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Court of Appeal of New Zealand |
Last Updated: 13 February 2014
IN THE COURT OF APPEAL OF NEW ZEALAND CA 2/97
BETWEEN AORAKI CORPORATION LIMITED Appellant
AND COLIN KEITH McGAVIN Respondent
Coram: Richardson P Gault J
Henry J Thomas J Keith J Blanchard J Tipping J
Hearing: 25 March 1998
Counsel: J A Langford and P T Kiely for Appellant
I J D Hall and J N Williamson for Respondent
Judgment: 15 May 1998
JUDGMENT OF RICHARDSON P AND GAULT, HENRY, KEITH, BLANCHARD AND TIPPING
JJ
Table of Contents
Factual background 2
The Employment Court judgment 5
The costs judgment 8
The Employment Contracts Act 1991 10
Brighouse Ltd v Bilderbeck 15
Brighouse: the precedent issue 21
Unjustifiable dismissal or action: the statutory scheme 23
Brighouse: the majority judgments 28
Redundancy provisions in employment contracts 30
The Employment Court decision in this case 32
Appropriate award for humiliation and distress 34
Costs 36
Result 37
This appeal from the Employment Court raises important questions about
redundancy.
Aoraki was in serious financial difficulties and along with 95 other
employees Mr McGavin was made redundant. The Employment Court
held that it
was a genuine redundancy situation. The Court went on to hold on its
application of the Employment Contracts Act
1991 that in certain other respects
the dismissal was unjustifiable and awarded Mr McGavin $87,688.
Because we were being asked to review the decision of a five Judge court in
Brighouse Ltd v Bilderbeck [1995] 1 NZLR 158 and it was considered
timely to do so the appeal was heard by the seven permanent Judges of the court.
Following
a detailed analysis of the 1991 Act and for the reasons given in this
joint judgment and in the separate judgment of Thomas J Brighouse
is over-ruled, the appeal in the present case is allowed and in
accordance with the views of the majority an award of $15,000 is substituted
for
the award made in the Employment Court.
Factual background
Mr McGavin had worked in senior positions for Aoraki, a computer software developer, and its predecessor since 1984. He was one of 96 employees out of a total staff of 436 made redundant with effect from 30 June 1995. On 20 July 1995 he obtained an interim reinstatement order from the Employment Court. An early fixture beginning
25 September was made for hearing his claim of an unjustified dismissal,
proceedings having been moved into the Employment Court from
the Employment
Tribunal. Following a nine day hearing and in a long judgment reported at
[1996] 2 ERNZ 114, Judge Travis held that
Mr McGavin's position as JADE
marketing manager disappeared, along with other product marketing managers'
positions, as part of the
restructuring of Aoraki. He held that it was a
genuine redundancy situation. Given that finding, not challenged on appeal,
that the
dismissal for redundancy was substantively justifiable, it is unnecessary to
review the evidence leading to the restructuring decisions
which in turn led for
genuine commercial reasons to Mr McGavin's position being superfluous to
Aoraki's needs.
It is sufficient to note that in the fast changing computer industry Aoraki was actively seeking to develop new software business and products to replace the downturn in some areas of its work. In September 1994 its principal banker withdrew from the information technology field and it was obliged to seek financial support from another bank. From late
1994 it was made known to the staff that redundancies would be inevitable.
In early 1995
Aoraki was experiencing considerable financial problems. It issued monthly
videos to its staff explaining how it was intending to
reshape and restructure
itself and announcing that there would be redundancies. In March 1995 Mr
McGavin was appointed marketing
manager of JADE, a software product considered
of great importance to the continued operation of Aoraki. In the course of
discussions
with his superiors he gained the impression that his job was more
secure than others but never received any explicit assurances.
By the end of
May forecasted sales had dropped to the point where large numbers of
redundancies were inevitable. Over a short
period very substantial
restructuring arrangements were decided on.
A firm specialising in human resources management had been engaged to advise
on the implementation of the redundancy process, including
announcing
redundancies to staff members concerned, providing support services by way of
counselling and redundancy support workshops,
and training managers who were to
be involved in the announcements. The directors held several meetings with the
consultants working
through those matters. The consultants prepared a checklist
for use by managers when advising individual staff of redundancy.
Aoraki
and Mr McGavin had never, it seems, entered into a formal employment
contract and it is common ground that there
were no existing redundancy
agreements.
The directors decided that Mr McGavin and another senior manager should be
told individually the night before the others were informed
of their
redundancies. Mr White, a director who had worked and socialised with Mr
McGavin over the previous 11 years, had the task
of informing him.
