Family-run businesses … employment pitfalls when the relationship breaks down …

A recent Employment Relations Authority decision highlighted the risks of family-run businesses and the associated employment issues that can arise in the event of marital breakdown.

The husband, his wife, and his wife’s father were the directors of a business of which the husband was the sole employee.  The marriage broke-down and the husband and wife’s relationship became acrimonious in respect of childcare and relationship property matters.  It appears that the wife’s father, unsurprisingly, took her side on these matters.

Alongside the marriage breakdown and associated feuding, all three people were required to work alongside each other to discharge their legal obligations as directors of the business.

Several board meetings were called which the husband refused to attend.  Annual accounts were due for filing with IRD – the husband, as the sole employee, was asked on multiple occasions to provide relevant financial information for their completion: he repeatedly refused.

The other two directors consequently notified the husband that his employment by the business would be put in jeopardy if he continued to refuse to provide the required information – he was also offered further opportunities to provide the information.

Eventually, the other two directors requested the husband to attend a meeting with a representative to explain his refusal.  The husband failed to attend the meeting.  He was then dismissed for failing to follow lawful and reasonable instructions.

The ERA also noted that the husband did not attempt to explain the rationale for his refusal until the hearing – in that respect it found the husband appeared to have breached his duty to be actively responsive and communicative.

The ERA found that, although standard processes weren’t followed, the dismissal came at the end of a long period during which the business tried repeatedly without success to obtain provision of financial information from the husband which was required by law to be provided to the IRD.  As such the dismissal was found to be justified and the husband’s personal grievance claim was dismissed.

The ERA noted that the husband’s refusal stemmed from his sense of hurt arising out of the breakdown of his marriage and the subsequent acrimony.

In highlighting one of the pitfalls of employing family, the ERA went on to conclude that the husband, no matter how hurt he felt with respect to his fellow shareholders and directors, still had legal obligations to the company and his role as an employee in it.

If you have a family-run business or there has been a break-down in your employment, family or business relationships, please feel free to contact the writer for an initial and confidential chat.