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Tex Edwards scores another victory in legal battle with 2degrees; major test case looms

Phone company in for sustained period of awkward publicity as case moved to Employment Court; set to become a test of new employment law.

Chris Keall
Wed, 08 Aug 2012

LATEST:  Tex Edwards, 2degrees reach settlement

UPDATE / Aug 8: Simon "Tex" Edwards has won another victory in his ongoing legal war with the company he founded, 2degrees - and the phone company seems in for a world of pain, or at least awkward publicity, as the case becomes a test of a new employment law.

The Employment Relations Authority today released a determination agreeing to Mr Edwards' request to have his employment case moved to the more powerful Employment Court.

The move heads off a three-day ERA Hearing that had been scheduled for August 22.

No date has been set for Mr Edwards' but the determination released today says it will be "October at the earliest".

On July 24, the Employment Court over-ruled the ERA, and said Mr Edwards could remain employed by 2degrees while the dispute was ongoing.

2degrees had sought Mr Edwards dismissal ahead of the hearing.

The ERA had initially called Mr Edwards' case "weak" but the court said it involved several complex points of law.

2degrees is now facing a sustained period of awkwardness over the affair, which is shaping up to be a test case Section 103 of the Employment Relations Act amended in April last year and the right, or not, of a business to dismiss employees as it sees fit during a restructure (read more on that point in Tex Edwards' employment case sets turnaround precedent).

The crux of 2degrees' case is that the company has evolved beyond the point where it needs a strategist – Mr Edwards' current role.

The maverick Mr Edwards argued management installed by the US-based Trilogy – which came to be 2degrees' largest investor – had a beef with him personally and failed to act neutrally.

Yesterday, as 2degrees celebrated its one millionth customer, CEO Eric Hertz declined to comment.

The situation is complicated by a possible High Court action by Mr Edwards in relation to his shareholding in 2degrees. Neither party would comment, but the action is thougth to centre on iwi shareholder the Hautaki Trust being granted a company loan and a deadline extension to participate in a rights issue - terms that were not extended to other investors, including Mr Edwards.

RAW DATA: Read the determination released today (PDF)

Tex Edwards' notice period? Three years

UPDATE / July 24: NBR ONLINE has obtained the Employment Court judgment in the case of Tex Edwards vs 2degrees, the company he founded.

The written judgment, yet to be made public, confirms NBR's July 13 exclusive (based on an oral judgment) that Mr Edwards can stay employed by 2degrees.

Judge Barry Travis granted his application for an injunction against his dismissal. 2degrees had wanted to eliminate Mr Edwards' position ahead of a three-day Employment Relations Authority hearing set to begin August 22.

The judgment also confirms NBR's report that Mr Edwards has applied to have his substantive case heard before the Employment Court. If his application is granted, it will sideline the planned August 22 ERA hearing and extend the process.

Three years' notice
In his comments, Judge Travis also reveals an extraordinary provision of Mr Edwards' 2002 contract with NZ Communications (the company that was later renamed and rebranded as 2degrees): three years' notice of dismissal. 

Judge Travis said it was unclear whether the clause was varied by a letter of 2006.

Overall, he found the case "complex". The ERA had found Mr Edwards' arguments weak.

The crux of 2degrees' case is that the company has evolved beyond the point where it needs a strategist – Mr Edwards' current role.

The maverick Mr Edwards argued management installed by the US-based Trilogy – which came to be 2degrees' largest investor – had a beef with him personally and failed to act neutrally.

RAW DATA: Read the full judgment (PDF)

Dramatic last-minute ruling sees Tex Edwards stay at 2degrees

UPDATE July 13: Today was due to be founder Tex Edwards' last day employed by 2degrees – until a dramatic last-minute reversal of fortune.

On June 10, the Employment Relations Authority released a decision in which it declined a bid by Mr Edwards' to injunct his dismissal from 2degrees, the company he founded in 2000 which has grown to have 950,000 customers.

2degrees' proceeded its plan to eliminate Mr Edwards' position ahead of a full ERA hearing on August 22.

Mr Edwards' lawyer, Kensington Swan senior associate Michael O'Brien, told NBR ONLINE that today was to be the founder's last day at the company.

However, in a dramatic last minute development, Employment Court Judge Barry Travis delivered an oral judgment granting an injunction to restrain Mr Edwards' dismissal.

Late this afternoon, the Employment Court told NBR the written version of the decision was still being worked on. 

The ruling means Mr Edwards can stay employed by 2degrees' until the full ERA hearing scheduled for August 22-24.

Mr Edwards is seeking now to head off the full ERA hearing altogether through an application to have his case moved to the Employment Court.

Mr O'Brien said technically yesterday's Employment Court action was  a fresh hearing rather than an appeal of the ERA's earlier decision. The court's power trumps that of the authority.

Neither Mr O'Brien nor Mr Edwards would comment on the Judge Travis' ruling until his written decision was delivered.

2degrees founder Tex Edwards loses bid to keep job

June 10: Founder Tex Edwards has lost a bid to stop 2degrees axing his job.

RAW DATA: The full ERA decision (PDF)

When he spoke to NBR ONLINE this afternoon, Mr Edwards would not comment on a report that Friday will be his last day with the company he founded.

An Employment Relations Authority decision, released this afternoon, means 2degrees can go ahead and "disestablish" Mr Edwards' role of strategist.

Simon "Tex" Edwards had sought an interim injunction, which would have allowed him to stay on until a full ERA hearing scheduled for August 22-24.

2degrees spokesman Mat Bolland confirmed that Mr Edwards was still working for 2degrees, in a company office, but would not confirm or deny if Friday would be his last day.

Both sides declined to comment on the employment spat, or a separate action by Mr Edwards relating to his minority stake in 2degrees, while the matters were before authorities.