Judge Travis found it was a highly emotional and disturbing meeting for both
Mr White and Mr McGavin. Mr White's evidence was that
he told Mr McGavin that,
due to restructuring within the organisation, the position of JADE product
marketing manager was redundant
and that it was with regret that the latter's
employment would be terminated as from Friday, 30 June 1995. He started going
through
the checklist but did not get to the reasons beyond that statement that
Mr McGavin's position was redundant due to the restructuring.
Mr McGavin said
the discussion was even shorter and that Mr White said, "You are out of here".
The Judge considered it not unreasonable
that Mr McGavin gained the impression
that that had been said. What is clear, however, is that Mr White passed two
letters across
to Mr McGavin. The relevant letter stated in the first two
paragraphs:
As you are aware Aoraki has to restructure in response to the many changes
affecting our company and industry. Aoraki is reshaping
to this changed
environment and to balance what it can achieve against resources. As a result a
number of existing positions are
redundant.
Regretfully we are unable to retain your particular skills and abilities in
the future focus of our company and this letter is to
advise that your
employment with us is terminated effective 4.00 pm on Friday 30
June.
The redundant employees were all treated alike. They all had access to
Aoraki's building until 4.00 pm on 30 June, during which
time there was to be
discussion with managers as to ongoing work. All were to be provided with one
month's base salary in lieu of
notice on 20 July, the normal pay day, and two
additional months' salary, the payments to be made on 20 August and 20 September
respectively.
They were allowed to retain vehicles supplied by Aoraki and use
them as normal during the month of July but had to return them
by 28 July.
Those who had finance arrangements through a subsidiary
company of Aoraki were required to refinance them. Medical insurance cover
was continued till the end of July and all final claims
for business
expenditures were to be met.
All employees received a kit designed to assist them in the transition
process. Counselling organised by the consultant was provided
that week.
However, Mr McGavin was too upset to return to work for more than one hour on
that day and did not attend any counselling
sessions.
The interim reinstatement ordered by the Employment Court did not work well
and on 17 August, while retaining the interim order, the
Employment Court varied
its terms so that Mr McGavin was not required to work for Aoraki pending the
hearing of his unjustified dismissal
claim.
The Employment Court judgment
Judge Travis held that his finding that there was a genuine redundancy
situation did not determine the issue as to whether Mr McGavin's
dismissal was
justified. He reasoned:
The majority of the Court of Appeal in Brighouse and in
Schindler accepted that even where dismissals were genuinely based
on redundancy the Employment Court and the Employment Tribunal were entitled
to
take account of such aspects as whether the employer had taken steps to make a
just choice if there were some redundancies; whether
counselling or payment for
it had been made available to the redundant employees; and whether
possibilities of redeployment had
been adequately explored.
The Judge considered it convenient to begin by considering the compensation
offer to Mr McGavin on redundancy. There was considerable
evidence before the
Employment Court as to the limited career prospects of older workers seeking new
jobs. The overwhelming
effect of the evidence, Judge Travis found,
was that a person of Mr McGavin's age, long service, levels of skill and
experience,
in a narrow field in the present state of the information technology
market place, was unlikely to find a position at
anything like a comparable level of remuneration in the city where he had his
home and family. That information was available to
Aoraki when it considered
the appropriate package to offer the applicant by way of payment in lieu of
formal notice and it elected
to offer him a total of three months' remuneration.
The Judge concluded that a just employer, on the information available to
Aoraki,
would have offered a package which was the equivalent of between six to
nine months' notice.
The reason why Aoraki applied the same formula in lieu of notice to all staff regardless of their length of service was, the Aoraki executives said, that all staff were treated equally in their terms and conditions except for salary. For that reason Aoraki had rejected the consultants' recommendation of a 4 plus 2 formula (4 weeks pay for the first year of service plus 2 weeks pay for each succeeding year). Mr McGavin had received
$28,267 as three months pay, but on the 4 plus 2 formula he would have
received $59,183, a difference of $30,916. The Judge considered
that Aoraki
was entitled not to accept the consultants' general recommendation of the 4 plus
2 formula. But, the Judge said, that
did not excuse it from its duty to ensure
that it provided an employee having the characteristics of Mr McGavin a
sufficient buffer
to enable that employee to seek re-employment or
self-employment. He concluded that in terms of the majority decision in
Brighouse, Aoraki breached its duty to act fairly to Mr McGavin by
failing to offer him reasonable compensation for his years of service and
particular circumstances.
