Why the Wellington CEO told off his council


David Farrar

Wellington City Council chief executive Kevin Lavery

I’ve been sent a transcript of what the chief executive of  told councillors before they voted to impose an extra $2.4 million of costs on ratepayers by mandating security contractors must pay their staff the so-called . It is unbelievable that a majority of them ignored this advice.

It seems that if the council decision is found to be unlawful, the Local Government Act allows for councillors to be deemed to have personal liability for the costs of the unlawful decision, if they were warned it was unlawful. This could come back to bite them in a very costly way.

Here’s the statement:

Your Worship and Councillors it is a privilege to be your CEO. This is a very special City. A CEO’s job has many highlights. One of the most enjoyable is visiting staff who deliver on the front line. In recent times I have visited the Botanic Gardens, Kilbirnie Sports Centre, the Policy and Engagement Team, City Archives and the Highways team working on the various schemes in Johnsonville. My job has a few lowlights too. You can’t have everything! One of my more difficult jobs is, very occasionally, having to tell you not what you want to hear but what you need to hear. This is one of those moments.

I have consistently advised against adopting the Living Wage. Please do not take my discomfort as a lack of concern over low pay. Last year two lifeguards in Kilbirnie Sports Centre valiantly tried to save the life of an elderly swimmer who had a heart attack in the water. Sadly, the lady died but the actions of the lifeguards were praised by the coroner. They did everything they possibly could have done to save her life but their actions were in vain. Lifeguards have a vital public safety role and sometimes they make the difference between life and death. These are really important jobs – arguably more important than mine or yours. It did not make me feel proud to discover that those two lifeguards were on the minimum wage. That was not our finest moment as a City Council.

You know officers had reservations about the Living Wage. I will not go through these here as they have been well aired. Notwithstanding these reservations, your officers found a way to adopt the Living Wage first for Council staff and now for CCO staff. Our solution was to apply the Living Wage for workforce reasons only based on training and enhanced productivity. I have to be clear it was for workforce  reasons not to promote social equality. The latter would be unlawful.

This is crucial. Applying a “living wage” to your own staff can be justified as a legal use of ratepayer money, as it can have benefits for your own workforce. But applying it to outside contractors does not have the same rationale.

We are the only council in New Zealand to adopt the Living Wage. And we are way ahead of any other public sector organisation in the country. It makes me a little nervous being at the ‘bleeding edge’ and so far ahead of everybody else. You too should be nervous. As officers we have been clear and straight with you. But we have also respected your right to make a decision and direct us. And we have been flexible and creative in finding a solution that has a low risk of legal challenge.

I hope that our ‘can do’ approach will be taken into account when you consider our advice on applying the Living Wage to the security contract. I know that many of you will not like this advice. Just as I respect your right to make a decision and direct me, you need to acknowledge my right and duty to give you professional advice without fear or favour.

I have consistently said that applying the Living Wage to contractors would be difficult. Each case will be different due to the nature of the work, the marketplace and our ability to bring work in-house or not. I decided to refer decisions on applying the Living Wage to individual contracts back to Council. This is because you are directing me to implement something I have major reservations about. It is therefore right and proper that you take full responsibility for your decisions.

That responsibility may include personal liability if found to be unlawful.

My decision to make the legal advice public was not taken lightly.  It is an unusual step but has happened before.  The advice is very clear cut – there’s a high risk of losing a legal challenge

A high risk. And they went ahead.

This is the complete opposite of adopting the Living Wage for Council and CCO staff. Moreover, I am aware that there is contrary advice in the public domain that may lead you to conclude that the risks are lower than they really are. Unlike the advice in the public domain the legal advice to the Council is very specific. It is not about contractors generically or generalised savings, costs and productivity levels. It is about the WCC security tender in 2015 in New Zealand based on the actual prices and service levels offered by the preferred supplier.

So they have specific advice about this specific contract and that it is highly likely to be illegal.

But there is another, more important reason for making the advice public. If in your wisdom you decide to direct me to implement the Living Wage for the security contract you are putting me in a very difficult position as CEO.  In essence, you are asking me to implement something that is potentially unlawful. 

No governors should ever do that.

Moreover, we can expect someone to seek a judicial review should you adopt the Living Wage for the security contract. I would never, ever direct any of my employees to implement something that I know to be potentially unlawful. I have a duty as a good employer and I take it very seriously.You have that same duty towards me. It is not a good look to direct me in the face of such clear and unequivocal advice.

Basically the Council are instructing a staffer to do something that is probably unlawful. No good employer should do that.

