Good Faith

Good Faith: The Cornerstone of Healthy Employment Relationships in New Zealand

As someone passionate about employment law, I recently explored a thought-provoking paper by Chief Judge Christina Inglis, presented at the 2019 Law @ Work Conference, titled Defining good faith (and Mona Lisa’s smile). It dives deep into the statutory duty of good faith under New Zealand’s Employment Relations Act 2000 (ERA), likening its elusive yet vital nature to the enigmatic Mona Lisa’s smile. Combined with insights from broader employment law principles, this paper inspired me to reflect on how good faith shapes workplace dynamics and whether it’s fulfilling its legislative promise. Here’s a revised take on its significance, challenges, and practical applications in New Zealand’s employment landscape.

What Does "Good Faith" Really Mean?

Good faith is the bedrock of employment relationships in New Zealand, legally enshrined in the ERA to promote trust, fairness, and collaboration. It’s more than just avoiding deceit—it demands that employers, employees, and unions act honestly, openly, and constructively. The ERA’s section 4 requires parties to be responsive and communicative, ensuring they don’t mislead or deceive each other, either directly or indirectly (Inglis, 2019, p. 5). This extends beyond the common law’s mutual obligations of trust and confidence, promoting active engagement to foster productive relationships.

In practice, good faith translates into several key behaviours:

• Honesty and transparency: Parties must avoid deceptive actions. For instance, a union cancelling a strike should promptly inform the employer to maintain trust.

• Responsiveness: Concerns should be raised quickly, questions answered promptly, and uncertainties clarified, especially during disciplinary processes or workplace investigations.

• Open-mindedness: This means listening to others, respecting differing views, and being willing to adapt based on new information.

• Information sharing: Employers must provide relevant information when decisions could adversely affect an employee’s job, giving them a chance to comment before final decisions are made.

Inglis highlights that good faith isn’t a rigid rule but a flexible standard, shaped by the unique circumstances of each case, much like the nuanced beauty of Mona Lisa’s smile (Inglis, 2019, p. 7). This adaptability allows it to evolve with societal norms, but it also challenges courts and parties to apply it consistently.

The Statutory Framework and Its Evolution

The ERA, enacted in 2000, marked a shift from the Employment Contracts Act 1991’s strict contractual approach to a relational contract model, recognising the inherent power imbalance in employment relationships (Inglis, 2019, p. 4). Section 3 of the ERA aims to build “productive employment relationships” by promoting good faith across all workplace interactions, from hiring to termination. Unlike the 1990s, when courts often focused on employee duties like fidelity, the ERA mandates mutual obligations, requiring both parties to cooperate proactively (Inglis, 2019, p. 3).

However, the application of good faith has been cautious. Inglis notes a judicial reluctance to fully embrace its potential, possibly due to common law traditions wary of good faith in contracts (Inglis, 2019, p. 1). For example, in Auckland City Council v New Zealand Public Service Association (2004), the Court of Appeal rejected an expansive view, cautioning against requiring “energetic and positive” good faith behaviour (Inglis, 2019, p. 5). Parliament responded by amending section 4 in 2004, clarifying that good faith is broader than trust and confidence and requires active, constructive engagement (Inglis, 2019, p. 6). This legislative push underscores the intent to move beyond adversarial workplace dynamics towards mutual respect.

Good Faith in Action: Workplace Contexts

Good faith applies across various employment scenarios, shaping interactions and ensuring fairness. Here’s how it plays out:

1. General Employment Relationships

Good faith governs everyday workplace interactions and critical moments:

• Hiring: Employers must negotiate individual employment agreements fairly, ensuring clear communication. Pre-employment checks, like criminal record reviews, must be conducted transparently and for legitimate purposes.

• Workplace Changes and Discipline: When restructuring or addressing misconduct, employers must have a valid reason, follow a fair process, and keep an open mind. This includes clearly outlining issues, allowing employees to respond, and considering mitigating factors.

• Resignation and Dismissal: Employers must confirm an employee’s intent to resign and calculate final pay accurately. Even during trial periods, dismissals require a fair process rooted in good faith.

• Record Keeping: Employers must maintain detailed records to demonstrate compliance with minimum entitlements, such as wages and holiday pay, reflecting good faith transparency.

In ASG v Hayne (2016), the Court of Appeal found an employee’s failure to disclose a criminal charge breached good faith, emphasising the need for candour (Inglis, 2019, p. 10). This shows how good faith extends to proactive disclosure in certain contexts.