Then, as to consultation, the Judge concluded that it would have been
possible over time to have invited some degree of consultation
with senior
employees on possible restructuring scenarios before a decision as to the actual
redundancies was made. In Mr McGavin's
case it would have overcome the
difficulties that were created for him by what he took to be reassurances as to
the security of his
position. The failure to consult with Mr McGavin, coupled
in this case with the effects of what he took to be reassurances, had
had
adverse consequences for him. In that respect also Aoraki had failed to
discharge the burden of proving that it acted in a
reasonable and fair
manner.
Next, as to counselling, the Judge took the view that Aoraki had to take the
responsibility for the combination of events - the manner
in which the dismissal
meeting was handled, and Mr McGavin's inability to return to work and
consequently to have the counselling
which was available to the other staff -
which deprived Mr McGavin of the advantage of counselling. In that respect also
Aoraki
failed to accord Mr McGavin fair and reasonable treatment.
Finally, under the procedural heading, Judge Travis held that Aoraki had
failed to give Mr McGavin reasons for his redundancy at the
meeting and that Mr
McGavin had been denied a fair chance of discussing in detail with senior
management the reasons for his redundancy
and had not had explained to him that
there were four very competent candidates for one remaining position which Mr
McGavin thought
he should have had. As a result of that series of unfortunate
events, for which the Judge held Aoraki responsible, Mr McGavin was
not treated
in a fair and reasonable manner.
In the result the Judge concluded that for those four reasons Mr McGavin had
been unjustifiably dismissed. Turning to remedies,
he awarded $50,000 as
compensation for humiliation and distress under s40(1)(c)(i) of the Employment
Contracts Act 1991. Then,
as to economic loss and noting that pursuant
to the interim reinstatement order Mr McGavin's salary had been continued
up
until the hearing before the Employment Court, the Judge recognised that there
was no evidence of actual loss. However, the
evidence of the effects of the
dismissal upon Mr McGavin satisfied the Judge that Mr McGavin would experience
considerable difficulties
in obtaining gainful employment and there might well
be a lengthy period of unemployment. The expert evidence suggested
that someone in Mr McGavin's position could expect to be waiting in excess of
nine months to obtain suitable alternative employment.
There was necessarily a
speculative element about a claim for future economic loss and some offsetting
income might be expected
in the meantime. But, he continued:
Taking into account the remuneration paid down to the date of hearing and
applying the equity and good conscience jurisdiction conferred
upon me in
hearing a personal grievance I award for future economic loss the equivalent of
four months' salary at the rate of $9,422
per month, being the rate paid to the
applicant at the time of his dismissal. This totals $37,688. I make no
separate award for
any other benefits payable under the applicant's
contract.
The costs judgment
In a second judgment of 13 December 1996 the Judge discussed a Calderbank
letter of 13 September 1995. That letter read:
This is a Calderbank letter and is therefore without prejudice but we reserve
the right to refer it to the Court as to costs.
As you will appreciate, any payment which Aoraki makes to your client will be
tax deductible from the point of view of Aoraki. Your
client, however, is
likely to be required to pay tax in respect of any element of compensation
awarded that is of an income nature.
From Aoraki's point of view it is prepared to make two alternative
offers:
a. to pay $137,500 by way of compensation to your client; or
Aoraki is prepared, within reason, to describe the compensation in such
manner as your client wishes (but we emphasise within reason)
and if necessary
to submit the matter to the Employment Court with a view to a consent order
being made apportioning the compensation
in such manner as the Judge is prepared
to approve.
The $137,500.00 now offered is inclusive of the remuneration received or
receivable from Aoraki by your client in terms of his redundancy.
In the event that your client accepts the offer made, he will be entitled to
seek an order for costs from the Employment Court and
the $137,500.00 is not
intended to be inclusive of costs.
The Judge observed that the equity and good conscience jurisdiction is
particularly apt in making a decision on costs and that the
Employment Court in
Harris v Nurse Maude District Nursing Assn (No 2) [1991] 3 ERNZ 50
had noted that it would offend against the principles of equity and good
conscience if a substantial part of the
compensation awarded to an applicant in
a personal grievance application had to be disbursed to meet the grievant's
expenses.
Mr McGavin had incurred costs of $60,340 and Aoraki in excess of $100,000.
Those latter costs, the Judge said, could have instead
been expended in settling
the case if the applicant had accepted the offer. But, balanced against that
was the requirement that
the Court exercise its equity and good conscience
jurisdiction in terms of Harris to ensure that the level of
recovery by the applicant was reasonable after allowing for the costs
necessarily incurred. His pre-offer
costs were $25,000. In the result the Judge
ordered Aoraki to pay Mr McGavin $7,500 as a contribution to those pre-offer
costs, costs
otherwise lying where they fell.