The ERA decision released today reveals that in February, 2degrees CEO Eric Hertz proposed making Mr Edwards' "strategist" position redundant.

The company had evolved to the point where "strategy development is a responsibility of all members of the SMT [senior management team]", Mr Hertz wrote.

Edwards – it was personal, not business
Mr Edwards' lawyers argued that the decision to disestablish Mr Edwards' role was "predominantly motivated by an adverse view taken of Mr Edwards' personally" rather than considering whether the position of strategist was needed by the business.

It was also argued that Mr Hertz and 2degrees chairman Stewart Sherriff – both appointed by Trilogy, the US company that over time has become 2degrees' largest investor – were not impartial.

Intertwined share spat
The situation was complicated by an email from Mr Edwards to Mr Hertz in which he suggested they "wrap up a deal" to settle his share dispute (believed to centre around a second minority investor, Mr Edwards' one-time ally the Hautaki Trust, being offered shared on preferential terms).

In his evidence, Mr Edwards claimed 2degrees was targeting him because of his shareholding (previously 2%, now 1% after a series of rights issues).

"The value of my stake will will become at risk if I am no longer employed by the company," Mr Edwards argued.

However, ERA member Alistair Dumbleton found "untested evidence so far does not show the link Mr Edwards says exists between his contract of employment and his investment in 2degrees shares".

"Weak case"
Things are looking grim for Mr Edwards. In denying his bid for an injuction, the ERA's Mr Dumbleton said the 2degrees founder had a "relatively weak arguable case."

The determination released today - which was made on July 3 following a June 29 meeting - is the latest move in a cat-and-mouse game between Mr Edwards and 2degrees.

After being officially advised on April 27 that his role was being disestablished, Mr Edwards raised a personal grevance.

On May 15, 2degrees gave Mr Edwards two months' notice that on the grounds of redundancy his position would be terminated.

Mr Edwards then lodged a complaint with the ERA, leading to the June 29 hearing.

2degrees has an open offer for Mr Edwards to go on gardening leave (leave with full pay) until the matter is resolved, Mr Dumbleton noted.

The 2degrees founder has chosen to stick it out in the office.

Cutting Tex in half: 2degrees shareholdings (February 2012 Companies Office filing)

Trilology International Partners (US): 58%
Tesbrit (Holland): 28%
Hautaki Trust (iwi): 10%
NZ Comms Trustee (employee shares): 2.5%
KLR (Tex Edwards' family investment vehicle): 1%

2degrees, founder Tex Edwards fall out

JUNE 12: Tex Edwards has fallen out with the company he founded.

2degrees corporate affairs director Mat Bolland today confirmed to NBR ONLINE that proceedings have been issued for an Employment Relations Authority hearing.

Mr Bolland refused to comment on the nature of Mr Edwards' grievance.

He did, however, confirm that Mr Edwards was in 2degrees’ central Auckland head office – not decamped for New York as per one industry rumour – telling NBR ONLINE: “He’s sitting 20 feet away from me.”

Mr Edwards, one of the industry’s most colourful characters and not usually short of a quote, did not take the opportunity to comment.

Mr Bolland refused to say whether Mr Edwards’ responsibilities had changed.

Potential High Court action over shares
NBR ONLINE has also been told by a source close to the company that Mr Edwards plans to file a High Court action against 2degrees in relation to his equity holding.

Mr Bolland said he would make no comment on any High Court action, including whether or not it was a possibility.

NBR ONLINE understands the potential action revolves around special terms given to iwi shareholder Hautaki.

As NBR has previously published, when new equity was issued, Hautaki was given an extended period to find $20 million needed to prevent its 20% stake being diluted – an unpalatable outcome for 2degrees in the politically charged telecommunications industry; more so because it would mean the shares would default to 2degrees' US and European investors.

Ultimately, Hautaki failed to raise the required capital, even after being given months of additional time after blowing its original deadline and a company loan.

The iwi propped up its position by borrowing $2.6 million - from 2degrees -  to buy some of the new shares but its holding was diluted relative to majority owner Trilogy International Partners. Today it stands at just over 10%.

"Tex wanted the same deal to be offered to all investors," the source close to the situation told NBR. That included family investment vehicle, Hong Kong-based KLR, NBR understands.

But as things played out, KRL's holding was diluted by half, to just under 1%.

At the time the Overseas Investment Office gave Trilogy approval to buy up to 100% of 2degrees – in February 2010 – KLR had a 2% holding.

"The wheels have fallen off the 2degrees-Tex relationship," the insider told NBR. "He's looking to do something else with his time."

Long-time coming
Mr Edwards founded the company now known as 2degrees in 2000.

For a long time, it was a long, lonely slog, with the former investment banker and a second-hand photocopier forming the entire company.

However, Mr Edwards break came when the Clark Labour government gave around $4 million of 3G spectrum to Hautaki, a trust representing iwi interests.

The iwi investors parlayed the spectrum into a stake in 2degrees (today, the spectrum belongs to the company, not the iwi, and still forms the backbone of the 2degrees' mobile network).

Mr Edwards also proved adept at anticipating regulatory changes, and in lobby a Commerce Commission and successive ICT ministers already leaning toward support for a third mobile player entering the market.

As early as 2009, the year 2degrees commercially launched, NBR reported an industry rumour that Mr Edwards was "off to bust another monopoly". 

However, the founder stayed on as regulatory affairs officer and played a high-profile role at industry events, and the carrier's Drop The Rates, Mate campaign in co-operation with Consumer, Federated Farmers and Tuanz.

His most recent title was "Strategist".

Chris Keall
Wed, 08 Aug 2012
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Tex Edwards scores another victory in legal battle with 2degrees; major test case looms