All employers will at some time be faced with the difficult task of terminating an employee’s employment. Quigg Partners look at the importance of employers observing good faith obligations in the termination process.
There are a variety of reasons that an employer may seek to terminate the employment relationship, ranging from medical incapacity, to the conclusion of a trial period, to a redundancy situation.
The most common issues affecting an employment relationship are instances of poor performance or misconduct. But regardless of these different processes, an employer must always adhere to its good faith obligations.
This important, but often misunderstood, principle is set out in section 4 of the Employment Relations Act 2000. The duty requires parties to an employment relationship to deal with each other in good faith and not do anything which will, or is likely to, mislead or deceive. The section further provides that:
The duty of good faith generally requires that the employer:
Example 1: When addressing performance issues, the implementation of a formal performance management process, may be a decision that is likely to have an adverse effect on the continuation of the employment relationship. After providing further assistance and training, the employer may give the employee a warning for under-performance (which does bring an employee “closer” to potential termination) and may eventually terminate the employment relationship if the employee does not improve over a reasonable period of time. The employer must however ensure that it conveys all relevant information to the employee, especially the employer’s expected standard of performance.
Example 2: When an employer is conducting an investigation into misconduct by way of a disciplinary process, termination of the employment relationship may be a possible outcome. Accordingly, the employer must provide the employee with all relevant information obtained and relied on during such an investigation, such as interview notes with potential witnesses. The employee must also be advised at the outset of the process that disciplinary action may result at its conclusion.
These steps will need to be repeated at each step of a performance management process e.g. when progressing from a final warning to dismissal for continuing poor performance.
There are no strict “one size fits all” rules or protocols to guide employers in exercising their duty of good faith. Rather, what is fair and reasonable in the circumstances will depend on the facts and as such employers need to ensure that they are able to justify their actions, and how they acted, against what a fair and reasonable employer could have done in all the circumstances at the time.
An employer who complies with its duty of good faith will likely experience employment relationships that are more productive and harmonious. As such, employees will be happier in their jobs and this will have positive flow on effects for worker productivity. It may also prevent personal grievances from arising which can be costly in both time and money, especially for small businesses.
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