The Employment Contracts Act 1991
The object of the Act is stated in the long title as follows:
An Act to promote an efficient labour market and, in particular - (a) To provide for freedom of association:
(b) To allow employees to determine who should represent their interests in
relation to employment issues:
(c) To enable each employee to choose either -
(i) To negotiate an individual employment contract with his or her employer; or
(ii) To be bound by a collective employment contract to which his or her
employer is a party:
(d) To enable each employer to choose -
(i) To negotiate an individual employment contract with any
employee:
(ii) To negotiate or to elect to be bound by a collective employment
contract that binds 2 or more employees:
(e) To establish that the question of whether employment contracts are
individual or collective or both is itself a matter for negotiation
by the
parties themselves:
(f) To repeal the Labour Relations Act 1987.
Two points stand out. First, the earlier paragraphs, reflecting the short
title, "The Employment Contracts Act", emphasise that
employment issues are a
matter of contract where the types of contract and the content are essentially
for the parties freely to
negotiate. Second, it is implicit in that statutory
statement that the six specified matters were seen as keys to promoting an
efficient
labour market and that in employing (f) in that way the framers of the
1991 statute intended to emphasise that change of focus.
The Act is then divided into six major parts concerning freedom of
association, bargaining, personal grievances, enforcement of employment
contracts, strikes and lockouts, and institutions. Each part has its own
stated objectives. Relevant for present purposes are
s9 as to bargaining, s26
as to personal grievances, s43 as to enforcement, and s76 as to institutions.
And s147 bars contracting
out of the provisions of the Act.
Sections 9 and 43 are particularly relevant in considering the scope for implying terms in employment contracts under the Act. In terms of s9(b) the object of Part II relating to bargaining is to establish that appropriate arrangements to govern the employment relationship may be made by employment contracts with "the contents of the contract being
... a matter for negotiation". In terms of s43(a) the object
of Part IV relating to enforcement is to establish
that "Employment contracts
create enforceable rights and obligations". As well, in terms of s26(d) the
object of Part III relating
to personal grievances is to establish that "the
remedy for a personal grievance is determined in each case by the circumstances
of the case". Underlying the concept of unjustifiability, which is the
yardstick by which personal grievances apply to claims of
unjustifiable
dismissal and unjustifiable action under s27(1)(a) and (b), are the mutual
obligations of confidence, trust and fair
dealing which employers and employees
owe to each other under a contract of employment. But it is well settled by a
series of 5
Judge cases in this court that that mutual obligation does not
warrant the application of any different principles to the implication
of terms
in collective or individual employment contracts than are applicable to other
contracts (Attorney-General v New Zealand Post-Primary
Teachers' Association [1992] 2 NZLR 209, 213; TNT
Worldwide Express (NZ) Ltd v Cunningham [1993] 3 NZLR 681; and
Principal of Auckland College of Education v Hagg [1997] 2
NZLR 537).
Sections 27(1)(a) and (b) and 40(1)(a), (b) and (c) are the immediately
relevant provisions of Part III relating to personal grievances.
They
provide:
27. (1) For the purposes of this Act, "personal grievance" means any
grievance that an employee may have against the employee's employer
or former
employer because of a claim -
(a) That the employee has been unjustifiably dismissed; or
(b) That the employee's employment, or one or more conditions thereof, is or
are affected to the employee's disadvantage by some
unjustifiable action by the
employer (not being an action deriving solely from the interpretation,
application, or operation, or
disputed interpretation, application, or
operation, of any provision of any employment contract). ...
40. (1) Where the Tribunal or the Court determines that an employee
has a personal grievance, it may, in settling the grievance, provide
for any one
or more of the following remedies:
(a) The reimbursement to the employee of a sum equal to the whole or any
part of the wages or other money lost by the employee as
a result of the
grievance:
(b) Reinstatement of the employee in the employee's former position or the
placement of the employee in a position no less advantageous
to the
employee:
(c) The payment to the employee of compensation by the employee's employer,
including compensation for -
(i) Humiliation, loss of dignity, and injury to the feelings of the employee;
and
(ii) Loss of any benefit, whether or not of a monetary kind, which the
worker might reasonably have been expected to obtain if the
personal grievance
had not arisen.
Section 41 goes on to provide for the reimbursement of remuneration lost by
an employee "as a result of the personal grievance".
And s27(1)(c), (d) and
(e) and ss28, 29 and 30 applying to discrimination, sexual harassment and duress
in the employee's employment,
such duress relating to membership or
non-membership of an employees organisation, are not of immediate
relevance.
