New Zealand: NZ Employment Bulletin: Employers’ Policies & Procedures – What They Really Mean

Last Updated: 30 March 2006
Article by Richard Roil

What happens when an employee claims that they had no idea that their actions amounted to misconduct? This is not an uncommon response, but what if an employer can point to an established company policy which clearly identifies behaviour as misconduct. An area of interest in employment law has always been the nature and relationship of workplace policies and procedures. The way in which these policies and procedures normally apply to an employee is through the employment agreement itself.

Many agreements will contain clauses which state that an employee is bound by any and all policies and procedures that are in place or created by the employer. The enforceability, legality and operation of these policies and procedures have previously not been tested in superior courts. The recent decision of the Court of Appeal in Chief Executive of the Department of Inland Revenue v Buchanan and Symes, has shed light on what effect staff policies and procedures have on employees who fail to obey them.

Facts of the case

Both Buchanan (B) and Symes (S) had been employees of the Inland Revenue Department (IRD) for a number of years. Their work normally involved processing tax information for members of the public and they had complete access to IRD’s tax information system for that purpose. The IRD had a long standing policy that staff were not allowed to access any tax information related to family or friends. This was consistent with obligations of State Sector employees as well as standards required by the Tax Administration Act 1994. It was also a sensible policy to avoid any potential conflict of interest or corruption.

In 2001 IRD replaced its previous code of conduct with a more comprehensive document which set out the secrecy obligations of staff, the requirement to avoid conflicts of interest and protect confidential information. This code of conduct set out numerous examples such as not accessing a friend or family member’s file at their request, out of curiosity or for any other reason. With the implementation of this new code of conduct there were training sessions for all employees including B and S. The code of conduct was drawn to the attention of all employees.

In 2003 IRD carried out an audit of compliance for its procedures relating to the issuing and processing of personal tax summaries. The audit revealed a number of employees who had been actioning personal tax summaries for family members and friends. Altogether there were 35 disciplinary enquiries. S had been identified as accessing four family members’ accounts on 26 separate occasions and had taken actions in relation to those accounts including changing addresses and issuing and confirming personal tax summaries. On the other hand B had accessed five family members’ accounts, and her own account on 30 separate occasions and had undertaken similar actions as S but had also granted extensions of time, transferred credits and issued and cancelled dummy personal tax summaries.

Both B and S were called to separate disciplinary meetings at which they were asked to explain the results of the audit as it related to their conduct. They both admitted the conduct in question. They both acknowledged that they had received the code of conduct and attended the training session provided by IRD as well as received any and all subsequent publications relating to the code. They further acknowledged that what they had done was contrary to the code, but interestingly they both said that they did not realise that their conduct was wrong. They said that they had not read the code of conduct and had paid little attention to the discussion group session which had been designed to explain that code of conduct. IRD dismissed both B and S.

The Employment Court’s findings

The personal grievances lodged by B and S proceeded to the Employment Relations Authority which found the dismissals unjustified on the basis of disparity of treatment. While the Employment Court agreed with this finding, it made an additional one in relation to the code of conduct. The Employment Court recognised that some of the activities undertaken by B and S were serious because they suggested preferential treatment for close relatives of employees of IRD and could give rise to exceptional favouritism bordering on corruption. It was clear that this type of behaviour could be considered serious misconduct.

However the Employment Court said B and S were ignorant of the rules contained in the code of conduct, even though the measures that were taken to inform B and S were substantial. The Court further stated that where the explanation was accepted by the decision-maker and the problem was not the flouting of the rules but ignorance of their existence, then the questions of honesty and fidelity are not ordinarily engaged. So the Court decided that at the most B and S’s conduct could only amount to misconduct, not serious misconduct. So the dismissals were unjustified. This decision was challenged to the Court of Appeal.

The Court of Appeal’s findings

The Court of Appeal disagreed with the Employment Court and said that because an action was lacking wilfulness did not mean that it was not serious misconduct. The Court of Appeal’s approach was rather to evaluate the nature of the obligations imposed on the employee by the employment agreement, the nature of the breach that had occurred and the circumstances of the breach. Here it was clear that the obligations on the employees were significantly high, required by statute and clearly part of the business in which they operated. The Court of Appeal therefore found that both B and S were required to be aware of their obligations. IRD had made a concerted effort to ensure that employees were made aware of the code of conduct and the Court of Appeal found that it was entitled to expect employees to meet their contractual obligation to comply with that code. This is a clear signal that employees will be required to make themselves aware of any policies that relate directly to central obligations as part of their employment. The Court of Appeal did note that there are possibly situations where employees could not be expected to know of a particular obligation and therefore are unaware of any policy or procedure that might be available. However this was not what had happened in the present case.

The Court of Appeal found that the actions of B and S, even if they were undertaken in ignorance of the strict requirements of the code of conduct were clear breaches of that code and both B and S had contracted to comply with it. As IRD had drawn the code to their attention and B and S had received training on it, they were under an obligation to acquaint themselves with its requirements and comply with it. The Court of Appeal therefore held that non-compliance with the code regardless of the employee’s knowledge of its contents, was sufficient to amount to serious misconduct and justify any dismissal.

Conclusion

This case makes it clear where there are policies and procedures that are central to the employment obligations of an employee, the employee must get themselves up to speed on what those policies are. Coupled with this, once an employer has fulfilled its obligation in drawing an employee’s attention to those policies and procedures and provided an explanation or training in relation to these policies, there is a shifting of the onus onto the employee for which a defence of ignorance is unlikely to be available.

It is important to bear in mind that not all policies and procedures are going to get caught by this rule. As the Court of Appeal note, there will be situations where an employee cannot be expected to know every and all policies and procedure, particularly if they have not been sufficiently brought to the employee’s attention, or they are merely policies outside the central obligations of the particular role. However in most instances the employer should feel comfortable that their policies and procedures do form part of the employment agreement and provided sufficient information has been given to the employee about those policies and procedures the employee must conform with the requirements of that policy.

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.

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