Apr 2007

The Employment Court has recently issued an important decision about the test for justifying dismissals under section 103A of the Employment Relations Act. It specifically summarises and applies important principles from the Employment Court decision in Air New Zealand v Hudson (see our September 2006 FYI for more information on this decision).

In X v Auckland District Health Board (also known as the Doctor X case), Chief Judge Colgan held that there are two key considerations for the Courts when assessing whether an employer had justifiably dismissed an employee:

• What the employer did (the substantive reason for dismissal or justification and the grounds for it); and
• How the employer acted (the process leading to those outcomes).

Background Facts

Doctor X is a senior clinician, employed by the Auckland District Health Board. ADHB disciplined Doctor X for breaching ADHB email policy by:

• Forwarding a pornographic email containing a photo of his genitalia; and
• Forwarding a grossly offensive calendar of women in pornographic poses.

After investigating the matter and raising it with Doctor X, ADHB dismissed Doctor X for breach of policy and serious loss of trust. His employment was terminated on 18 April 2005. Doctor X claimed unjustified disadvantage, unjustified dismissal and permanent reinstatement.

The Court held that ADHB's disciplinary process was flawed in a number of respects:

• It failed to disclose the allegations to Dr X prior to the disciplinary meeting;
• When inviting Doctor X to the meeting, he was not told to bring a representative to the meeting and, when asked whether it would be appropriate, an ADHB representative told him it probably wouldn't be necessary;
• ADHB did not advise Doctor X that its lawyer would be present; 
• ADHB failed to disclose witness statements to Doctor X or his representative (and, in fact, advised Doctor X's representative that he had been provided with all the relevant information); and 
• It did not comply with its delegated authority procedure (which required the CEO to be consulted about the decision to dismiss).

The Court also criticised ADHB for its approach to the meeting with Doctor X, which it described as "blotter-like". By just head-nodding, the Court considered that ADHB had acted as the "proverbial sponge" in disciplinary meetings rather than being active and constructive, responsive and communicative, as now required under the Employment Relations Act.

Key Court Findings

The Court held that Doctor X was not aware of ADHB's email policy even though he had "conceded what he did was contrary to commonly accepted standards of conduct for senior clinicians in public hospitals". The Court found that "both misconducts amounted to breaches of the Board's policies" and Doctor X's conduct was "blameworthy" and "aberrant".

The Chief Judge commented:

"Even if the incidents with the penile photos and the forwarding of the [calendar] met those tests of serious misconduct as defined, it cannot be said that dismissal ought to have been the natural consequence of it."

Nevertheless, the Court considered there was an alternative to dismissal which was open to ADHB, and concluded further:

"A fair and reasonable employee would not have dismissed the plaintiff. Rather, it would have applied a variety of sanctions and behavioural correctives and safeguards with a view to ensuring that such misconduct would not recur."

The Court reinstated Doctor X, but did not award him compensation or costs due to what it held as his contributory conduct. The Court emphasised that employees could not be reinstated to a lower position. The Chief Judge considered that the process had been flawed and the penalty, too harsh. Furthermore, the Court noted disparity with other employees who had been warned for email breaches.

Given that Doctor X acknowledged (and was therefore, clearly aware at the time) that his conduct was contrary to commonly accepted standards of conduct for senior clinicians in public hospitals, it is somewhat surprising that the Chief Judge considered behaviour correctives were appropriate in the circumstances.

Implications For Employers

In light of the s103A test and the findings in this Doctor X case, employers should bear in mind the following points, when conducting any disciplinary/dismissal processes:

• Before commencing any investigation, review policies and agreements.
• Provide the employee with details of allegations, attendees and an opportunity to have a support person present.
• Disclose all relevant material. 
• The employer must positively engage in dialogue during the process and give feedback, enabling the employee to respond.
• Consider whether grounds established to dismiss/discipline the employee.
• Then give employee opportunity to comment on appropriate penalty.
• Are there appropriate alternative strategies such as behaviour corrective options/warning/demotion etc?
• Consider what a reasonable employer would do "in these circumstances".

PASSING ON AND BARGAINING FEES

The Employment Court's decision in National Distribution Union Inc (NDU) v General Distributors Limited (GDL) provides employers with welcome guidance on the issues of so-called "passing on" of terms and conditions of a collective employment agreement (CEA) to non-union members and bargaining fees. The case is noteworthy for all employers with mixed union/non-union workforces, and who wish to pay non-unionised staff performing similar tasks at a similar rate.

The Facts

The NDU and GDL (owned by Progressive Enterprises) concluded a CEA which provided for an increase of 60 cents per hour for union member employees. The CEA provided union members with some additional benefits, over and above the pay increase.

It was agreed that a bargaining fee would be paid by non-union employees to the negotiating unions and the same new terms of the CEA would then be passed on to non-union employees. GDL calculated that the CEA wage offer increased its overall wages bill by 5%.

The non-union employees were given the opportunity to opt out of the bargaining fee arrangement. Where they did so, GDL would not pass on CEA terms, but it undertook to review their IEA terms. The NDU took issue with GDL telling those employees, as part of the opt out process, that it would still review their pay if they opted out on the fee.
 
