In New Zealand, under the duty of good faith, employers proposing to make a decision that will, or is likely to, have an adverse effect on continuation of employment, must consult employees by providing them with:
- access to information relevant to the decision; and
- an opportunity to comment on the information before the decision is made.
Despite these good faith requirements, in the context of business sales and purchases it is common practice for employers to stay mum until after the sale agreement has been signed to avoid unintended disclosure that jeopardises their commercial position.
In doing so, employers rely on the exception set out at section 4(1B) of the Employment Relations Act 2000 (Act), where an employer is not required to provide access to confidential information “where it is necessary, for any other good reason, to maintain the confidentiality of the information (for example, to avoid unreasonable prejudice to the employer’s commercial position).”
Surprisingly, reliance on this exception in these circumstances has been largely untested in New Zealand case law. However, the Employment Relations Authority (Authority) has recently released the decision of Matsas v Birthing Centre Limited [2022] NZERA 343, which provides guidance on when it might not be appropriate to rely on the exception.
Birthing Centre Limited (BCL) provides primary birthing services at various locations around New Zealand. The centre at the heart of this matter was Te Papaioea Birthing Centre (Te Papaioea), which was operating at a loss when BCL approached the MidCentral District Health Board (MDHB) for funding assistance. These conversations led to a discussion about a change in staffing model, ultimately culminating in a proposal that the management and operation of Te Papaoiea’s services be transferred to MDHB.
MDHB made it clear that they wanted this potential transfer to be treated as strictly confidential, to “protect the MDHB’s commercial interests. This “would allow the MDHB to explore the possibility… without gossip and speculation, which could impact upon public confidence in the services it offered.”
On 11 December 2019 the parties came to an agreement that MDHB would take over Te Papaioea’s services effective April 2020. On 12 December 2019 a reporter got wind of this agreement and asked for comment, before Te Papaioea staff were informed that “agreement had been reached”.
The applicants raised unjustified dismissal claims against BCL for breach of good faith and failure to comply with the provisions contained in their employment agreements.
BCL defended its position, arguing that the transfer was still being negotiated and could not yet be said to have an adverse effect on the continuation of its employees’ employment, and that in the alternative, section 4(1B) applied.
The Authority found in favour of the employees and awarded remedies for lost wages and compensation:
- The transfer was a “fait accompli” and already in the public arena by the time BCL tried to undertake consultation. The transfer itself had various aspects which could understandably be considered adverse and disadvantageous to employees (for example, issues with new rosters and hours of work, and the change from provision of primary care to secondary care). As such, BCL was obliged to undertake consultation before the announcement on 12 December – but it did not do so.
- In relation to the section 4(1B) defence:
- BCL’s primary reason for maintaining confidentiality was MDHB’s request for confidentiality. The MDHB was not the employer, and no evidence of its commercial interests was provided. Further, suppression of possible gossip about the provision of services by a publicly funded body cannot come “remotely close to being a reason which justifies depriving BCL’s staff of what is in the first instance a statutory right.”
- BCL provided limited evidence about protecting its own commercial interests and stated that it wished to keep information such as the rent of Te Papaioea confidential. BCL took the view that the promise of mutual confidentiality would ensure that such disclosures would be kept between the parties. However, given the lack of specifics aside from the reference to rent (which is inadequate to meet the grounds for exception), the Authority could see no reason why this information was considered so sensitive.
Given the above determination, employers should tread carefully when deciding to push back consultation on the grounds of commercial sensitivity. Without specific evidence to back this up, you will find the Authority hard pressed to accept your defence.
Getting the timing right can be really difficult in sensitive transactions. Please get in touch with us if you would like any advice and/or assistance for future deals.
