One of our Directors, Peter McKenzie-Bridle, shares some insight into "good faith" and how it plays an important role in Employment Law.
Tracy got so fed up with workplace bullying at the Waimakariri District Council that she complained about it to the Employment Relations Authority. When the ERA considered Tracy’s claim, it agreed she had been bullied and ordered the Council to pay her around $80,000 in remedies. In addition to those remedies, however, the ERA also penalised the Council $12,000 for breaching its duty of good faith. $7,000 was paid to Tracy and the rest went to the Government.
So, what is the duty of good faith and what was going on in Tracy’s case?
When you get a sparky to come and fix the lights, you enter a legal contract with them. The contract is simple: they must do the work to the required standard, and you must pay them for it. In that relationship, you and the sparky don’t owe each other any other duties – you both just need to do what you promised you’d do.
An employment agreement is a contract which contains similar promises, but New Zealand law also requires both parties in an employment relationship to act toward one another in good faith. Good faith requires both parties to do much more than just do the work and be paid for it. The duty includes some aspirational obligations designed to make the contractual relationship succeed.
Section 4 of the Employment Relations Act 2000 helpfully spells out what that means. For example, good faith requires the parties to be “active and constructive in establishing and maintaining a productive employment relationship” and be “responsive and communicative”. Employers who are considering a change that may affect their employees are required to share important information (sometimes even confidential information). Employees are required to act in their employer’s best interests, even when they’re not at work.
The focus of the duty of good faith is about building productive employment relationships. There are important social reasons why employment law requires this from the parties. Firstly, many of us are employed and employment is one of the ways we achieve security and stability in life. As some of us know, when we are without employment, life becomes much more difficult. Secondly, the Government relies on employment to deliver a wide range of important social benefits. KiwiSaver, Working for Families, paid parental leave, and other such benefits are delivered to working Kiwis through their employment. Thirdly, there is a power imbalance between employers and employees and good faith is one way to help level the playing field.
These social benefits are one of the reasons some of the penalty in Tracy’s case was paid to the Government. Good faith supports stable employment and the benefits that come from it. If one party breaches their duty of good faith, we are all partly let down by that failure, so part of the penalty is paid to the Government who receives it on behalf of society. In other words, we all benefit when employers and employees treat each other decently.
At CS Law, we try to help our clients understand these legal obligations and how they impact their decisions. We also try and promote positive workplace relationships which tend to be good for business and good for staff. If you are worried about an actual or potential breach of good faith, or if you’re making a significant decision that affects someone’s employment, then don’t hesitate to contact us for a chat.