In relation to the enforcement of employment contracts, s46(3) imposes a
constraint on the Employment Tribunal and Employment Court
in redundancy
matters. Where a provision of an employment contract deals with redundancy
without specifying either the level of
redundancy compensation payable or a
formula for fixing that compensation, neither the Employment Tribunal nor the
Employment Court
has "jurisdiction to fix that compensation or specify a formula
for fixing that compensation".
In terms of s76(a) the object of Part VI is to establish specialist
institutions with exclusive jurisdiction to deal with rights of
parties to
employment contracts. Referring to the Employment Court, s76(d) explicitly
recognises, "that the nature of
employment contracts is such that the
parties to employment contracts from time to time require the assistance and
certainty that
can be provided by a specialist court". The jurisdiction of the
Employment Court is set out in some detail in s104(1)(a) to (o)
and in terms of
s104(3) and subject to certain exceptions, the court has jurisdiction to
determine all matters before it, "in such
manner and to make such decisions or
orders, not inconsistent with this or any other Act or with any applicable
collective employment
contract, as in equity and good conscience it thinks fit".
And s137 requires this court in determining an appeal under s135 to have
regard
to the special jurisdiction and powers of the Employment Court.
The important qualification expressed in s104(3) is that the exercise of the
jurisdiction cannot be inconsistent with the Employment
Contracts Act or any
other Act or with any applicable collective employment contract. Thus it
does not allow the Employment
Court when determining a personal grievance to
depart from the proper interpretation of "unjustifiable dismissal" within the
meaning
of s27(1)(a). It cannot frustrate the policy of legislation.
Likewise, it does not allow the Employment Court to substitute for
the
employment contract actually entered into a contract which the parties could
have entered into (Hagg at 546).
Part VI goes on to provide for appeals from the Employment Court to this
court. There is no right of general appeal. By s135 a decision
may be
challenged only as being "erroneous in point of law" and with the qualification
that there is no appeal "on the construction
of any individual employment
contract or collective employment contract". But it is well settled that the
limitation on appeal rights
does not extend to questions of principle going
beyond the particular terms of the contract.
The 1991 Act represents a substantial departure from the collectivist principles of previous industrial relations legislation in favour of a model of free contractual bargaining. In adopting a contractual approach, however, the statute also recognises that the nature of employment and the employment relationship differentiate employment contracts from conventional commercial contracts governing the supply of goods and services. The Act departs from the common law of contract in setting the yardstick of unjustifiable dismissal and unjustifiable action, in specifying procedures and remedies, and in other respects. As well, the personal grievance provisions themselves can be traced back to the Industrial Conciliation and Arbitration Amendment Act 1970, s4, and the Industrial Relations Act
1973, s117 and, unlike under earlier legislation, now apply to all employees
whether covered by individual or collective employment
contracts. But the
context in which they operate is sharply changed by the emphasis in the 1991 Act
on contractual freedom.
The remedies, too, are narrowed by the scheme and
language of the whole statute and by particular changes reflected in s40.
Nevertheless
it is important to emphasise again that the personal grievance
provisions are part of the overall balance reflecting the special
characteristics of employment contracts and under which, as we have noted,
employees and employers have mutual obligations of confidence,
trust and fair
dealing.
Inevitably there is a tension between a pure contract approach and social and
economic concerns inherent in the relationship. The
responsibility on the
courts is to give effect to the intent of Parliament as expressed in the
statute.
Brighouse Ltd v Bilderbeck
In Brighouse Ltd v Bilderbeck the court by a majority (Cooke P,
Casey J, Sir Gordon Bisson; Richardson and Gault JJ dissenting) upheld the
finding that the appellant
employer had unjustifiably dismissed the respondent
employees because of a failure: (a) to pay the respondents adequate
compensation
where there was no existing agreement to pay redundancy
compensation; and (b) to communicate, consult or negotiate with the
respondents
in respect of any alternatives to redundancy where the appellant had
sold its business without doing so.
Cooke P identified the issue (p164) as "... whether the Employment Tribunal
and the Employment Court have taken the principle beyond
its proper sphere in
accepting in redundancy cases jurisdiction to award compensation for the loss of
the benefits of continued employment
and for humiliation and the like". In
reaching his conclusion that they had not he observed that, while in considering
the duties
of a reasonable employer it is often convenient to use as different
heads of discussion substantive justification and procedure,
there is no sharp
dividing line. He went on to say (pp 166-167) that the Employment Court and the
Employment Tribunal are entitled
to take account of such aspects as whether the
employer has taken steps to make a just choice if there are only some
redundancies;
whether counselling or payment for it has been made available to
the redundant employees; and whether the possibilities of redeployment
have been
adequately explored: "We would be going beyond our province in an appeal on
questions of law if we held that the Court
and the Tribunal could not have
regard to such aspects and give them such weight as they may think
fit".
