Law briefs: Good-faith clause to be tested in redundancy appeal

By CAROL LOUW*

The first decision of the Employment Relations Authority indicates that the definition of fair redundancy has not changed.

The authority was established under last year's Employment Relations Act to investigate employment relationship problems.

That first decision dealt with the case of an employee of Coutts Cars, Mr Baguley, a motor-vehicle groomer who was made redundant. He claimed the dismissal was unjustified and asked the authority to resolve the problem.

One issue that the authority considered in Baguley v Coutts Cars was whether the obligation to act in good faith, which was not a requirement under the Employment Contracts Act, changed the way in which a redundancy had to be carried out.

The Employment Relations Act specifies that the principle of good faith applies when an employer makes an employee redundant.

The authority decided that good faith was unlikely to have a significant impact on accepted redundancy procedures. It noted that the good-faith requirement applicable to the operation of employment contracts was already well-established before the passing of the Employment Relations Act. It was comparable to the implied term of mutual trust and confidence, which has long been a component of the employment relationship.

Turning to the facts of the case, the authority found that the dismissal was justified; although it was not perfect, it was fair and reasonable enough.

Coutts Cars employed four motor-vehicle groomers. It decided that since peaks and troughs in the demand for grooming could be managed better by contracting out some of the work, it halved the number of groomers.

The groomers affected were informed of the possibility of redundancy. The employer then evaluated each groomer to provide a basis for selection for redundancy. Two employees were identified as candidates for redundancy and were consulted further. Mr Baguley was subsequently given notice of termination of employment.

He claimed that his dismissal was unjustified. One of his concerns was that the employer refused to inform him of the selection criteria that had been applied.

The authority accepted that the employer's reason for the dismissal was to reduce costs and achieve greater operational efficiency. The selection criteria were fair and were applied in a fair manner.

The fact that the company refused to inform the employee of the selection criteria did not make the dismissal unjustified. An employer was not required to make available every shred of evidence on how it had reached the decision to dismiss.

The authority also rejected the employee's submission that the employer should have considered the possibility of redeployment among a wider group of companies that it was part of. Coutts Cars was a separate legal entity.

Mr Baguley was dissatisfied with the ruling. He has challenged the determination and requested a full rehearing in the Employment Court.

The court will have to consider whether the company met its good-faith obligations, given that Mr Baguley was not consulted about selection criteria or their application. Another issue will be whether the authority was right when it said that the statutory good-faith obligations are encompassed in the term of mutual trust and confidence already implied into employment contracts.

Because of the significance of the issues, the chief judge has convened a full court to decide the matter.

* Carol Louw is an employment law analyst at CCH (NZ) Ltd, a tax, business and employment law publisher based in Auckland. For further information, visit the CCH website or phone 0800 500-224.

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