Good Faith Explained

Good faith in employment law means that employers and employees must deal with each other honestly, openly, and fairly. It's not just about following the written terms of an employment agreement - it's about the spirit in which you conduct the employment relationship.

The Employment Relations Act 2000 specifically requires that all parties to an employment relationship must deal with each other in good faith. This is an ongoing obligation that applies throughout the entire employment relationship, from recruitment and hiring through to termination and beyond.

Good faith is both a positive and negative obligation. It requires you to actively do certain things (like communicate openly and honestly) and also prevents you from doing certain things (like acting in ways that undermine trust or mislead the other party). The obligation is mutual - it applies equally to employers and employees.

Importantly, good faith doesn't mean you have to agree with each other or that you can't have different interests. Employers can still make business decisions that employees don't like, and employees can still pursue their own interests. However, both parties must do so in a way that respects the employment relationship and doesn't undermine trust.

Employers have extensive good faith obligations that affect almost every aspect of how they manage their workforce. These obligations require employers to be transparent, fair, and honest in their dealings with employees, and to actively work to maintain trust in the employment relationship.

Key employer obligations include being honest and open in communications, providing accurate information about job roles and expectations, consulting with employees about changes that affect them, and following fair processes when addressing performance or conduct issues. Employers must also respect employees' rights and not act in ways that undermine the employment relationship.

When making decisions that affect employees, employers must consider the impact on the employment relationship and act reasonably. This doesn't mean employees have a right to veto business decisions, but employers must communicate openly about changes, provide reasonable notice where possible, and consider employee input in good faith.

Employers also have good faith obligations when conducting disciplinary processes, managing performance issues, or considering redundancy. They must follow fair processes, provide employees with opportunities to respond, and make decisions based on proper investigation and consideration of all relevant factors.

Employees also have good faith obligations, though these are often less well understood than employer obligations. Employee good faith obligations require honesty, loyalty, and acting in ways that don't undermine the employment relationship or the employer's legitimate business interests.

Key employee obligations include being honest in communications with the employer, not deliberately misleading or withholding important information, performing work duties competently and in accordance with reasonable instructions, and not acting in ways that damage the employer's business or reputation without justification.

Employees must also respect confidentiality obligations, avoid conflicts of interest, and not compete unfairly with their employer during employment. However, these obligations must be balanced against employees' rights to raise legitimate concerns, seek better working conditions, and protect their own interests.

Good faith doesn't prevent employees from raising grievances, joining unions, or pursuing their rights under employment law. In fact, employers who try to prevent employees from exercising these rights may themselves be breaching good faith obligations. Employees can and should speak up about workplace problems, but should do so in a constructive way that seeks to resolve issues rather than simply cause conflict.

Good faith breaches can take many forms, but some patterns appear repeatedly in employment disputes. Understanding these common breaches can help both employers and employees recognise when good faith obligations may have been violated.

Common employer breaches include failing to consult about significant changes, providing misleading information about job security or business conditions, conducting unfair disciplinary processes, making promises they don't intend to keep, and retaliating against employees who raise legitimate concerns. Workplace bullying and creating hostile work environments can also constitute good faith breaches.

Employee breaches might include deliberately providing false information, competing with the employer while still employed, breaching confidentiality without justification, or acting in ways designed to damage the employer's business rather than resolve legitimate workplace issues.

Some breaches are obvious and deliberate, but many occur because parties don't fully understand their good faith obligations or fail to consider how their actions might affect the employment relationship. Poor communication, lack of consultation, and failure to follow proper processes are common underlying causes of good faith breaches.

It's important to note that not every workplace disagreement or unfair treatment constitutes a good faith breach. The behaviour must be serious enough to undermine trust and confidence in the employment relationship, and there must be a clear failure to meet the standards of honesty, openness, and fairness that good faith requires.

Good faith obligations become particularly important during periods of organisational change, restructuring, or redundancy. These situations often involve significant impacts on employees and require careful attention to consultation, communication, and fair process.

When considering restructuring or redundancy, employers must consult with affected employees in good faith. This means providing genuine opportunities for input, considering employee feedback seriously, and being open about the reasons for change and the options being considered. Consultation must occur before final decisions are made, not after.

Employers must provide accurate and complete information about the proposed changes, the reasons behind them, and the potential impacts on employees. They cannot mislead employees about the likelihood of redundancy or the alternatives being considered. If the situation changes during the consultation process, employers must update employees accordingly.

The consultation process must be meaningful - employers cannot simply go through the motions while having already decided on a particular course of action. They must genuinely consider employee input and be prepared to modify their proposals if employees raise valid concerns or suggest viable alternatives.

