Unpacking the role of good faith in employment law

Leading a business through changes and challenges is no easy task, and coupled with significant economic pressures and external demands, it’s even more crucial to approach any difficult workplace situation with caution. Employment laws don’t change despite shifts in business operations, and ensuring compliance while making decisions to secure future success is essential for employers.

Almost every employer has heard the term good faith, but what does it mean? It’s been defined very clearly in law, but somehow, it’s still missed, ignored, or “worked around” in many businesses. Here, we look at what good faith means, why it’s important, and examples of what is and isn’t good faith.

First things first: what is good faith?

The principle of good faith is enshrined in the Employment Relations Act 2000 (the Act) stating that employees, employers, and unions are legally obligated to always deal with each other in good faith. This means every action taken by any party must be done in good faith and includes these three elements where all parties must:

1. Not act misleadingly or deceptively;
2. Be responsive and communicative; and
3. Give the affected employees sufficient information to understand the proposal and a proper opportunity to comment before making any final decisions.

Why is good faith crucial?

Think of employment law like a suit of armour. As the employer, you decide who wears it. By following proper processes, making reasonable decisions, and adhering to good faith principles, you get to wear the armour. But if you cut corners, make hasty decisions, or ignore good faith, you hand the armour to the employee. In conflicts like personal grievances, the one wearing the armour has the best chance of winning.

As stated in section 4 of the Employment Relations Act 2000 Good Faith is: “Good faith means dealing with each other honestly, openly, and without misleading each other. It requires parties to be active and constructive in establishing and maintaining a productive relationship in which they are responsive and communicative.”  And, s 4(1A) adds further clarity by stating that this “goes wider than the implied mutual obligations of trust and confidence.”

Yes, good faith applies to every employment situation. It really does

It can be easy to dismiss these principles by thinking, “But that only applies to restructuring, and we’re not doing that, so it doesn’t apply”. However, the concept of situations that “may result in employees losing their jobs” extends beyond restructuring. It encompasses any scenario where an employee could potentially lose their job, including probation periods, performance management, and disciplinary processes.

Is it, or isn’t it? What’s not good faith?

Now let’s put good faith in the context of the workplace and consider some specific situations.

In workplace change situations, it’s NOT good faith when:

• Announcing a restructuring long after a business becomes aware of the need for it, thus reducing and pressurising the available consultation time;
• Not providing complete information about what challenges a business is facing, why change is needed, or about what other possible options are possible to avoid redundancies;
• Consulting “just for appearances sake”, with a predetermined outcome that won’t be changed by anything;
• Not providing full and honest reasons for why you have rejected an employee’s proposal;
• Selecting employees to be terminated, rather than selecting employees to be retained (this isn’t playing with words – this would be a misuse of objective, good faith selection criteria);
• Shortening timelines to avoid the responsibilities and complexities of proper consultation; and
• Dealing with affected employees in full public view. You should be consulting with them in private.

 In disciplinary situations, it’s NOT good faith when:

• Not giving full information about the allegations;
• Rushing a process or a decision;
• Making a pre-determined decision beforehand;
• Using past behaviour to decide guilt or innocence in this specific case;
• Rejecting explanations because they don’t fit presuppositions;
• Not considering disclosed mental health concerns when proceeding with discipline;
• Selectively finding evidence that suits only one side of the case; and
• Letting small issues build up over time and then “throwing the book” at an employee.

 In performance management situations, it’s NOT good faith when:

• Using a restructuring process to terminate an employee who you have performance issues with;
• Not giving clear and specific performance expectations;
• Freezing out an employee and excluding them from meetings, discussions and projects; and
• Letting small issues build up over time and then “throwing the book” at an employee.

 In grievance situations, it’s NOT good faith when:

• “Restructuring out” an employee who has taken issue with something and is following a proper grievance process;
• Listening to rumours and favourite employees, and not doing the hard work of gathering evidence; and
• Treating the complainant like they are the problem.

 Regarding employment contracts, it’s NOT good faith when:

• Hiring a casual or a fixed-term employee to “test out” the employee and avoid the challenges of a probation period;
• Using a probationary period to offer permanent employment after the probationary period or terminate at the end thereof;
• Hiring casuals instead of fixed-term employees because it’s easier to terminate a casual employee;
• Offering another candidate or employee a role already promised to an existing employee; and
• Not redeploying an existing employee into a substantively similar role prior to termination, especially in circumstances of redundancy and where you’re unable to hold a role open for a pregnant employee.

 In Health and Safety (H&S), it’s NOT good faith when:

• Doing a half-hearted job of worker participation, training and consultation;
• Sacrificing minimum quality standards around H&S for convenience, speed or cost;
• Pushing employees into fatigue or high-risk situations unnecessarily or unprepared;
• Doing as little as possible to manage risk and placing the burden on the employees; and
• Misleading an incident investigation/WorkSafe inquiry to avoid blame or consequences.

All the above scenarios, in principle at least, can apply in other situations where they aren’t explicitly listed. These might also be a real breach of the law, but playing with the boundaries of what is or isn’t legal, can easily lead to “not good faith” behaviours – and the consequences that can come as a result. By thoroughly understanding and instinctually acting in good faith, you and your business can benefit from more positive employment relationships while reducing the risk of personal grievances arising.

How can Citation HR help?

We know that staying on top of compliance and people management can be a time-consuming, admin-heavy task for businesses in every industry – and this is where having a complete, compliant, and cost-effective HR solution can give organisations the peace of mind they need to get back to what really matters – running their organisation.

About our author

Jessica Husband is an Employment Relations and Health & Safety Consultant at Citation HR. She assists clients with a range of employment relations and compliance matters via the 24/7 HR Advice Line. She has been helping business’ and employers with employment relations for over four years and counting.