This changes the issue away from the Living Wage to your duties as a good employer to me. Given the seriousness of this I have taken separate legal advice about my position with another legal firm. As CEO I take my responsibilities to operate within a safe environment and the law seriously. Like you I am bound by the Local Government Act and my contract of employment with you states that I have to act within the law. The strong legal opinion before you is merely an opinion. It is not the law. A sensible compromise is to wait for the outcome of the judicial review before implementing a direction should that be forthcoming or directing me to the High Court to secure a declaratory judgement.  An implementation date of 1 July 2016 would help to give me the time to clear the legal hurdles. This is something I have discussed with the Mayor.  The legal advice to me confirms that this is a reasonable approach. This follows the spirit of your direction, protects the Council’s interests and is the correct moral path for me personally.

A sensible suggestion that they seek a court ruling on whether it is legal, before implementing it.

So my advice is simple – adopting the Living Wage for the security contract is a step too far. There is compelling evidence that you would potentially fail to meet your fiduciary duty to ratepayers. There is a serious risk that you would be acting beyond your powers. You would be purchasing the service for 19% extra without any corresponding improvement in service levels or productivity. You could also set a precedent for other contracts which would cost the Council tens of millions annually.  You would also be failing in your duty to me as a good employer. And you run the risk of tarnishing your reputation.  Could a responsible public body really make a decision against clear legal and officer advice only to be directed by a Court to reverse its decision? There is also a very real risk that your enthusiasm for expanding the Living Wage could undermine the good progress achieved with our own workforce. Remember that the WCC Living Wage adopted for our own staff and CCO staff has not been tested in a court of law. A successful judicial review on the expansion of the Living Wage to contractors may encourage further challenges on its adoption for our own workforce. A defeat here would have very serious consequences as the decision has already been implemented.

So it isn’t just $2.4 million more for this one contract. It could lead to tens of millions of extra costs over all contracts.

Mayor and Councillors I stand before you reluctantly with a very serious and loud alarm bell. My advice is to take heed of it, be responsible and support the officer recommendation.

They didn’t.

And here is why those councillors may be in real trouble:

Local Government Act 2002

44   Report by Auditor-General on loss incurred by local authority

(1) For the purposes of this section and sections 45 and 46a local authority is to be regarded as having incurred a loss to the extent that any of the following actions and omissions has occurred and the local authority has not been fully compensated for the action or omission concerned:

(a)money belonging to, or administrable by, a local authority has been unlawfully expended; or

(b)an asset has been unlawfully sold or otherwise disposed of by the local authority; or

(c)a liability has been unlawfully incurred by the local authority; or

(d)a local authority has intentionally or negligently failed to enforce the collection of money it is lawfully entitled to receive.

(2) If the Auditor-General is satisfied that a local authority has incurred a loss, the Auditor-General may make a report on the loss to the local authority, and may include in the report any recommendations in relation to the recovery of the loss or the prevention of further loss that the Auditor-General thinks fit.

(3) The Auditor-General must send copies of the report to the Minister and every member of the local authority.

46   Members of local authority liable for loss

(1)If the Auditor-General has made a report on a loss to a local authority under section 44, then, without limiting any other person’s liability for the loss, the loss is recoverable as a debt due to the Crown from each member of the local authority jointly and severally.

(2)If the members of the local authority or any other person or persons do not pay the amount of the loss to the Crown or the local authority within a reasonable time, the Crown may commence proceedings to recover the loss from any or all of those members.

(3)Any amount recovered by the Crown under subsection (2), less all costs incurred by the Crown in respect of the recovery, must be paid by the Crown to the local authority concerned.

(4)It is a defence to any proceedings under subsection (2) if the defendant proves that the act or failure to act resulting in the loss occurred

(a)without the defendant’s knowledge; or

(b)with the defendant’s knowledge but against the defendant’s protest made at or before the time when the loss occurred; or

(c)contrary to the manner in which the defendant voted on the issue at a meeting of the local authority; or

(d)in circumstances where, although being a party to the act or failure to act, the defendant acted in good faith and in reliance on reports, statements, financial data, or other information prepared or supplied, or on professional or expert advice given, by any of the following persons:

(i)an employee of the local authority whom the defendant believed on reasonable grounds to be reliable and competent in relation to the matters concerned:

(ii)a professional adviser or expert in relation to matters that the defendant believed on reasonable grounds to be within the person’s professional or expert competence.

So the councillors who voted against are okay. But the councillors who voted for this policy could be in real trouble as they went against the advice of their chief executive and against legal advice so (i) and (ii) don’t apply. If a court finds this unlawful, I believe that there will be an attempt to seek the “loss” from individual councillors personally.

And having ignored their own council’s legal advice, they can’t expect the council to defend them in court. They’ll have to pay for their own lawyers, if the decision is found to be unlawful and they are pursued for the loss.

