In New Zealand, the duty of good faith is a fundamental principle that governs the relationship between you, as an employer, and your employees. This duty requires both parties to act honestly, openly, and constructively towards one another, fostering a positive and cooperative work environment. Understanding the core aspects and applications of good faith is crucial for maintaining healthy and legally compliant workplace relationships. This article will outline the duty of good faith and how it applies in your employment relationships.
Core Principles of Good Faith
The duty of good faith obligates you and your employees to:
- Communicate honestly and transparently: Both parties must share relevant information that could impact the employment relationship. This includes providing timely updates about significant changes, decisions, or issues that may affect the other party.
- Act reasonably and fairly: Employers and employees should avoid making decisions or taking actions that are unjust or unreasonable. This means considering the implications of their actions on each other and striving to minimise harm or inconvenience.
- Work constructively together: The relationship should be collaborative, with both parties seeking to resolve issues and work towards mutual benefits. This involves being receptive to feedback, open to negotiations, and committed to finding solutions to problems.
Application in the Workplace
The duty of good faith manifests in various aspects of the employment relationship, including during hiring and daily work.
Hiring and Daily Duties
During the recruitment process, you must provide accurate job descriptions and disclose pertinent information about the role and your organisation to potential employees. Employees, in turn, should be truthful about their qualifications and intentions.
In daily operations, maintaining good faith involves clear and respectful communication, ensuring that expectations are understood and met, and addressing concerns promptly and fairly.
Performance Management
When managing performance, you should provide constructive feedback and support to your employees. In return, your employees should be open to improvement and demonstrate a willingness to address performance issues.
Changes to Employment Terms
Any modifications to employment terms, such as changes in duties, hours, or compensation, must be discussed and agreed upon in good faith. You should consult with your employees, consider their input, and negotiate terms that are fair and reasonable. If both parties can agree to changes to any employment terms, this must be properly recorded in a variation letter.
Resolving Disputes
Good faith is crucial in resolving conflicts. Both parties should approach disputes with an open mind, seeking to understand each other's perspectives and aiming to reach amicable solutions.
Legal Implications
Failure to adhere to the duty of good faith can lead to legal consequences. In New Zealand, the law explicitly requires parties in an employment relationship to act in good faith, and a failure to do so can result in penalties or claims. For instance, employees can raise a personal grievance for an unjustified disadvantage, which often hinges on whether their employer acted in good faith during the termination process.
If your employee brings a personal grievance against you, you may be subject to the following claims:
- Lost Wages: This involves compensation for the income an employee would have earned had the breach not occurred, such as back pay for lost wages and potentially future earnings if the breach has long-term impacts on the employee's employment prospects.
- Hurt and Humiliation Damages: You will need to pay damages for any emotional or psychological harm suffered by the employee due to the breach. This can include stress, anxiety, and other mental health impacts.
- Punitive Damages: In some cases, courts may award punitive damages to punish the employer for particularly egregious conduct and to deter similar behaviour in the future. These are less common and typically awarded in cases of severe misconduct.
- Legal Costs: You will need to reimburse the employee for legal fees and other costs incurred in bringing the claim forward.
- Other Financial Losses: This includes compensation for any additional financial losses directly resulting from the breach, such as the cost or lost wages while seeking new employment.
As an employer, you must be particularly cautious about documenting their decision-making processes and ensuring transparency to demonstrate compliance with good faith obligations. Employees, too, should keep records of communications and actions that reflect their adherence to good faith.
Key Takeaways
The duty of good faith is essential for fostering a healthy and legally sound employment relationship. By ensuring that parties have honest communication, fair treatment, and collaborative problem-solving, you and your employees can build a work environment that is not only compliant with legal standards but also conducive to mutual respect and productivity. Understanding and implementing good faith principles helps prevent conflicts, ensures fair treatment, and promotes a positive workplace culture.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.