Restructuring Consultation Good Faith Employment Protection Provision

Posted on: Apr 12, 2013

Employment Protection Provision

In accordance with Section 69OI(1) of the Employment Relations Act 2000 (the “Act”), an employee protection provision means a provision—

(a) the purpose of which is to provide protection for the employment of employees affected by a restructuring;     and

(b) that includes—

(i) a process that the employer must follow in negotiating with a new employer about the restructuring to the     extent that it relates to affected employees; and

(ii) the matters relating to the affected employees’ employment that the employer will negotiate with the new     employer, including whether the affected employees will transfer to the new employer on the same terms      and conditions of employment; and

(iii) the process to be followed at the time of the restructuring to determine what entitlements, if any, are       available for employees who do not transfer to the new employer

Restructuring is defined in the Act to include transfer of a business. Any such provision in the employee’s contract must have been followed absolutely. There is no legal requirement that an employee must be paid redundancy compensation but if there is a contractual requirement that the employee is to be paid redundancy compensation that must be honoured according to its terms.

Fair Procedure Examined

Case law shows that an employee who has been made redundant will not be able to make a successful claim of unjustifiable dismissal if the employer can prove that the employee was made redundant for a genuine reason (that is not an issue in this situation and is not noted further) and that it implemented the redundancy in a fair and reasonable manner.

It is essential that employers carry out a fair procedure when making employees redundant.

Section 103A of the Act contains a test to be used in determining whether the actions of the employer in dismissing the employee were justifiable. The question must be determined on an objective basis. The test is: whether the employer’s actions, and how the employer acted, were what a fair and reasonable employer could have done in all the circumstances at the time the dismissal or action occurred.

Section 103A provides a list of factors that the Employment Relations Authority or the Employment Court must consider when applying the test. All relate to conduct preceding the dismissal or other action. They are:

• whether, having regard to the resources available to the employer, the employer sufficiently investigated    the allegations against the employee
• whether the employer raised the concerns the employer had with the employee
• whether the employer gave the employee a reasonable opportunity to respond to the employer’s    concerns, and
• whether the employer genuinely considered the employee’s explanation (if any) in relation to the    allegations against him or her (section 103A(2)).

The Authority or Court can consider other factors it thinks appropriate.

Section 103A(5) says that a dismissal or action must not be determined to be unjustifiable solely because of defects in the process followed by the employer if the defects were minor and did not result in the employee being treated unfairly.

Not all of the factors listed above are relevant in a redundancy situation but it is clear that employees must be given the full picture and have the opportunity for real consultation.

Consultation

Section 103A, prior to its amendment in 2011, was considered in the context of redundancy in Simpsons Farms Ltd v Aberhart (2006) 7 NZELC 98,450 (EC).  Colgan CJ said that sub sections 103A and 4(1A)(c) (see below) had changed the law on redundancy. He said the Authority and the Court were not entitled to second guess an employer’s decision to restructure provided that decision was made genuinely. However, those bodies were entitled to subject the procedure followed by the employer when making an employee redundant to minute scrutiny. He said it was necessary for the employer to consult with the employee in every case and he set out what proper consultation would involve. He said that when Parliament passed the Employment Relations Amendment Act (No 2) 2004 it intended to alter and prescribe new tests for justification for disadvantage in employment and for dismissal. He said it did so by adding specific information-sharing provisions in section 4. Colgan CJ said these provisions are an element of the test set out in section 103A and that the statutory good faith obligations set out in section 4(1A)(c) also informed the assessment under section 103A about how the employer acted. He said section 4 makes it mandatory for an employer to consult with an employee whenever a decision is likely to have an adverse effect on the continuation of the employment of the employee.

Colgan CJ listed the fundamental elements of consultation required in redundancy cases. He said:

• Consultation requires more than mere prior notification and must be allowed sufficient time. It is to be a    reality not a charade. It must not be treated perfunctorily or as a mere formality.
• A proposal must not be acted upon until after consultation. Employees must know what is proposed    before they can give their views.
• Sufficient precise information must be given to enable employees to state their views either orally or in    writing. Employees must be given a reasonable opportunity to state their views.
• Genuine efforts must be made to accommodate the views of employees. There should be a tendency to    seek consensus. The employer must listen to what employees have to say before deciding what to do.
• The employer is entitled to have a working plan in mind but must have an open mind and be ready to    change and even start anew.
• There need not be agreement between employer and employee after a proper consultation.

