James Farmer


Redundancy, Good faith and Employment Law

Friday, August 18, 2023

These are troubled times. Companies are seeking to cut costs and restructuring and reduction of their work force is an obvious way of doing so. Redundancy is the outcome. Unlike many countries, New Zealand lacks any statute that deals specifically with employers’ obligations and employees’ rights in a redundancy situation. For that reason, a recent Judgment of the Employment Court delivered by former President of the New Zealand Law Society, Judge Kathryn Beck – New Zealand Steel Limited v. Haddad [2023] NZEmpC 57 (5 April 2023) - will be of interest. It goes a long way to filling the gap in our employment legislation and may even go further.

I do not currently regard myself as any kind of employment law specialist, though I have on a number of occasions in the last few years had the privilege of working on employment disputes with Jennifer Mills, who is one of the country’s top employment lawyers and who is often contacted by the media for comment on legal change in employment legislation. I have also worked relatively recently, with (now) Judge Richard McIlraith, then the head of Russell McVeagh’s employment law section, for the Auckland Port Company in relation to disputes with the Waterfront Workers’ Union.

Having made that disclaimer, I did in times past however have quite a lot of involvement in employment law. When in England studying for my Ph.D. at Cambridge, I researched the operation of industrial tribunals (and later the controversial National Industrial Relations Court). The jurisdiction of the tribunals, which began modestly with the function of determining appeals from employer levies made by industrial training boards, expanded rapidly, particularly with the enactment of the Industrial Relations Act 1971 to include unfair dismissals, redundancy payment appeals, and disputes under the Equal Pay Act and between trade unions and their members. I later updated my thesis and included a chapter entitled “Tribunals and the Worker” in a book that I wrote and published in England called “Tribunals and Government” (long since forgotten).

While a senior lecturer at the Auckland Law School, I was also retained by the New Zealand firemen’s union and worked with its very able secretary, Arthur Monk, to obtain greater job security for its members. During this period also, I was asked to draft an Employment Relations Bill by the then Business Roundtable which I did and which bore considerable resemblance to the first Employment Contracts Act introduced many years later by Margaret Wilson as

Minister of Labour. Margaret had been a student in an employment law course that I initiated at the Auckland Law School which we called Industrial Law. I was also a co-contributor to a book on Industrial Relations in New Zealand edited by John Deeks (a sociologist) and including an analysis of trade union history by Herbert Roth and a section by Graham Scott, economist and former Head of the New Zealand Treasury. When the New Zealand Industrial Relations Society was formed, I was appointed its first President with the support of both employers and trade unions, a position that I vacated when I returned to lecture at Cambridge University where I sat in on seminars conducted for postgraduate students studying and researching in employment and trade union law.

After leaving academia and joining Russell McVeagh, it was perhaps not surprising that I should be keen to develop a practice in this area. This was aided at the time by the enthusiasm of the Muldoon Government to control wage increases through the Wage Adjustment Regulations promulgated under the Economic Stabilisation Act. I felt that employment law had been much neglected by lawyers and had considerable potential for practice development. That proved to be the case and when I left the firm to go to the independent Bar, Gerard Curry and Rob Towner successfully continued to work in this area, with Rob ultimately heading up Bell Gully’s employment law practice before more recently taking up a position in Richmond Chambers as a barrister sole.

Having, I hope, established my justification for taking an interest in the New Zealand Steel Judgment, I begin an exposition of it by repeating that it was given in the vacuum created in New Zealand Employment law by the omission of specific redundancy legislation. In the United Kingdom, by contrast, the Redundancy Payments Act of 1965 (now the Employment Rights Act 1996) gave an employee whose employment was terminated on redundancy grounds and who had not been offered suitable alternative employment a statutory right to compensation based on age and the number of years of service. Currently, for example, an employee who is more than 41 years of age is entitled to one and half weeks’ wage or salary for every year of service up to a maximum of 20 years. The conventional wisdom in New Zealand has been that entitlement to redundancy pay is governed entirely by the contract of employment and if there was no such entitlement an employer need only give the contractual period of notice. Judge Beck’s Judgment now says otherwise.