Three weeks later, GDL offered all non-union employees who had "opted out" of paying bargaining fees to the NDU a wage increase of approximately 5%. The additional CEA benefits were not "passed-on" to these non-fee paying employees. For non-fee paying employees earning low hourly rates of pay, GDL's offer represented less of an increase in actual wages than that provided for in the CEA. However, for non-fee paying employees on higher wage rates, a 5% increase would represent more in actual wages than the flat rate increase of 60 cents per hour negotiated for in the CEA.

In its challenge before the Court, the NDU argued that GDL had breached its duty of good faith in encouraging employees to "opt out" of paying bargaining fees. It alleged GDL had breached the relevant "passing on" provisions (59B(1) and (2) of the ERA) by agreeing on a term of employment with non-fee paying employees which the NDU alleged was substantially the same as a term in the CEA, (because the cost to GDL came out roughly the same) and so was with the intention and effect of undermining the CEA.

The Decision

The Employment Court dismissed the Union's case and held:

a. The opt-out process did not constitute undue influence. The Court had no issue with the form provided to employees as part of the process – which had employees tick boxes to choose whether to pay the bargaining fee or not.

b. The NDU also took issue with there  being no individual negotiation process between GDL and non-union employees around the issuing of new IEAs. It contended this was not in good faith. The Court rejected this claim and found that given the IEA offers were in the context of being solely a wage review, GDL's approach was not bad faith. It also found the approach was not a breach of section 63A (bargaining for IEA terms) because GDL communicated the wage increase alongside allowing individuals an opportunity to seek advice and it was open to negotiation of other individual terms.

c. The Court found that the wage increase offered to non-fee paying employees was not substantially the same as the wage increases that had been agreed under the CEA. It rejected the NDU's claim that the wage increase was substantially the same as that for CEA employees, because the cost to GDL (approximately a 5% increase) was substantially the same as the cost of the 60 cents per hour increases under the CEA. The Court rejected an approach to assessing "substantial sameness" by reference to the overall effect on the employer of the passing-on. It held the focus should be on employees.

The background facts in this case appeared solid for GDL's defence and so in many ways the result is not surprising. The Court has helpfully issued a lengthy analysis of the law on passing-on that should help many employers, when considering their own bargaining strategies with IEA and CEA staff and when dealing with the difficult area of how to pass on terms between the two groups of staff.

In our view, employers can take the following practical guidance from this case:

a. Adopt a co-operative attitude and respond promptly to concerns raised by the Union during the bargaining process. For example when the NDU raised concerns about what a manager was saying to employees in a particular supermarket, GDL immediately followed this up.

b. Clearly signal to the Union when the review of IEAs and wages will take place.

c. If possible, have a set time to annually review IEAs, preferably set out in the employment agreement itself.

d. Where possible, wait for the bargaining to be completed before reviewing those on IEAs.

e. Employers do not necessarily need to bargain individually with every employee who is on an IEA. In appropriate circumstances, bargaining can be done by way of a letter advising employees of proposed increased terms and conditions with the option of raising any issues with their manager.

COMMUNICATING WITH EMPLOYEES DURING COLLECTIVE BARGAINING

Earlier this year the Court of Appeal issued a key decision (Christchurch City Council v Southern Local Government Officers Union Inc) concerning the rights of employers to communicate directly with union members during collective bargaining. Importantly, the Court of Appeal's decision pulls back from the blanket ban on communications which was imposed by the Employment Court.

Employment Court decision

The dispute between the parties in this case arose over a period of approximately 18 months and concerned five communications from Christchurch City Council direct to its employees (including union members).

The Employment Court found that communication directly with union members during bargaining was not in good faith. In effect, the Employment Court imposed a blanket ban on communications by an employer with employees who are union members while collective bargaining is ongoing, on any matters relating to bargaining. The only exception was where the Union allowed the communication (or it was agreed in the Bargaining Process Agreement between the parties).

Court of Appeal decision

The Court of Appeal has overturned the Employment Court decision on this point, and found that section 32(1)(d) of the ERA does not prohibit all direct communications with employees during bargaining. The relevant subsection reads:

"…(d) the union and the employer …
(ii) must not (whether directly or indirectly) bargain about matters relating to terms and conditions of employment with persons whom the representative or advocate are acting for, unless the union and employer agree otherwise; … "

The Court has held that an employer is able to communicate with all of its employees, including union members, during any bargaining, so long as it is not:

• negotiating with those employees about terms and conditions of employment; or
• undermining or likely to undermine the bargaining or the union's authority to bargain.

The Court of Appeal has found that this fetter applies from the time bargaining is formally initiated. (The Employment Court had held that the section 32 good faith obligation could arise even before bargaining had been initiated).

Implications

While the Employment Court's decision was in force, employers had to be extremely careful about issuing any communications to union members during bargaining. Now, with the Court of Appeal's decision, employers can, for example, provide information about where the bargaining process is at, without the same concern that they will be accused of a breach of the ERA. The key is that the communication must stop short of negotiating with the employee, and it must not undermine the bargaining.

WHEN DOES RELOCATION AMOUNT TO REDUNDANCY?