Good faith also requires employers to consider alternatives to redundancy where possible, such as redeployment, retraining, or voluntary redundancy. They must follow fair selection criteria if choosing between employees for redundancy, and provide reasonable notice and support during the transition.

Disciplinary processes are a common area where good faith breaches occur, often because employers fail to follow fair procedures or approach the situation with predetermined outcomes. Good faith requires that disciplinary processes be conducted fairly, transparently, and with genuine consideration of all relevant factors.

Employers must investigate allegations properly before taking disciplinary action. This includes gathering relevant evidence, interviewing witnesses, and giving the employee a fair opportunity to respond to allegations. The investigation must be conducted by someone who can approach the matter objectively, without predetermined conclusions.

Employees must be given full details of the allegations against them and sufficient time to prepare a response. They have the right to representation during disciplinary meetings and to present their own evidence and witnesses. Employers cannot rush the process or deny employees reasonable opportunities to defend themselves.

The disciplinary process must be proportionate to the alleged misconduct. Minor issues should not be treated as serious misconduct, and employers must consider the employee's employment history, any mitigating factors, and whether lesser sanctions might be appropriate. The focus should be on addressing the problem and maintaining the employment relationship where possible.

Good faith also requires that disciplinary decisions be based on the evidence gathered during the investigation, not on assumptions, rumours, or irrelevant factors. If new evidence emerges after a decision is made, employers may need to reconsider their position in good faith.

When good faith obligations are breached, the Employment Relations Authority and Employment Court have wide powers to order remedies and impose penalties. The consequences can be significant, particularly for employers who breach their good faith obligations.

Common remedies include compensation for lost wages, hurt and humiliation, and other losses caused by the breach. In serious cases, employees may be entitled to reinstatement if they were dismissed, or to substantial compensation if reinstatement is not practical. The Authority and Court can also order employers to take specific actions to remedy the breach.

Penalties can be imposed on employers who breach good faith obligations, particularly where the breach is serious or deliberate. These penalties are separate from compensation and are designed to deter future breaches and emphasise the importance of good faith in employment relationships.

The amount of compensation and penalties depends on various factors including the seriousness of the breach, its impact on the employee, whether it was deliberate or reckless, and the employer's response once the breach was identified. Employers who acknowledge their mistakes and take steps to remedy them may face lower penalties than those who deny wrongdoing or fail to address the issues.

For employees, breaching good faith obligations can result in disciplinary action including dismissal, and may affect any compensation they might otherwise be entitled to if they raise a personal grievance. However, employee breaches are generally treated less seriously than employer breaches, reflecting the power imbalance in employment relationships.

The best approach to good faith is prevention - building systems and practices that promote honest, open, and fair dealing in employment relationships. This requires ongoing attention from both employers and employees, and a commitment to maintaining trust and respect in the workplace.

Employers should establish clear policies and procedures for communication, consultation, and decision-making that reflect good faith principles. This includes having proper processes for handling complaints, conducting investigations, managing performance issues, and implementing changes that affect employees.

Regular communication is essential - employers should keep employees informed about business developments, changes that might affect them, and the reasons behind management decisions. This doesn't mean employees have a right to veto business decisions, but they should understand what's happening and why.

Training for managers and supervisors on good faith obligations can help prevent breaches before they occur. Many good faith breaches happen because managers don't understand their obligations or don't know how to handle difficult situations appropriately.

Employees can also help maintain good faith by communicating openly with their employers, raising concerns constructively, and being honest about their own performance and conduct. When problems arise, focusing on finding solutions rather than assigning blame can help preserve the employment relationship.

Both parties should remember that good faith is about the ongoing relationship, not just individual transactions. Building trust takes time and effort, but it creates a foundation that can help weather difficult periods and resolve disputes more effectively.

Good faith issues can be complex and the consequences of getting them wrong can be serious. Knowing when to seek legal advice can help protect your interests and avoid costly mistakes, whether you're an employer or employee.

Employees should consider seeking legal advice if they believe their employer has breached good faith obligations, particularly if this has resulted in dismissal, demotion, or other significant disadvantage. Early advice is important because there are strict time limits for raising personal grievances - usually 90 days from when the problem occurred.

Employers should seek advice when facing allegations of good faith breaches, when planning significant organisational changes, or when dealing with complex disciplinary matters. Legal advice can help ensure proper processes are followed and reduce the risk of successful claims against the employer.

Both parties should consider legal advice when attempting to resolve good faith disputes through mediation or negotiation. Understanding your legal position can help you negotiate more effectively and avoid agreeing to inappropriate settlements.

Don't wait until a dispute escalates to the Employment Relations Authority before seeking advice. Early legal input can often help resolve issues before they become formal disputes, saving time, money, and stress for everyone involved. A lawyer can also help you understand your obligations and rights, reducing the risk of future problems.