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era changes come into force 

• Justification of dismissal
• Protection of vulnerable workers
• Good faith and collective bargaining
• The effects
• Other considerations
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The Employment Relations Amendment (No 2) Act 2004 came into force on 1 December. The new Act has been the source of much debate and controversy. One of its central objectives was to address the imbalance of power between employer and employee. The increased cost to business, increased litigation and reduced incentives to invest, however, mean that the balance of power appears to now be heavily weighted against the employer. The new Act brings introduces many changes. We would like to focus this discussion on three key contentious areas.

Justification of dismissal

The main change to the justification of dismissals clause is the substitution of the "BP Oil test" for the "Oram test". The BP Oil test was defined by the Court of Appeal in Northern Distribution Workers Union v BP Oil NZ Limited [1992] 3 ERNZ 483:
"In the end, the question is essentially whether the decision to dismiss was one which a reasonable and fair employer would have taken in the particular circumstances."

This test was reworded by the Court of Appeal in W & H Newspapers Limited v Oram [2000] 2 ERNZ 448:
"The Court has to be satisfied that the decision to dismiss was one which a reasonable and fair employer could have taken. Bearing in mind that there may be more than one correct response open to fair and reasonable employer, we prefer to express that this in terms of "could" rather than would", used in the formulation expressed in the second BP Oil case…

The burden on the employer is not that of proving to the Court the employee's serious misconduct, but of showing that a full and fair investigation disclosed conduct capable of being regarded as serious misconduct.

…If in a particular case of summary dismissal, the employer shows that the conduct was such that a fair and reasonable employer could see it as deeply impairing on the basic confidence and trust essential to the employment relationship, it would hardly be necessary to consider, as a separate step, whether in all the circumstances the employee ought to have been dismissed."

By exchanging would for could the employer is no longer judged on what a fair and reasonable employer would do in the circumstances but is judged far more objectively as to what a fair and reasonable employer could have done. This shift potentially allows a court to substitute an employer's decision with their own. It would appear that doing so directly undermines an employer's entitlement to manage and make decisions for their business.

Protection of vulnerable workers

The protection of vulnerable employees is an amendment that has many employers anxious. A vulnerable employee is considered to be those who provide cleaning, food catering, orderly or laundry services for the education, health, age-related residential care, local government or aviation sectors. All employees of catering or cleaning businesses in any other workplace are also considered to be vulnerable.

The object of this provision is to:  
"provide protection to specified categories of employees if their employer proposes to restructure its business  
so that their work is to be performed for a new employer and, to this end, to give employees a right –
(a) to elect to transfer to the new employer on the same terms and conditions of employment; and
(b) subject to their employment agreements, to bargain for redundancy entitlements from the new employer if made redundant by the new employer for reasons related to the restructuring of the previous employer's  business; and
(c) if redundancy entitlement s cannot be agreed with the new employer, to have the redundancy entitlements determined by the Authority."

Employees that do not come into the category of a vulnerable employee still have protection and employers should be aware of their responsibilities under the new Act. All new collective or individual employment agreements entered into from 1 December 2004 must contain an employee protection provisions clause relating to negotiations about the transfer of affected employees to the new employer. Employment agreements already in place must be updated with this clause by 1 December 2005.

It is widely believed that this provision will adversely impact on the commercial performance of businesses in relation to saleability of a business and when trying to save itself from commercial collapse. Alan Wild, a consultant with the International Labour Organisation believes that New Zealand could potentially suffer the consequences European businesses faced when similar legislation was imposed. Wild maintains the effects could be:

• the loss of labour input efficiency gains otherwise afforded by competition
• the tendency for falling companies to close rather than restructure
• the creation of an unfair advantage for new entrants in any market

While the size of Europe's market was large enough to survive these consequences, Wild believes that such policy in a country with our market size will adversely affect our ability to compete with the likes of Japan, South Korea, China and South American nations – large markets without transfer of business provisions in their laws.

Good faith and collective bargaining

One of the key elements of the Act is the promotion of good faith. The new Act suggests that good faith is a broader concept than the common law obligations of mutual trust and confidence.  The duty of good faith requires parties to be "active and constructive in establishing and maintaining a productive employment relationship in which the parties are, among other things, responsive and communicative". The duty of good faith also states that when making a decision likely to have an adverse effect on the continuation of employment for one or more employees, the employer must provide access to information about the decision and an opportunity for the employee to comment on the information before a decision is made.

Failure to comply with the duty of good faith will result in a penalty for an employer if the breach was "deliberate, serious and sustained" and if it was intended to undermine bargaining for an employment agreement, or if it was intended to undermine the employment agreement itself or an employment relationship.

The duty of good faith requires a union and an employer bargaining for a collective agreement to conclude a collective agreement unless there is a "genuine reason not to”. A genuine reason is not opposition or objection to collective agreements or disagreement about including a bargaining fee clause.

There has been much debate over the subject of undermining collective bargaining/agreements. Under the Act it will be considered a breach of good faith to pass on, in certain circumstances, in individual employment agreement terms and conditions agreed in collective bargaining or in collective agreement if the employer does so with the intention of undermining the collective agreement and the effect of doing so undermines the collective agreement. To many this attack on "free-riding" is effectively backdoor unionism.

The effects

Exactly what the effects of the new Act will be remain to be seen. It will certainly be an interesting few years in employment as this legislation is put into practice. The object of addressing the imbalance of power between employer and employee, has certainly been achieved but in doing so it seems that this new law  eaten away at the manager’s prerogative — a common law concept: the employer’s right to organise their own business as they see fit.

These are just some of the issues the Employment Relations (No.2) Act 2004 will introduce. Please contact us at Barbara Buckett and Associates to ensure you comply with the Act.

Other considerations

It has recently been brought to our attention that a number of small to medium sized businesses still don't have written employment agreements. Written agreements have to be in place to avoid significant penalties (that can be calculated retrospectively) under the act.

Employers and employees should also note the changes to parental leave entitlements effective from 1 December 2004. Employees now only need to have worked for the employer for six months continuously prior to delivery or adoption. The paid period of maternity leave has also been extended from 12 to 13 weeks and partners may take one week paternity leave after working in the position for six months prior. Entitlements to extended leave remain the same, requring 12 months of continuous servious prior to delivery.

Also, remember your entitlements and obligations under the Holidays Act. See our trendz library for more information or contact us directly. Remember we are employment law specialists.

Remember, penalties for non compliance on any of these issues can be costly. Make sure you seek professional advice. Taking the time to do things properly now will help safeguard you against future difficulties. 

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Disclaimer: This article is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication. Please refer to our Legal Notices.

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