When a company moves to another location and the employee's job remains, an issue can arise as to whether an employee can claim redundancy just by virtue of the relocation. It is advisable that an employment agreement provide for staff mobility, but in the absence of such a provision, if challenged, the Employment Court or Employment Relations Authority will determine the matter on the basis of the "reasonableness" of requiring the employee to relocate to the new site.

The Authority dealt with this issue in National Distribution Union v Gordon and Gotch (NZ) Limited (11/1/07, J Wilson AA5/07). In that case the Authority was asked to determine whether Gordon and Gotch (NZ) Limited, the employer, was obliged to negotiate a "relocation payment" with the NDU in respect of workers affected by the decision to move premises. The company had shifted approximately 15 kilometres by road, from Mt Roskill to Wiri.

The law with respect to redundancy when a work site is relocated is well established. As far back as 1979 the Arbitration Court, in NZ Printing IOUW v Sigma Print held that the employer's decision to move the company from Petone to Featherston (some 60 kilometres away) with the resulting transport difficulties for employees, constituted redundancy. Conversely, in NZ Engineers Union v Dunlop NZ Limited, the Court held that no redundancy arose as a result of a transfer of the work site from Sockburn to Wigram because the work site was no greater distance from the employees' homes.

In circumstances particular to the present case, the Authority found that Gordon and Gotch's CEA with the NDU required a relocation allowance to be negotiated where an employee was redundant. However, which of the employees could be considered to be redundant had to be assessed on an individual basis. The Authority held that:

"Such a determination can only be made taking into account the individual circumstances of each employee. These circumstances will include such factors as: what, if anything, the employee was told at the time of their appointment regarding their location; where the individual lives, their transport arrangements to the old location and available transport options to the new location and; whether the degree of any additional cost, time and disruption to that individual can be considered reasonable under all of the circumstances.”

This case confirms that where an employer is shifting location it must carefully consider the impact on each individual employee to assess who could claim redundancy or not as a result of the shift. Given the variances of this, the best approach remains, that an employer specifically address the matter in an employment agreement.

“CALDERBANK” OFFERS AND COSTS

The Employment Court has considered the impact a "Calderbank" offer made during settlement negotiations leading up to a hearing, can have on the amount of costs awarded to the successful party.

The Employment Court in the recent case of Watson v New Zealand Electrical Traders Ltd t/a Bray Switchgear has sent a strong message that this approach may not be appropriate in certain circumstances, especially where a Calderbank offer has been made.

In Watson, the Authority determined that Mr Watson had a valid claim for unjustified dismissal as a result of the disestablishment of his position being held to be genuine. The Authority ordered the employer to pay $845.76 lost wages and $5,000 damages. Although Mr Watson's actual legal costs were just under $10,000, he sought $7,500 as a contribution to his costs.

When considering the costs application, the three Calderbank offers that had been made prior to the hearing were produced before the Authority. The first offer, which had been made by Mr Watson well in advance of the hearing, was that he would accept $6,000 damages and $1,500 costs in full and final settlement of his grievance, The employer counteroffered $3,000. On the eve of the hearing, Mr Watson made a further (but higher) offer of $15,000. This was not accepted and the case proceeded to a hearing.

The Authority held that despite the offers (and their timing), $2,500 was a reasonable contribution to costs given the subject of the Investigation and the duration of the Investigation Meeting. Dissatisfied with this approach, Mr Watson appealed the decision to the Employment Court.

The Court noted that Mr Watson's first offer was within $150 of the remedies ultimately awarded by the Authority. It held that the Authority was wrong to apply a tariff based quantification for costs without taking into account the special circumstances of the case and, in particular, the "reasonable" first settlement offer. As such, the Court held that there was an obligation on the employer to "contribute significantly" to the post-offer costs that Mr Watson incurred as the result of the employer's failure to settle at the early stage of the first offer, noting that had it done so, it would have saved itself and the employee significant unnecessary legal costs. The Court revised the costs award to $6,000, plus the $70 filing fee in the Authority.

COMPENSATION AND COSTS AWARDS

The Department of Labour (DOL) has released its most up-to-date statistics (for the first half of 2006) relating to compensation and costs awarded in the Authority and Court.

The compensation statistics relate to the compensation the Authority or Court may order an employer to pay an employee who has been found to have a personal grievance and has also suffered "humiliation, loss of dignity, and injury to the feelings." The latest DOL statistics reveal that the Authority made considerably fewer of these compensation orders in the first half of 2006 than throughout 2005. From 1 January to 30 June 2006, the Authority made 68 awards, averaging $5,485, while throughout 2005 the Authority made 235 awards, averaging $5,547.

The DOL statistics also reveal that there were only 10 cases (out of 71) in the Authority in the first half of 2006 where the employer was successful in a personal grievance hearing lasting less than one day, with an average costs award of $2,100. This compares to 15 awards in such hearings throughout 2005, to an average of $1,817.

This newsletter is produced by Simpson Grierson. It is intended to provide general information in summary form. The contents do not constitute legal advice and should not be relied on as such. Specialist legal advice should be sought in particular matters.