2. Collective Bargaining

Good faith is critical in collective bargaining to promote informed discussion and minimise industrial action. Key requirements include:

• Negotiation: Parties must meet, consider, and respond to proposals, continuing to bargain on unresolved issues.

• Information Sharing: Parties must provide information reasonably necessary to support claims, fostering transparency.

• Concluding Agreements: Generally, parties should aim to conclude a collective agreement unless there’s a genuine, reasonable reason not to. Objections to collective bargaining itself aren’t valid.

• Avoiding Undermining: Employers must not pass on collectively agreed terms to non-covered employees if it undermines the bargaining process or agreement.

The Minister can approve codes of good faith to guide collective bargaining, which the Employment Relations Authority or Court may consider when assessing compliance (Inglis, 2019, p. 14).

3. Specific Legal Contexts

Good faith extends to other employment-related laws:

• Equal Pay Act 1972: Parties in pay equity claims must engage constructively, provide necessary information, and work towards a settlement.

• Health and Safety at Work Act 2015 (HSWA): PCBUs must engage with workers on safety matters in good faith, aligning with ERA principles. Workers must cooperate with safety policies, and officers must exercise due diligence.

• Holidays Act 2003: Employers and employees must negotiate leave entitlements, like rest breaks or flexible working arrangements, in good faith.

• Parental Leave and Employment Protection Act 1987: Relief may be granted for good faith failures to meet notice requirements.

• Privacy Act 2020: Handling personal information, like health or criminal records, must align with good faith principles, and no proceedings can be brought for good faith disclosures under this Act.

A Three-Legged Framework for Good Faith

Inglis draws on Sir Anthony Mason’s three-legged framework to clarify good faith: cooperation, honesty, and reasonableness (Inglis, 2019, p. 8). This framework doesn’t require parties to prioritise each other’s interests, but demands:

• Collaboration towards shared contractual goals.

• Adherence to honest conduct.

• Reasonable behaviour tailored to the context and parties’ interests.

This approach fits the ERA’s relational focus, allowing good faith to adapt to specific circumstances. For instance, in France, good faith requires employers to help employees adapt to evolving roles, suggesting a proactive duty that could inspire New Zealand courts (Inglis, 2019, p. 10).

Consequences of Breaching Good Faith

Breaching good faith can have serious repercussions. Under section 4A, deliberate, serious, or sustained breaches, or actions intended to undermine bargaining or relationships, may lead to penalties (Inglis, 2019, p. 15). In collective bargaining, the Employment Relations Authority may intervene to fix agreement provisions in cases of significant breaches. For individual agreements, remedies include compensation, cancellation, or variation of the agreement.

A finding of breach itself carries weight, serving as a formal condemnation that can prompt behavioural change. For example, in Bay of Plenty District Health Board v Midwifery Employee Representation and Advisory Service Inc (2018), the Authority issued a compliance order to enforce good faith (Inglis, 2019, p. 15). Breaches can also lead to reduced remedies or disqualification from reinstatement under section 124 (Inglis, 2019, p. 16). While damages for statutory good faith breaches remain debated, breaches can support claims for unjustified disadvantage, offering remedies like compensation or lost wages (Inglis, 2019, p. 16).

Looking Forward: The Future of Good Faith

Good faith’s open-textured nature is its strength, allowing it to evolve with societal expectations, much like the ERA’s section 103A test for justification, which assesses employer actions against what a fair and reasonable employer could do (Inglis, 2019, p. 9). As workplaces increasingly value privacy, dignity, and work-life balance, good faith could address these emerging norms (Inglis, 2019, p. 10). However, Inglis warns that without clear judicial articulation, good faith risks becoming a vague catch-all, echoing the Supreme Court of Canada’s caution in Bhasin v Hrynew (2014) against “ad hoc judicial moralism” (Inglis, 2019, p. 17).

Final Thoughts

Good faith is more than a legal obligation—it’s a call to build trust and cooperation in New Zealand’s workplaces. Inglis’s paper, with its vivid Mona Lisa analogy, underscores its nuanced yet powerful role. By embracing honesty, responsiveness, and fairness, employers and employees can navigate workplace complexities more effectively. While challenges remain in its consistent application, good faith’s potential to foster productive, respectful relationships makes it a cornerstone of modern employment law.

Credit: This blog draws heavily on Chief Judge Christina Inglis’s paper, “Defining good faith (and Mona Lisa’s smile),” presented at the Law @ Work Conference in 2019, alongside broader employment law principles from New Zealand legislation.