Employment Law Update

Good faith

The duty of good faith requires employers, employees and unions to act honestly, openly and without hidden motives to raise issues in a fair and timely way. Sianatu Lotoaso outlines the concept of good faith and looks at the consequences if it is not applied.

In New Zealand, the duty of good faith is a fundamental cornerstone in employment relations. The fact that it is prescribed in the Employment Relations Act 2000 (the Act) indicates that this is by deliberate design. For example: • section 3(a)(i) provides that the object of the Act is to build productive employment relationships through the

• section 3(a)(i) provides that the object of the Act is to build productive employment relationships through the “promotion of good faith in all aspects of the employment environment and of the employment relationship” by recognising that employment relationships must be built not only on the implied “mutual obligations” of trust and confidence, but also on a “legislative requirement for good faith behaviour”

• section 4 requires parties to an employment relationship to “deal with each other in good faith”.

Good faith is a reciprocal obligation owed by employers, employees and unions in an employment relationship. Despite this, it is not a well-understood concept.

What is ‘good faith’?

As stated above, good faith is identified as a requirement in section 4 of the Act: “Parties to employment relationship to deal with each other in good faith”. Section 4(1A), added in 2004, broadens the scope of the duty of good faith to state that it “is wider in scope than the implied mutual obligations of trust and confidence”. Section 4(1A)(b) requires the parties to an employment relationship to be “active and constructive” in establishing and maintaining a productive employment relationship, which includes an obligation on the parties to be “responsive and communicative”. Critically, the Act does not define any of these terms (see section 5).

The failure of all involved in an employment relationship to act in good faith could lead to legal recourse.

The terms are extremely broad in nature, allowing good faith to be applied flexibly in a wide range of circumstances and increasing parties’ obligations. However, in most cases that come before the Employment Relations Authority or courts, it is the employee claiming that the employer has not acted in good faith rather than the other way around. Ordinarily, these types of claims stem from disciplinary or redundancy processes where an employee complains about their employer’s failure to provide relevant information and to engage in genuine consultation.

Consequences

However, employers also have legal recourse against unions and employees for breaches of good faith. In the case of unions, this situation could arise where an employer is concerned that the union may be providing misleading information to employees that harms the employer’s negotiating position, or the union is making news media comments during disputes.

In the case of employees, legal recourse could occur where an employee has deliberately withheld information from their employer that could be harmful to the business or has a conflict of interest that is harmful to their employer. The consequences for an employee who does not comply with good faith obligations may include:

• a compliance order to require good faith conduct

• a liability to a penalty of $5,000 (individual) if the failure is deliberate, serious and sustained, or was intended to undermine bargaining (individual or collective) or an employment agreement (individual or collective) or the employment relationship

• reductions of remedies in personal grievances under section 124 of the Act (including disqualification from reinstatement).

Good faith is a reciprocal obligation owed by employers, employees and unions in an employment relationship.

Summary

Even after more than two decades since it was recognised in the Act, good faith remains a poorly understood concept. However, defining it by statute may overregulate what good faith means in practice. It may ultimately be unhelpful because each employment relationship is different, and the concept must evolve with changing societal expectations and norms.

Ultimately, an employment relationship is no longer simply contractual; it now includes acting honestly, fairly and constructively with each other. The failure of all involved in an employment relationship to act in good faith could lead to legal recourse.

Sianatu Lotoaso is an Associate at Dundas Street Employment Lawyers. Sianatu provides advice on all aspects of employment law and the employment relationship. Sianatu regularly provides advice to a range of clients in the public and private sectors.