Good Faith Obligation

In New Zealand, any proposal that could have an adverse effect on an employee’s employment requires the employer to provide the potentially affected employee with access to all information relevant to that proposal.  It is also a requirement to provide the employee with an opportunity to comment on such information.  These are statutory requirements as part of the employer’s good faith obligation under the Employment Relations Act 2000, and most commonly apply when an employer is proposing to make positions redundant.

Could circumstances permit an employer to only discuss matters with its employees after the decision to make the proposed changes have been made?  

Employers in New Zealand who are part of large international organisations are often confronted with situations where the decision to globally make changes has already been made by the time the New Zealand entity could reasonably consult with its staff.  Even if it had an opportunity to consult, it would be somewhat perfunctory and less than genuine to do so.  The reality of the situation is that any feedback from New Zealand employees is likely to have little to no influence on the global decision being made.  In those circumstances many New Zealand employers who are part of a global organisation endeavour to discharge their obligations of good faith by being upfront with their employees and advising them of the global decision. They then consult with their employees as to the impact of that decision on the New Zealand operations.  This approach has not been tested in New Zealand but in our view would be more consistent with the good faith obligation which requires transparency between the employer and the employee, than “consulting” about a decision the employee has no ability to change.

Does commercial sensitivity negate the obligation to consult?

That was the argument run in the case of Birthing Centre Limited v Matsas & Others.  The Birthing Centre was financially struggling.  It negotiated with the local DHB for it to take over its operations.  Those negotiations took place in secret without either the union or the staff being informed. 

The union and the staff were only informed of the decision to transfer the staff from the Birthing Centre to the DHB after the parties had finished their negotiations and the decision had been made.

The Birthing Centre argued that confidentiality was necessary to preserve the commercial interests of the DHB, stating that if consultation took place before the agreement was reached then gossip and speculation would impact on the public confidence in the services of the Birthing Centre. 

In the circumstances of that case, the Employment Court rejected the confidentiality argument.  It noted that the Birthing Centre didn’t even explore ways of potentially consulting with the union and staff whilst preserving confidentiality regarding the proposed change.  The Birthing Centre was accordingly held to be in breach of its good faith obligation to consult.

Could confidentiality trump consultation?

Does this mean that the commercial sensitivity of a transaction could never override the good faith obligation to consult?  In our opinion, no.  There could be circumstances where the commercial sensitivity of a transaction was so great that it could mean that the employer was unable to reasonably consult with its employees (and union, if any).  One only has to think of certain regulatory obligations that might be relevant to such a case (e.g. a requirement to notify the market).  Time however will tell as to whether such circumstances would overcome the employer’s good faith obligations.  The lesson to be learnt from the Birthing Centre case is that before making a decision about commercial sensitivity the employer should explore all possible ways to try and consult in a way that keeps confidential the commercially sensitive information, whilst discharging its good faith obligations to the extent reasonably possible.


One option that the Birthing Centre could have considered that might have avoided the successful claims made against it was to arrange with the DHB that its offers of employment to the employees of the Birthing Centre were conditional on the employees waiving their rights to make claims against the Birthing Centre.  Whether a waiver would be accepted however would have depended on the attractiveness of the offer from the DHB, and we note that the terms and conditions offered by the DHB were considered to be less favourable.  The waiver option, which has been upheld by the Courts in the past, is certainly one for New Zealand organisations that are part of a global entity to consider.  If you require any further advice on that option please don’t hesitate to contact us.

Redundancy compensation – is it to be offset against an award of compensation

The latest employment case of HelloWorld Travel Services v Unsworth has held that although there were genuine business reasons for the redundancy, because the outcome of the process was pre-determined the eventual termination of employment was unjustified. 

HelloWorld tried to argue that the remedies of lost wages and compensation should be offset (reduced) by the amount of the redundancy compensation paid.  The Court rejected this argument.  The Court held that redundancy compensation is not money to provide a financial bridge for the employer between the loss of their current job and their new job (which would mean it should perhaps be taken into account when assessing an employee’s loss).  It held that redundancy compensation was compensation for the loss of the current employment opportunity itself.  The Court held that “the payment so identified is compensatory, not remunerative”.


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