Good Faith – What are your obligations?

As either an employee or an employer, you may have heard of the term “good faith” before, but what does it actually mean?

The Employment Relations Act 2000 (“the Act’) requires both employees and employers to deal with each other in “good faith”. This is one of the key objectives of the Act – to build productive employment relationships through the promotion of mutual trust and confidence and good faith in all aspects of the employment environment. Therefore, good faith is the key concept that underpins all employment relationships.

While the Act provides a legal definition of what “good faith” actually is and sets out what the consequences are for a breach of good faith, it is useful to look at some examples of how those good faith requirements should be met in practice.

If you are an employer

You must:

• Treat all employees fairly and with respect;
• Raise employment concerns early with an employee;
• Ensure the employee is given a fair opportunity to respond to those concerns;
• Have an open mind and not predetermine decisions;
• Ensure an employee is given an opportunity to get advice and/or have a support person if commencing a disciplinary or formal performance process;
• Respond to an employee’s concerns (including a personal grievance of a current employee) as soon as is reasonably practicable;
• Investigate complaints and concerns fairly and impartially;
• If making a decision which could impact an employee’s ongoing employment, all relevant information should be provided to the employee concerned and they must be given an opportunity to comment on that information.

If you are an employee

You must:

• Be honest and open with your employer;
• Raise employment concerns early;
• Respond to communications and correspondence in a timely manner;
• Continue to remain in contact and provide information during periods of extended sick leave;
• Do not be obstructive in an employer’s processes by causing unnecessary delays;
• Do not act in a way that is detrimental to your employer’s interests – such as trying to solicit work, clients or employees while still employed.

Both parties are required to be active and constructive in establishing and maintaining a productive employment relationship. This also requires the parties to be responsive and communicative. In other words, both parties have to make a concerted effort to make the employment relationship work and to take active steps which will ensure its continuation. In situations where there are legitimate reasons for the employment coming to an end, such as resignation, redundancy, and termination for serious misconduct, both parties have good faith obligations in respect of the processes followed.

Breaches of good faith?

The Employment Relations Authority or the Employment Court may require a party to pay a penalty if it breaches its good faith obligations. While that penalty is usually payable to the Crown, an application can be made for payment to be made to the successful party. The maximum penalties that can be awarded are $10,000 against an individual, and $20,000 against a company.

Keir v Fonterra Co-Operative Limited [2019] NZERA 676

The consequences for employers who breach their good faith obligations were highlighted by the recent Employment Relations Authority determination of Keir v Fonterra Co-operative Limited, in which our firm acted on Mr Keir’s behalf.

In reliance on information provided to him by Fonterra during a restructure process, Mr Keir advised Fonterra that he would accept redundancy and did not wish to be redeployed to an alternative role. Fonterra argued that as Mr Keir had not been provided notice of termination (although he had been provided notice his role was to be disestablished), he had resigned from his employment and was not entitled to his contractual redundancy compensation.

In this case, the Authority found that Fonterra had breached its good faith obligations to Mr Keir during the restructure process. This included the duty to be active and communicative. The Authority found that Fonterra’s communications to Mr Keir regarding the restructure process and subsequent redeployment process did not provide him with sufficient information to make informed decisions. The Authority also noted that the written material provided or available to Mr Keir was also less than might be expected in a large organisation with experience of restructuring. In terms of the verbal advice provided, the Authority noted that those communicating with Mr Keir did not convey that he would be looked after or not disadvantaged as part of any redeployment process.

Ultimately, the poor communication and lack of information provided to Mr Keir resulted in him being unjustifiably disadvantaged. He was subsequently awarded 2/3 of the redundancy compensation he would have been contractually entitled to and compensation of $25,000 for the stress arising from the company's unjustifiable actions.

This proves as a timely reminder for employers during restructure processes to ensure good faith obligations are met and employees are communicated with and provided relevant information in a timely manner.

Summary

As good faith is at the core of every employment relationship, and every employment relationship is different, it is important that good faith is applied in recognition of the individual circumstances of each case.

The employment team at DTI Lawyers is happy to provide comprehensive advice to ensure good faith obligations are being complied with.