Poilitical commentator and pollster David Farrar posts at Kiwiblog.

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Our experience (rural town) is that CEOs don't take notice of councillors or even talk to councillors. Wellington is definitely different. As we own a house in Wellington we will definitely be expecting value for our rates. Good on the CEO in this case.

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"A sensible suggestion that they seek a court ruling on whether it is legal, before implementing it."
No, that isn't a sensible suggestion. It is possibly the opposite of a sensible suggestion. A sensible suggestion is that they seek a legal opinion.

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I think you'll find officials have already taken that step. Now, having a legal opinion that clearly states it is potentially unlawful, the only sensible step is to confirm the legality/ illegality of proceeding.

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The Act is clear. The Councillors are personally liable as they should be if they breach the Act. Their legal obligations are to act in the best interests of the ratepayers NOT indulge in social engineering or push a particular agenda. The problem is the 2002 amendment to the LA Act that Councils around the country have taken to far and beyond its legal definition so know they think they can do everything and anything except roads rubbish parks and libraries and dogs which should their core business.

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Here is a Town Clerk worth his salary....considerably lower than Auckland's jewel. Perhaps Phil Goff can recruit him while he's still in Wellington? The two together could freeze the current cancer and hack it out quickly....and painfully.

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Not a wellington rate payer here- but my understanding is that council members campaigned on doing just this - ensuring a living wage for all subcontractors.

If Wellington ratepayers didn't want this eventuality, why did they elect the council they did?

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The proposal to become a Living Wage council and extend the Living Wage to council workers employed via contractors, went out for public consultation in the 2014 Annual Plan process. It was overwhelmingly backed by Wellingtonians. A legal opinion by public law expert Mathew Palmer says councils can extend the Living Wage to workers employed by contractors. The cost is not $2.5m and it is very small compared to the rapidly increasing budget for top salaries at WCC.

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clear reason why local body politics amounts to little more than the mess that is school Boards of trustees. Sort of "advance into the valley of death" stuff by the well meaning but ill-equipped and then retire to one's country estate for high tea leaving the cost of the carnage for someone else. Well maybe not this time and perhaps that will be a good thing to focus the mind

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This is typical of Council's in Auckland and Wellington which are run by the left wing. They make 'compassionate' decisions on living wages without regard to financial let alone legal consequences. They should not have consulted the public on a matter which is strictly not legal. Wellingtonians, these are the people you voted for!

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Well if a few Greenies and Lefties on Council get sued for their profligacy with other people's money in the advancement of their own political agenda, then so be it. In fact it's well overdue.

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The reason why ACC is good for us was it reduced litigation threat.

Leaving aside who is right or wrong here, increasing the litigation threat around councillors' personal liability will cost ratepayers nationwide far more immediately than this matter ever will.

We have seen this very clearly with the RMA. An increase in litigation risk for councils has resulted in a huge increase in the cost of developing land far in excess of the costs incurred by councils through that increase.

It's normally more efficient not to litigate.

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The UK’s new “national living wage” came into effect on April 1st 2016, increasing the minimum earnings of workers aged over 25 to £7.20 an hour.

The UK Office for Budget Responsibility (OBR) estimates that 1.3 million workers will be paid the new wage this year, rising to 2.9 million by 2020, when it forecasts the amount paid to increase to £9 an hour. Workers under 25 will remain on the national minimum wage, which will stay at its current rate of £6.70 until October 2016.

British workers aged over 25 will now be able to afford at least five Big Macs for every two hours they work. This is more than what those on the minimum wage in any other major European country can afford (before tax). Only Luxembourg’s minimum wage bags its workers more Big Macs: 2.6 burgers an hour to the UK’s 2.5.

Germany, France, Ireland, Belgium and Slovenia are narrowly behind Britain. Those on the minimum wages there can buy at least two Big Macs an hour. Meanwhile, it would take the lowest paid workers in Romania and Bulgaria nearly two hours of work before they can buy one Big Mac.

Here in New Zealand, the adult minimum wage increased from $14.25 to $14.75 an hour from 1st April 2016. The starting out and training hourly minimum wages will also rise, by 40c to $11.80 an hour - 80 per cent of the adult minimum wage.

In New Zealand, a Big Mac costs around $5.80 and the Basic Wage is $14.75 per hour, giving a multiple of 2.54 – very similar but slightly ahead of the UK return for work.

If the so-called ‘Living Wage’ of $18.40 per hour [paid to Wellington City Council workers] is used the multiple is 3.17. That means workers can buy at least 6 Big Macs for every two hours that they work. A rate of $19.80 will kick in from 1st July 2016.

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