Then, as to compensation, he continued (p167):
As to those and other heads of compensation, in my opinion it must be open to
an employee to establish that a dismissal for redundancy
has been carried out in
an inconsiderate manner, inconsistent with and amounting to a
repudiation of the relationship of confidence and trust; or that in the
particular circumstances some special notice or payment in
lieu thereof would be
given by a reasonable employer. If the contract contains an express provision
and formula for redundancy
compensation or (less likely) an express provision
that there shall be no such compensation, no doubt it will govern, save possibly
in very exceptional circumstances. Where no express provision applies, the
ordinary personal grievance procedure will be available
and there will be
jurisdiction to award compensation for any benefit, whether or not of a monetary
kind, which the worker might reasonably
have been expected to obtain if the
personal grievance had not arisen. No more than in any other unjustifiable
dismissal case
will the worker be restricted to common law rights. They are
relevant but far from decisive. Always of course the circumstances
of the
individual case will require consideration, but it would be fallacious in
principle to distinguish redundancy dismissals made
unjustly from other
dismissals made unjustly. In either situation the unjustifiable dismissal
jurisdiction may be invoked.
In the similar case decided at the same time, Jones Schindler Lifts
Ltd v Johnson [1995] 1 NZLR 190, 193, Cooke P said explicitly: "The
employee in fact lost his employment and the reasonable expectation of benefits
that went with it as a result of treatment which has been found unfair. There
was therefore discretionary jurisdiction to award
remedies under both subpara
(i) and subpara (ii) of s40(1)(c)."
In Brighouse Cooke P emphasised the position of the Employment
Tribunal and the Employment Court under the legislation (pp
167-168):
It is clear, however, that this Court would not be entitled to impose fetters
on the exercise of a statutory jurisdiction which Parliament
has chosen to
confer in very wide terms. Still less would we be entitled to say that
compensation for redundancy need only be
given where there is an express
agreement to that effect. The field is not an easy one, but it is not for us
to try to render certain
that which the legislation has left flexible.
Basically it is the Employment Court which administers the jurisdiction; the
evolving
practice of that Court should be able to establish guidelines. The Act
does not empower the Court of Appeal to lay down a
code of industrial
practice. What we are concerned with are issues of principle which may fairly
be seen as involving questions
of law.
Referring to the implicit obligation on the parties to an employment contract
to preserve the relationship of trust and confidence
between them, Casey J said
(p179):
Whether that obligation can extend to payment of redundancy compensation
when none has been provided for in the employment
contract is a more
difficult question. To import such a liability as part of a reasonable
employer's duty of fair dealing may be
seen as a radical departure from the
earlier decisions of the specialist Courts in this area to the effect that there
is no liability
for such payments in the absence of agreement. Such a
departure may also lead to the imposition across the whole spectrum of
employer/employee
relations of an obligation to make redundancy payments where
they are not already provided for by contract. This is a result that
some might
argue should be achieved only by legislation, as in England. It may also be
seen as contrary to the philosophy of
the Employment Contracts Act 1991, which
clearly contemplates that such matters are to be settled by negotiation and
agreement.
There will, however, be many cases where employees simply do not have the
ability to procure satisfactory redundancy deals as part
of their contracts.
The personal grievance procedure affords a way of redressing the balance in
those situations - usually in small
organisations - where they have no real
bargaining power. The present case provides an example. I can understand the
manifest
desire of the Tribunal and the Employment Court to secure fair
treatment of such employees, particularly in the present climate engendered
by
restructuring and extensive dismissals, where redundancy payments have become
commonplace in the major undertakings affected.
Nevertheless it cannot be said
the stage has been reached where an obligation to pay redundancy can be implied
as a matter of course
in all employment contracts.
The question in the appeal, he said (p180), was whether it was open in law for the Tribunal and the Employment Court to determine that the failure to pay redundancy in the circumstances of this case rendered the dismissals unjustifiable for procedural unfairness. He could see no reason preventing the Tribunal and the Court developing the concept of unjustifiable dismissal so as to take into account the moral obligation of a fair-minded employer to pay compensation for redundancy in appropriate circumstances: "The term
'unjustifiable' is broad enough to embody such an approach in its component
of procedural unfairness recognised for so many years
by the
Courts".
Sir Gordon Bisson rejected the argument that the court should not
impose substantive obligations on employers to pay
compensation where
the parties to the
employment contract have not provided in their contract for the payment of
redundancy compensation (p188). First, such a contract
is simply silent on the
issue, leaving it open to be considered in the circumstances of each dismissal.
