What Does Good Faith Mean for Employers?
Good faith is one of the most important principles in New Zealand employment law. It applies throughout the employment relationship, from recruitment and workplace discussions through to performance management, restructuring and dismissal.
In simple terms, good faith means dealing with employees honestly, openly and fairly. It also means communicating clearly, responding to concerns and giving employees a genuine chance to have their say before making decisions that could affect their employment.
Good faith is not only about being polite or having good intentions. It is a legal duty. Employers must make sure their actions, decisions and processes meet this duty.
Which law requires employers to act in good faith?
The duty of good faith is set out in section 4 of the Employment Relations Act 2000. The Act requires the parties to an employment relationship to deal with each other in good faith. This includes employers, employees and unions.
The duty is wider than simply requiring people not to mislead or deceive each other. Employers and employees must also be active and constructive in maintaining a productive employment relationship. This means communicating properly and making a genuine effort to resolve workplace issues.
Under the Act, an employer who is considering a decision that could negatively affect an employee’s continued employment may also need to:
Provide the employee with access to relevant information,
Explain what is being proposed and why,
Give the employee a reasonable opportunity to comment, and
Consider the employee’s response before making a final decision.
The exact obligations can depend on the circumstances. However, employers should generally avoid making decisions in advance and then carrying out a process simply to confirm an outcome they have already chosen.
What does good faith look like in practice?
Good faith affects almost every part of the employment relationship. The following are common examples of what it looks like in the workplace.
Communicating honestly
Employers should give employees accurate information and be honest about workplace issues. For example, if you are concerned about an employee’s performance, you should explain the specific concerns rather than suggesting that everything is fine and then unexpectedly placing the employee on a formal performance process. You should also avoid giving reasons for a decision that are incomplete, misleading or untrue.
Raising concerns promptly
If there is a problem with an employee’s conduct or performance, raise it within a reasonable time. Allowing concerns to build up without mentioning them can make it harder to deal with the issue fairly later. Regular feedback gives employees a chance to understand expectations and make improvements before the matter becomes serious.
Responding to employee concerns
Good faith is a two-way duty, but employers usually have greater resources and more control over workplace processes. If an employee raises bullying, stress, safety concerns, discrimination or another workplace problem, the employer should acknowledge the concern and respond within a reasonable time. Ignoring repeated complaints or allowing them to sit unresolved may breach good-faith obligations and create further risks.
Sharing relevant information
Employees need enough information to understand and respond to matters that could affect them. During a disciplinary investigation, this will usually mean giving the employee clear details of the allegations, the evidence being relied on, reasonable opportunity to prepare, the chance to provide an explanation or further evidence, and the opportunity to bring a representative or support person.
Employers should disclose relevant information even when some of that information does not support the employer’s preferred outcome. Privacy or confidentiality concerns may sometimes limit what can be disclosed, but they do not automatically justify withholding everything.
Keeping an open mind
A fair consultation or disciplinary process must be genuine. An employer should not make a final decision before hearing from the employee. For example, a restructuring proposal should still be a proposal when it is presented to employees. The employer must listen to feedback, consider alternatives and remain willing to change the proposal if the feedback raises valid issues.
Following through on commitments
If you tell an employee that you will investigate a complaint, review their pay, provide training or respond by a certain date, you should follow through. If circumstances change and you cannot meet the original timeframe, explain this and provide an updated timeframe. Silence and unexplained delays can quickly damage trust.
When is good faith especially important?
Good faith applies every day, but it becomes particularly important during:
Disciplinary investigations,
Performance management,
Restructuring and redundancy consultation,
Changes to hours, duties or work location,
Negotiations about employment agreements,
Workplace complaints and investigations,
Medical incapacity processes,
Requests for flexible working arrangements, and
Discussions about ending employment.
These situations can have serious consequences for an employee. Employers should slow down, gather the relevant information and make sure the employee has a fair chance to participate.
What can happen if an employer breaches good faith?
An employee who believes they have been treated unfairly may raise the issue directly, request mediation or apply to the Employment Relations Authority. Depending on what occurred, the employee may also raise a personal grievance. The Authority can order remedies such as:
Reimbursement for lost wages,
Compensation for humiliation, loss of dignity or injury to feelings,
Reinstatement,
A financial penalty for breaching employment obligations,
Compliance with an employment agreement or legal requirement, and/or
Payment of legal or representation costs.
A breach of good faith can also contribute to a finding that a dismissal or disadvantage was unjustified. Even where an employer had a genuine concern, an unfair or predetermined process may make the employer’s actions unlawful.
A serious breach of good faith may attract a penalty where the conduct was deliberate, serious and sustained, or intended to undermine the employment relationship.
What are the wider consequences for your business?
The financial cost of an employment claim is only one part of the risk. Poor employment processes can also cause:
Loss of trust between managers and employees,
Lower staff morale and engagement,
Increased absenteeism and staff turnover,
Damage to your business’s reputation,
Difficulty recruiting and retaining good employees,
Disruption to managers and other staff, and
Significant time spent preparing for mediation or Authority proceedings.
Employees also watch how their colleagues are treated. If one employee is subjected to an unfair process, others may lose confidence in management even if they are not directly involved.
How can employers support good faith?
Good systems make good-faith behaviour easier. Employers should have clear policies for handling complaints, performance concerns, disciplinary matters and workplace change. Managers should also be trained to raise concerns early, keep accurate records, avoid making promises they cannot keep, separate allegations from proven facts, share relevant information with employees, listen to the employee’s response, and ask for advice before making serious decisions.
If there is a risk that the employee could be warned, disadvantaged or dismissed, it is sensible to obtain HR advice before starting the process. Correcting a process after a decision has been made is much harder than getting it right from the beginning.
FAQs
Does good faith apply to employees as well as employers?
Yes. Employees must also be honest, communicative and responsive. They should raise concerns promptly, answer reasonable questions and avoid deliberately misleading their employer. However, employers usually carry greater responsibility because they control most workplace decisions and processes.
Is good faith the same as following the employment agreement?
No. Following the agreement is important, but good faith is wider. An employer might technically comply with a clause while still behaving in a misleading, predetermined or unfair way.
Do I have to give an employee all information before making a decision?
You should provide information that is relevant to the decision and allow the employee to comment. Some information may need to be withheld or redacted for valid privacy, confidentiality or legal reasons. Employers should get advice before withholding important information.
Can I make a decision if the employee refuses to respond?
Usually, yes. You should provide the relevant information, allow a reasonable opportunity to respond and explain what may happen if no response is received. If the employee still chooses not to participate, you may be able to decide the matter using the information available.
Does good faith stop an employer from dismissing an employee?
No. An employer can still dismiss an employee where there is a lawful and justified reason and the required process has been followed. Good faith is about ensuring the employee is treated honestly and fairly throughout that process.
Seek advice if you are unsure if you and your team are applying processes or practices in good faith. Employer Direct can help you assess risks, prepare correspondence and follow fair processes. Early support can prevent a manageable workplace issue from becoming an expensive employment dispute. Get in touch today for a free consultation - Employer-Direct.co.nz | 0800 612 355
Disclaimer: The information provided in this blog is for general informational purposes only and should not be considered legal advice. While we strive to keep the information accurate and up to date, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained on the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. For specific legal advice tailored to your situation, please contact a qualified legal professional.
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