The facts, briefly, of NZ Steel were that Mr Haddad had worked as Process Computing Manager at the company for seven and half years at which time the IT Department was restructured with the consequence that his position was disestablished and three new Information Services management roles created. Mr Haddad was invited to apply, and did apply, for all 3 positions. He declined however to be interviewed for these new positions on the grounds, he said, that he was obviously suitable for all of them and should simply be appointed to one. The company responded by saying that in the absence of an interview it could not determine his suitability and therefore terminated his employment for redundancy. A personal grievance application for unjustified dismissal resulted and the Employment Relations Authority upheld the application, ordered reinstatement, 3 months’ lost earnings and compensation of $15,000. NZ Steel then appealed to the Employment Court.

The first issue before the Court was whether the company had followed a fair and reasonable process and whether the decision to disestablish Mr Haddad’s role had been predetermined. While there had been some opportunity to provide “feedback” on the restructuring proposal in the latter stages, on the evidence the Court ruled that the disestablishment of Mr Haddad’s position had been predetermined by the time that he was consulted. In particular, the decision-makers had failed to involve him in key discussions at critical times and had not kept an open mind during the process. There was, the Judge held, “a mindset that Mr Haddad’s position would not survive the restructure”. This led to a ruling that the consultation that did occur was “flawed and failed to meet the obligations of good faith required by the [Employment Relations] Act”.

Judge Beck next considered whether NZ Steel had fulfilled its obligations in relation to redeployment in a redundancy situation. There was in fact a provision in Mr Haddad’s contract that redeployment would be “considered” and that the company would treat him “fairly and reasonably in any selection process, taking into account such things as skills, experience and employment record”. The Court thought that, as a matter of the contract wording, mere consideration (that is paying lip service only to the undertaking) was not enough but that consideration “must be given primacy”.

Added to that, the Court thought that the enactment of sections 4 and 103A in the Act imposed statutory obligations on an employer in a dismissal situation to act fairly, reasonably and in good faith. In particular, section 4(1A)(b) and (c) required the parties to an employment relationship to make that relationship  an active and productive one and to give employees access to information that  affected their continued employment and an opportunity to comment on that  information before a decision was made. Further and specifically in relation to  redundancy, the duty of good faith, by virtue of section 4(4)(e), applied  specifically to making employees redundant.  

As Judge Beck put it: “The Employment Relations Act moves away from a focus  on the contract between parties to not only a recognition but a promotion of  good faith employment relationships.” She recognised in this respect that the  Court’s role in reviewing the merits of a redeployment decision should be  “proscriptive rather than prescriptive” on the basis that it is not always well  placed to conclude whether redeployment should be offered.  Notwithstanding that, it was open to the Court to conclude that an employer’s  reasons for a refusal or failure to redeploy were not substantively justified or  that the decision-making process was not fair and reasonable. In that event, it  was held, “a dismissal will be unjustified”.  

The implications of an employer’s failure to make decisions that may result in  redundancy goes beyond the rights of an individual employee. As Judge Beck  said: “… where these redeployment obligations are breached, the fairness of  the entire redundancy process will be affected”. In short, the entire  restructuring process may be at risk. That may provide an outcome that is of  much broader scope than the position of a single redundant employee in  respect of whom the employer has not made proper attempts to  accommodate his or her continued employment in the business.  

The final decision in the NZ Steel case was that reinstatement of Mr Haddad to a project management role that was no less advantageous to him was ordered  together with compensation for monetary losses incurred by him as a result of  his having been made redundant in the meantime.  The lesson from the NZ Steel Judgment for firms that seek to restructure their  work force in order to cut costs and increase efficiency is that those employees  who are made redundant should be fairly accommodated (by way of  redeployment if that is reasonably possible) or otherwise fairly compensated  for the cost to them. Reliance on a contract of employment that does not  protect the employee adequately in a redundancy situation will not win the  day.

James Farmer
18 August 2023

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