Second, where there is procedural
unfairness, an award of compensation is a
remedy for a personal grievance. Amplifying the first ground, he went on to
endorse the
Employment Court's summary of the judgments of this court in
G N Hale & Son Ltd v Wellington, etc, Caretakers, etc, IUW
[1991] 1 NZLR 151:
(1) Not every redundant employee is entitled to compensation.
(2) In considering the overall duty of fair treatment incumbent on every
employer, the Court may inquire whether the case calls for
compensation for
redundancy.
(3) In the absence of a prior agreement to pay compensation for redundancy
the answer to the question whether the duty of fairness
calls for such a payment
will depend on circumstances such as:
- The reason for the redundancy;
- The length of service of the employee;
- The period of notice of the dismissal;
- The means of the employer to pay.
(4) Circumstances calling for a compensatory payment as part of the overall
duty of fairness may arise in the absence of prior agreement
where, for example,
an employer has voluntarily decided on redundancy as a cost-saving measure and
can reasonably afford to pay compensation.
To this should be added from the judgment of the President of the
Court of Appeal:
(5) The fact that some compensation has been offered (or, I would add, paid)
is a relevant factor in determining whether, as a whole
the employer's conduct
has been fair and reasonable.
Then, as to the second ground relating to procedural unfairness, Sir Gordon
Bisson emphasised it raised questions of fact which were
for the Tribunal to
weigh in exercising its discretion in assessing fair and reasonable
compensation.
In his dissenting judgment Richardson J considered that the implied
obligation to preserve the relationship of trust and confidence
between employer
and employee could not extend to requiring payment of compensation where none
had been provided for in the employment
contract. On his analysis of the
Employment Contracts Act, the statute contemplated that, as with other elements
of the contractual
arrangements between employer and employee, any redundancy
provisions on termination of the employment contract are a matter for
negotiation and agreement between the parties. He continued
(p177):
Any Judge will be conscious of the inequality of bargaining power in the
negotiation of contracts in some employment situations;
of the vulnerability of
loyal employees faced with redundancy; and, also, of the economic disincentive
to expanding employment of
uncertainly high redundancy costs. The social and
economic policy implications of possible redundancy regimes call for careful
analysis.
The imposition of redundancy obligations, where the parties have not
agreed under their contract for any such provision, and the
establishment of
quantification criteria are surely for the legislature not for the
Courts.
Then, as to procedural fairness, he considered that failure to give the
required period of notice of termination will call for payment
of compensation
in lieu of notice. Finally, for the reasons he gave, he considered procedural
fairness may require counselling
and job assistance and retraining and that the
employer also provide a cushion either by allowing additional time beyond the
contractual
period of formal notice or by payment in lieu. The test, he said,
is how long and with what additional support would a just employer
continue the
employment or provide payment in lieu in order to treat the employee fairly.
In short, a fair procedure for implementing
a dismissal may call for payment to
cover such matters as counselling, career and financial advice and retraining -
including the
time involved. Determining what positions could be dispensed with
in a genuine redundancy and the feasibility of redeploying displaced
workers
were in principle matters of commercial judgment, not procedural fairness. In
short, procedural fairness does not require
that decisions on redundancy be
negotiated with the employees.
Gault J considered it imperative that redundancy law requirements be
readily understandable to most employers and employees.
They should rest not
upon abstract concepts and implied terms evolved through complex judgments but
upon straightforward application
of the provisions of the Employment Contracts
Act 1991. Where there is a true redundancy situation as in
Brighouse, the dismissal is justifiable and it is preferable to
refer to the failure of the employer to implement it as a just employer would
have done as unjustifiable action rather than unjustifiable dismissal. He
continued (p181):
No checklist can be provided for use in deciding, upon a dismissal in a true
redundancy situation, whether there has been unjustifiable
action. All of the
circumstances of the particular employment relationship potentially are
relevant. The nature of the employment
contract generally will be the
starting point - its express terms, when it was negotiated, the relative
bargaining strengths, the
type of work and its remuneration all will be relevant
as background. So will the circumstances giving rise to the redundancy
and
the dismissal. Against these matters will be examined the conduct of the
employer and employee in their respective positions
to determine whether the
employer's action is justifiable by reasonable standards of procedural
fairness.
And (p182):
Where it is held that the employer's actions are unjustifiable although the
dismissal is justified by true redundancy the Act does
provide for compensation.
Some unjustifiable action may give rise to hurt and humiliation for the
employee. To the extent that
is more than would have been suffered as a result
of the dismissal even if properly carried out, it can be compensated by a money
award. Some unjustifiable action will give rise to money claims for lost
benefits that otherwise would have been obtained. Other
unjustifiable action
may disadvantage the employee in a manner that can be seen as earnings-related.
