Good Faith - Employment Update October Week 3

The concept of “good faith” is the second of the key provisions of the Act set out in Pt 1. It can be found in s 4, which states that the parties to an employment relationship must deal with each other in good faith. This includes, but is not limited to, a requirement not to do anything, whether directly or indirectly, which misleads or deceives another party or is likely to mislead or deceive.

This provision was copied from an identical provision in the Fair Trading Act 1986. It is possible that some of the case law under that Act will be of assistance in interpreting this provision, although the Court of Appeal has said that case law advocating an objective approach to the issue of whether a party had acted in good faith was not appropriate. The Court said the subjective intentions of the party must be examined: Auckland City Council v The New Zealand Public Service Association Inc (2004) 7 NZELC 97,358 (CA) (see more detail below).

Is “good faith” more than the common law “trust and confidence”?

In a case decided shortly after the enactment of the Employment Relations Act —Coutts Cars Ltd v Baguley (2002) 6 NZELC 96,547, [2001] ERNZ 660, [2002] 2 NZLR 533 — the Court of Appeal stated that the statutory duty of good faith was the same as the common law obligations of trust and confidence. Subsequent changes to the Act in 2004 were aimed at overcoming this approach and making it clear that the duty is wider than the common law obligations.

Section 4(1A), (1B) and (1C) were inserted by the Employment Relations Amendment Act (No 2) 2004 effective 1 December 2004 (the latter two subsections subsequently undergoing substantial change in 2015 — see below). These sections do not give an exact definition of good faith, but they do describe some of its necessary attributes and they make it clear that the duty of good faith permeates the entire employment relationship. The amendments also extend the duty of good faith to bargaining over an individual employment agreement (including variations thereto) and to any matter arising in relation to an individual agreement.

The provisions of s 4

Section 4(1A)(a) states that the duty of good faith:

(a) is wider in scope than the implied mutual obligations of trust and confidence, and (b) 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, and(c) without limiting para (b), 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—(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.

Subsection 4(1B) provides that s 4(1A)(c) does not require an employer to provide access to confidential information that is about an identifiable person other than the one affected by the possible loss of employment if it would result in unwarranted disclosure of the affairs of that other person. Likewise, material subject to a statutory requirement of confidentiality does not need to be disclosed. And disclosure need not be made if there is other good reason to maintain confidentiality (for example, to avoid unreasonable prejudice to the employer’s commercial position). Obligations under the Privacy Act and the Official Information Act override these exceptions to disclosure however and an employer cannot refuse to provide access to information merely because the information is contained in a document including confidential information (s 4(1C)). “Confidential information” in this context means information provided in circumstances where there is a mutual understanding of privacy (s 4(1D)).

The form of s 4(1B) and (1C) was substantially changed and (1D) was added in 2015 to clarify the position where the privacy of other persons might be jeopardised when an employer fulfilled its disclosure obligations to an employee whose employment was at risk. The clarification was deemed a necessary response to the judgment of the Employment Court in Vice-Chancellor of Massey University v Wrigley (2011) 9 NZELC 93,782

Who must observe good faith?

It should be remembered that good faith obligations apply to employees and unions as well as employers. “Employment relationships” subject to the duty of good faith are those between:

  • (a) an employer and an employee employed by the employer

  • (b) a union and an employer

  • (c) a union and a member of a union

  • (d) a union and another union that are parties bargaining for the same collective agreement

  • (e) a union and another union that are parties to the same collective agreement

  • (f) a union and a member of another union where both unions are bargaining for the same collective agreement, and

  • (g) a union and a member of another union where both unions are parties to the same collective agreement and an employer and another employer where both employers are bargaining for the same collective agreement.

The Mana case is an example of bad faith in a union’s conduct towards an employer.

A company (McCain Foods) wished to exclude union representatives employed by a competitor (Heinz Wattie’s) from entering its cafeteria on its business premises to transact union business. Its ground for so objecting was that commercially sensitive business information was posted on the notice board in the cafeteria and that this information might be conveyed deliberately or inadvertently to Heinz Wattie’s. It was argued that the duty of good faith owed by the union representatives to their own employer would mean that they were obliged to pass on information obtained in this way. A full court of the Employment Court disagreed. The duty did not extend to such an obligation. Moreover, the representatives, even though employed by a competitor, had a duty to McCain. This included not misleading or deceiving McCain. See McCain Foods (NZ) Ltd v Service & Food Workers Union Nga Ringa Tota Inc (2008) 8 NZELC 99,393 (EC).

Examples of areas in which good faith applies

Section 4(4) provides a (non-exhaustive) list of situations in which the duty of good faith applies:

  • (a) bargaining for a collective agreement or for a variation of a collective agreement, including matters relating to the initiation of the bargaining

  • (b) any matter arising under or in relation to a collective agreement while the agreement is in force

  • (ba) bargaining for an individual employment agreement or for a variation of an individual employment agreement

  • (bb) any matter arising under or in relation to an individual employment agreement while the agreement is in force

  • (c) consultation (whether or not under a collective agreement) 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

  • (d) a proposal by an employer that might have an 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 employers’ business

  • (e) making employees redundant

  • (f) access to a workplace by a representative of a union, and

  • (g) communications or contacts between the union and an employer relating to any secret ballots held for the purposes of bargaining for a collective agreement.

Section 4(6) provides that it is a breach of good faith for an employer to advise, or to do anything with the intention of inducing, an employee—

  • (a) not to be involved in bargaining for a collective agreement, or

  • (b) not to be covered by a collective agreement.

Reproduced with permission of Wolters Kluwer NZ

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