does not make the bill disappear
The ERA can order an unsuccessful party to contribute to the successful party’s costs. That is a useful thing to know. It is also a long way from saying that the winner gets all its money back.
The Authority says it normally awards a ‘contribution’ towards costs. Its starting point is generally $4,500 for the first day of an investigation meeting and $3,500 for each additional day, with adjustments depending on the circumstances. A party’s own time preparing for and attending the investigation cannot be claimed, and the costs of going to mediation generally cannot be claimed through the Authority’s usual costs process.
In other words, the employer can win and still be left holding a substantial bill.
The lawyers may have spent many hours taking instructions, reviewing documents, preparing evidence, advising on settlement and attending the investigation. Managers and other staff may have spent considerable time helping them. Those costs do not cease to exist because the determination says the employee’s claim failed.
There is then a further distinction, and it is one that can get rather lost in the celebration: a costs award is an order to pay, not proof that payment has been made.
If the employee cannot pay, the employer must decide whether to write the debt off, agree to installments or spend more money pursuing it. Collection can involve further professional fees and court processes. The debt may become larger on paper while the prospects of actually recovering it remain poor.
A $3,887 debt and a bankruptcy application
The risk of further proceedings is more than theoretical.
In Pratt & Whitney Holdings SAS v Gapuzan, the High Court dealt with an application to bankrupt a man over a costs debt of $3,887.50. The debt arose from District Court proceedings brought by Mr Gapuzan against Pratt & Whitney. Those proceedings had been struck out, and he had been ordered to pay the company’s costs and disbursements.
When the debt was not paid, Pratt & Whitney issued a bankruptcy notice and then applied to have him adjudicated bankrupt. The High Court made the order and awarded further costs for the bankruptcy proceeding.
Mr Gapuzan also had proceedings involving Pratt & Whitney in the employment jurisdiction, although the debt that prompted this particular bankruptcy application came from the District Court case.
The judgment does not tell us how much Pratt & Whitney ultimately spent pursuing the debt, how much it recovered from the bankrupt estate, or why it considered the application worthwhile. Those would be fair questions to put to the company before drawing conclusions about its decision.
What the case does show is the path a relatively modest costs debt can take: a judgment, a bankruptcy notice, a further court application and another costs order. By then, recovering the original amount may have become an exercise with its own legal bill.
An employer considering that route should ask the obvious question: what is there to recover? A bankruptcy order does not magically put money into an empty estate. The creditor may be able to lodge a claim, but payment depends on the assets available and the operation of the insolvency process.
The million-dollar defence
Sometimes the employer’s own legal expenditure becomes public, and the figures can be rather eye-watering.
In the dispute between Dr Siouxsie Wiles and the University of Auckland, the Employment Court found that the University had breached obligations to her in relation to harassment connected with her public commentary. Wiles received $20,000 in compensation and declarations concerning the University’s breaches. Some other aspects of her case did not succeed.
The subsequent costs decision revealed that the University’s legal fees and associated costs totalled $1,416,403.65, including GST. Wiles’ stated legal costs were $551,838.32, and the University was ordered to contribute $205,059.94 towards her costs and disbursements.
This was a complex Employment Court case involving a three-week hearing. It should not be treated as the ordinary cost of defending a personal grievance. It does, however, demonstrate the scale of expenditure an institution can incur while defending its position.
The University had made a settlement offer, which Wiles rejected. The Court considered her rejection reasonable, taking into account that she sought public declarations and other non-financial outcomes. That matters: we cannot simply compare the $20,000 compensation figure with the legal bill and pretend the entire dispute could necessarily have been resolved by writing a cheque for that amount.
Even so, the case raises legitimate questions about institutional decision-making. Who assessed the likely cost of continuing? Who considered the risks? What information did those people receive, and how independently was it tested?
The published figures do not establish that ego drove the University’s decisions. They do establish that defending a position can become extraordinarily expensive, particularly for an institution with the resources to keep fighting.
The settlement that might have saved both sides
In Osborne v Callaghan Innovation, an ERA costs determination described another kind of untidy outcome.
Callaghan had previously obtained an Employment Court costs award of $24,330.20 against Mr Osborne, who was paying it off. Before a later Authority investigation, Callaghan offered to forgive that debt and repay the sums he had already paid if the claim settled. Mr Osborne rejected the offer.
The Authority later found that Mr Osborne had succeeded overall in the matter before it, although his unjustified dismissal claim failed. When considering costs, the Authority observed that both sides would have been better off if the matter had settled earlier, and that Callaghan in particular would have avoided the costs of the Employment Court hearing and the Authority investigation.
The Authority also noted that Mr Osborne appeared to have rejected Callaghan’s later offer without legal advice and to have misunderstood whether the earlier court-ordered costs could be forgiven.
It is an example of the arithmetic becoming more complicated than a simple win or loss. There was an existing debt, a rejected offer, further proceedings and more costs. The decision does not tell us that ego caused Callaghan to litigate, but the Authority’s observation about the cost of failing to settle is difficult to miss.
Whose principle is it anyway?
There will be cases where an employer should defend itself. A claim may be weak, a proposed settlement may be unreasonable, or the organisation may have a legitimate reason to seek a ruling. Employers are entitled to take allegations seriously and to protect themselves against claims they believe are unfounded.
But “we could win” is only one part of the advice a decision-maker needs.
They should also know what the defence is likely to cost, what settlement might look like, what happens if the case goes badly, and whether a costs award would realistically be recoverable. They should know which documents support the employee’s account as well as which documents support management’s. And they should know whether the person preparing the brief has a personal stake in the story being accepted.
For a significant dispute, that might mean having someone outside the original management chain review the evidence and the proposed strategy. A director or senior executive should be able to ask for the uncomfortable material without treating its existence as disloyalty.
The lawyers have a role here too. They can advise on the strength of the case and the likely costs, but their advice is only as useful as the instructions and documents they receive. If the person briefing them has omitted material that undermines management’s account, the resulting advice may be reassuring for all the wrong reasons.
A business would not normally approve a major expenditure without asking what it expects to get for the money. Litigation should attract at least the same scrutiny, particularly when the employee at the centre of the dispute may be out of work, without substantial assets and in no position to repay the company’s costs.
A manager may emerge from the ERA feeling vindicated. That feeling has value to the manager. Whether it was worth the price to the business is a question someone else ought to ask.
General information and commentary. For support with your own circumstances, get in touch.
