A few years ago now, in FMV v TZB [2021] NZSC 102, New Zealand’s Supreme Court effected a significant expansion of the jurisdiction of the Employment Relations Authority. The authority is the first-instance employment institution, broadly comparable to the Employment Tribunal in England and Wales. A right of appeal lies from the authority to the Employment Court.
Prior to FMV, private-law claims might involve employment relationships but not be ’employment relationship problems’, over which the authority has exclusive jurisdiction. There was something of a look-and-see approach to jurisdiction to determine whether the claim ‘directly and essentially concern[ed] the employment relationship’ or not. Thus, for example, the High Court (and not the authority) regularly determined claims made against former senior employees for breaching fiduciary duties, breaching restraints of trade, or misusing confidential information.
In FMV, the Supreme Court said this approach was wrong. Noting that Parliament had framed jurisdiction using the non-technical term ‘problem’, rather than by cause of action or remedy, the majority saw the question as simply one of fact. ‘If the controversy ar[ose] during the course of the employment relationship and in a work context, then it w[ould] be an employment relationship problem’.
So, the authority’s jurisdiction turned out to be wider than most people had thought. This jurisdiction was—unusually—grounded in establishing a factual state of affairs (jurisdictional facts will thus overlap with facts required on the merits). The Supreme Court did not consider that the fact third parties were involved in the dispute necessarily took jurisdiction away from the authority. And given the authority is the first-instance, specialist employment tribunal, it was seen as the best placed to determine whether ‘a controversy arose during the course of the employment relationship and in a work context’.
The authority’s workload increased as a result. The total number of applications the authority received increased from 1970 in 2022, to 2117 in 2023, to 2745 in 2024.
This increase (over the last few years at least) may also reflect the increasing use of artificial intelligence by litigants, otherwise unrepresented, to draft documents. This fact has not just increased the numbers of cases coming before lower level tribunals, where court fees are less of an inhibitor, but also the volume of material that tribunals are required to consider to progress cases. As a result, the authority, alongside many other first-instance tribunals, is struggling to deal with the volume of cases within its jurisdiction. Remarkably, the High Court is currently progressing cases more quickly and have made further efficiency amendments in new parts of the High Court Rules earlier this year.
Tribunal arbitrage is part of most forms of litigation and is ripe for strategic maneuvering. Most famously, within the European Union under the Brussels I Regulation, what was labelled the Italian Torpedo came to refer to the strategy of defendants seizing a slow-moving tribunal with a proceeding, even in the face of an exclusive-jurisdiction clause favouring another state, and seeking a stay of proceedings commenced elsewhere (on the grounds of lis pendens: that the first-seized court was entitled to determine its jurisdiction first).
The fact that the authority is struggling to keep up with an increased workload has created the risk of a similar domestic-jurisdiction torpedo. A party may seek a stay of proceedings in the civil jurisdiction of the District or High Court on the basis it has an arguable case that the dispute is an employment relationship problem, it has filed parallel proceedings in the authority, and the latter should determine the question of jurisdiction first. The risk is increased by several cases from the High Court that have concluded that parties cannot submit or agree to the High Court’s jurisdiction if the case is stated to be within the exclusive jurisdiction of another court. My view is that this conclusion rests on an erroneously expansive interpretation of an English decision about jurisdiction, Rothmans of Pall Mall (Overseas) Ltd v Saudi Arabian Airlines Corporation, in which Justice Mustill, in fact, concluded that seemingly imperative language as to non-jurisdiction in the relevant convention did not prevent a party acquiescing to it.
The torpedo issue also affects arbitrations. Section 155 of the Employment Relations Act provides that, while parties may agree to refer employment relationship problems to arbitration, if they do, ‘nothing in the Arbitration Act 1996 applies in respect of that submission; and the parties must determine the procedure for the arbitration’. This odd provision, likely informed by a historical reluctance to referring employment issues to arbitration, creates difficulties if one party alleges (even at a late stage) that the dispute submitted is actually an employment relationship problem. For example, if it transpired that a company director, or independent contractor, or franchisee, or partner was really an employee—New Zealand law adopting a substance over form approach to such questions—then an arbitration conducted under New Zealand’s arbitration statute would prima facie be invalid.
What is to be done, then, if there is currently no appetite to increase the number of authority members to bring down waiting times? Well, in FMV itself, Justice William Young suggested devising ‘a legislative mechanism providing for a default assignment of disputes associated with employment to the authority but with a power to remove to the courts or another tribunal or agency those which present particular jurisdictional difficulty’. But, this suggestion would not necessarily solve the problem that has subsequently arisen and which has been created by the time it takes for the authority to progress matters to the case-management stage at which it can resolve jurisdictional issues.
Perhaps it’s worth considering the history of the Italian Torpedo itself. It was ‘disarmed’ in the Recast Regulation in 2015. The Recast amended the lis pendens rules, by providing that unless a defendant acquiesces to another jurisdiction, the jurisdiction agreed under a choice-of-court agreement takes priority. And, that jurisdiction did not need to wait for the Italian courts—or anyone else—to conclude they did not have jurisdiction because of the choice of court agreement pointing elsewhere. So, similarly, there seem to be good reasons in the New Zealand context to:
- reassess Rothmans of Pall Mall and the law governing whether parties can, in fact, agree or acquiesce to another jurisdiction in cases that may be employment relationship problems, particularly where that other jurisdiction is the High Court; and
- adopt an approach to case-management in the non-employment tribunals that avoids unnecessary delay by allowing those other jurisdictions to, rather than staying their own proceeding, determine the question of jurisdiction, even if that involves applying the jurisdictional test in FMV.
These suggestions respond to practical, resourcing issues that have arisen subsequent to the Supreme Court’s decision in FMV and were not foreseeable at the time. And either or both of them should disarm the threat of this particular torpedo with minimal damage.
William Fotherby is a partner at the New Zealand law firm of Meredith Connell, specialising in litigation, investigation, and white-collar work. He was Called to the Bar of England and Wales in 2017.
