A recent case Birthing Centre Ltd v Matsas serves as a reminder that consultation plays an important part of an employer undertaking a restructure, even when there are concerns around confidentiality.
Background
The Birthing Centre Ltd (BCL) is a company owned by the Wright Family Foundation, a trust involved in providing primary care birthing services throughout New Zealand. BCL provided birthing services at Te Papaioea Birthing Centre (TPBC) in Palmerston North where the respondents to the case, five midwives, worked, being employed by BCL. TPBC was funded by the MidCentral District Health Board (MDHB).
In April 2019, TPBC approached MDHB seeking a funding increase and by August 2019, MDHB raised the idea of transferring TPBC’s services to MDHB. Confidentiality was required of both parties as a condition of the negotiations. The matter progressed and by December 2019, MDHB and the Wright Family Foundation had agreed a memorandum of understanding under which MDHB would take over the services at TPBC with the Wright Family Foundation ceasing operation of TPBC.
Well that was a surprise!
The agreement was publicly announced whereupon the midwives’ union, MERAS, became aware and informed the midwives. The day following, the transfer of BCL’s employees to MDHB was announced to the employees, including the midwives. The announcement was made without BCL consulting with employees prior.
In March 2020, the majority of the employees of BCL received an offer of employment from MDHB which stated:
- Their employment with BCL would terminate at the end of March 2020; and
- No redundancy compensation or payment in lieu of notice would be offered.
Each of the respondents began employment with MDHB in April 2020 but were not paid redundancy compensation or a payment in lieu of notice from BCL. They raised personal grievances claiming unjustified dismissal.
ERA Decision
The matter came before the Employment Relations Authority who determined:
- “Proposal” was a Fait Accompli: By the time BCL’s employees became aware of the proposal, the matters were beyond a proposal – they had become a fait accompli. BCL was required to consult with employees about the proposal when it was still properly in the proposal stage but it had not.
- Confidentiality Concerns Trumped by Right to Consultation: BCL could not rely on MDHB requiring BCL and MDHB’s discussions being confidential as a reason for BCL not disclosing the proposal to its employees earlier. Section 4(1B)(c) of the Employment Relations Act 2000 (Act) that BCL sought to rely on only applies to employers and at that stage, MDHB was not the employer. Therefore, there was no adequate reason to deprive BCL’s employees of their statutory right to be consulted with.
- Redundancies Had Occurred: The employees’ individual employment agreements provided that where employees had been made redundant, they were entitled to four weeks’ notice or payment in lieu. The employees had been made redundant and so they were entitled to payment in lieu.
- Notice Not Given: BCL had not given formal notice to their employees of their employment ending. Furthermore, the decision to terminate employment had been unilateral - the employees had not been given a choice. Rather they accepted employment with MDHB having been told by BCL their employment with them had ended. The roles offered by MDHB were not sufficiently similar to those under BCL and so the employees were entitled to payment of their notice.
Each of the defendants was awarded compensation for humiliation, loss of dignity and injury to feelings as well as four week’s wages being the unpaid notice period.
Decision Appealed
The matter was appealed to the Employment Court who determined the Authority had not erred in its determination and the appeal was dismissed. Following this, BCL sought leave to appeal to the Court of Appeal on three separate grounds, but this was declined on all three grounds.
Lessons for business owners
This case raises the following points which employers (and employees) should consider during changes to employment or how an organisation is run:
- The duty of good faith under section 4 of the Act requires employers to consult with employees when a decision is likely to have an adverse effect on the continuation of their employment e.g. they propose to terminate their employment. During this consultation stage, employers must give employees the opportunity to provide feedback and must consider feedback with an open mind. If a decision has already been made by the employer or a transaction has gone unconditional before consultation begins, this will evidence the consultation not being genuine.
- Confidentiality being required for commercial transactions will not necessarily be a defence to employers not carrying out their good faith duty of consultation. Where confidentiality is a concern, employers should genuinely consider ways in which they can carry out consultation while preserving confidentiality
- The terms of employee’s individual employment agreements should not be ignored. Where an employment agreement contains redundancy provisions and they apply, they should be adhered to
- Notice is payable where an employee’s employment is terminated, even if their employment is continuous i.e. the employee finishes with one employer on 30 March and begins with a new employer the following day (as happened here).
Talk to our Employment Team before you start a restructuring process, to make sure you get it right. Call us on 03 211 0080