It is clear that any procedure set out in the employee’s employment agreement relating to redundancy must be followed absolutely. If an agreement does not set out a procedure to be followed in the event of a redundancy, the employer must give the employee relevant information at an early stage in the process and enter into a process of consultation.

Good Faith

The Act imposes a duty of good faith on the parties to an employment relationship (section 4(1)). An employer who does not comply with the duty of good faith in a redundancy situation will open itself to a personal grievance claim of unjustified dismissal as well as a penalty for breach of good faith.

The Act states that the duty of good faith is wider in scope than the implied mutual obligations of trust and confidence, and requires the parties to an employment relationship to be active and constructive in establishing and maintaining a productive employment relationship in which the parties are, among other things, responsive and communicative. It also requires an employer who is proposing to make a decision that will, or is likely to, have an adverse effect on the continuation of employment of one or more of his or her employees to provide to the employees affected (section 4(1A)(c)):

(i) access to information, relevant to the continuation of the employees’ employment, about the decision;    and

(ii) an opportunity to comment on the information to their employer before the decision is made.

An employer is not required to provide access to confidential information if there is good reason to maintain the confidentiality of the information (section 4(1B)).  Good reason includes (section 4(1C)):

(a) complying with statutory requirements to maintain confidentiality

(b) protecting the privacy of natural persons

(c) protecting the commercial position of an employer from being unreasonably prejudiced.

In Simpsons Farms (above), Colgan CJ said the duty imposed under section 4(1A)(c) was a factor to be considered when considering justification for disadvantage or dismissal under section 103A.

The Act states in section 4 that the duty of good faith applies to various matters, including:

1. Consultation between an employer and its employees, including any union representing the employees, about the employees’ collective employment interests, including the effect on employees of changes to the employer’s business
2. A proposal by an employer that might impact on the employer’s employees, including a proposal to contract out work otherwise done by the employees or to sell or transfer all or part of the employer’s business, and
3. Making employees redundant.

The duty to provide all relevant information is extensive. The nature and extent of an employer’s duty under the Act to provide employees with information relevant to the continuation of their employment when the employer is considering a proposal which may result in the termination of the employees’ employment was considered by the full bench of the Employment Court in Vice-Chancellor of Massey University v Wrigley (2011) 9 NZELC 93,782; [2011] NZEmpC 37.

The Employment Court took a broad approach to what constituted “relevant” information. The key consideration will be whether information is relevant to the continuation of the employee’s employment. If so, an employer should actively provide the employee access to that information, whether it is in written form or “merely in the minds of decision makers”. It may be that such information will be communicated orally. It is clear from the judgment that a very wide range of information might be considered relevant.

In the present situation, the current employers should:

1. Write to each employee and outline the situation. The letter should explain exactly what is proposed and should invite the employees to a meeting to discuss the matter. Employees should be told that they have the right to have entitlements paid out on termination of the first agreement but that the hope is that existing entitlements will be carried over and that the only change in the employment agreement will be the employer. The employees should be told that they have a right to seek advice on the matter if they wish to do so.
2. When the employer meets with each employee it should go over all the matters again and make sure the employee understands what is happening.

New Employment Agreements

If the employee agrees to enter into a new employment agreement, the employer must comply with the Act. Section 65(1)(a) of the Act requires individual employment agreements to be in writing. Section 64 imposes strict obligations upon employers to retain copies of:

• finalised individual agreements, and
• intended agreements supplied during bargaining.

These obligations are enforceable by penalty following an action brought by a Labour Inspector. Section 63A(2) of the Act states that the employer must:

(a) provide the employee with a copy of the intended agreement under discussion; and

(b) advise the employee that he or she is entitled to seek independent advice about the intended agreement; and

(c) give the employee a reasonable opportunity to seek that advice; and

(d) consider any issues that the employee raises and respond to them.

The Act makes it clear that the employer must give the full intended agreement to an employee or prospective employee under section 63A.

An employer who fails to comply with these obligations is liable to a penalty and to a claim of unfair bargaining.

Disclaimer

This article, and any information contained on our website is necessarily brief and general in nature, and should not be substituted for professional advice. You should always seek professional advice before taking any action in relation to the matters addressed.