Examples would be by failure
to provide assistance with alternative employment
if in the circumstances that is reasonable or the failure to give notice of the
intended dismissal when that could reasonably have been done so as to maximise
the opportunity to find other work.
Such failures might
warrant earnings-related compensation assessed by reference to the lost benefits
that might reasonably
have been obtained.
Brighouse: the precedent issue
The next question is whether the court should now reconsider the decision in
Brighouse with the possibility of departing from the views of the
majority in that case. In R v Hines [1997] 3 NZLR 529 the court
took the view, as earlier expressed in Collector of Customs v Lawrence
Publishing Co Ltd [1986] 1 NZLR 404, 414-415, that "it will ordinarily
follow its earlier decisions but will be prepared to review and affirm, modify
or overrule an earlier decision where it is satisfied it should do so, but
without attempting to categorise in advance the classes
of cases in which it
will intervene. In the end and after weighing the considerations favouring and
negating review in the particular
case, the members of the court must make their
own value judgments as to whether it is appropriate in the interests of justice
to
review and perhaps overrule an earlier decision".
The Employment Contracts Act is major social and economic legislation having
a daily impact on the lives of New Zealanders. The
question for consideration
is essentially one of statutory construction. It might be said that if the
legislature were unhappy
with Brighouse and with developments in
redundancy cases in the Employment Court it could amend the legislation.
However, any such legislative
change would be complex and would involve
substantial redrafting in a situation where the argument for the present
appellant is that
the interpretation of legislation is a matter for the courts
and the construction answer in this case is straightforward and
clear.
There are three considerations which persuade us that it is proper and timely
to reconsider the application of the 1991 Act to redundancies.
The first is
that it is difficult to discern a single ratio running through each of the
majority judgments in Brighouse. It seems, too, that the
Employment Court has focussed on the judgment of Cooke P rather than those of
Casey J and Sir Gordon
Bisson.
The second is that the President's judgment and the judgment of Casey J left
the
Employment Court with considerable flexibility to develop a concept
of unjustifiable
dismissal. The judgment of Judge Travis in the present case, and the
judgment of Chief Judge Goddard in Phipps v New Zealand
Fishing Industry Board [1996] 1 ERNZ 195 demonstrate how far
the Employment Court has felt entitled to develop unjustifiability in
redundancy cases.
As already noted, Judge Travis considered that:
... even where dismissals were genuinely based on redundancy the Employment
Court and the Employment Tribunal were entitled to take
account of such aspects
as whether the employer had taken steps to make a just choice if there were some
redundancies; whether counselling
or payment for it had been made available to
the redundant employees; and whether possibilities of redeployment had been
adequately
explored.
In Phipps the Chief Judge at p200 said that case law had filled
out the content of the requirement of warning, consultation, and the other steps
hinted at in Greenwich ((1983) ERNZ Sel Cas 95, 109) that need to
be taken to yield a conclusion that the redundancy was genuine and unavoidable.
What steps
are reasonable depends on the circumstances of each case. It had
also been stressed, he said, that in New Zealand where the test
is whether the
dismissal was justifiable, not (as in the United Kingdom) whether it was
reasonable, it is misleading and therefore
unhelpful to draw a distinction
between substantive and procedural shortcomings. He continued
(p208):
As I have already demonstrated, the Employment Contracts Act 1991 poses a
straightforward question: has the respondent answered
the appellant's
grievance that she had been unjustifiably dismissed by showing that the admitted
dismissal was, in the circumstances
proved, justifiable. It will be
justifiable if, and only if, the action taken by the respondent was such as a
fair and reasonable
employer would have taken, or could have with a clear
conscience. ... No genuine reasons can be formed about either redundancy or
misconduct in the absence of input from the employee concerned, or at least a
reasonable opportunity in which to contribute it. The
employee's representations
may well show that there is, on a better view of her or his functions, no
redundancy at all or that there
are alternatives to dismissal. A failure to
inquire or consult is fatal to justification.
The third is that redundancy is an important area of the law affecting large
numbers of New Zealanders every year. It is imperative
that employees and
employers be able to plan with confidence and determine what their respective
rights and obligations are. Redundancy
should lend itself to a short statement
of governing principles drawn from the straightforward application of the 1991
Act. In
that regard there are obvious dangers in drawing on discussions in
employment cases in other jurisdictions, influenced as they inevitably
are by
the different statutory regimes. And counsel did not rely on International
Labour Organisation Conventions or on the complaint
by the New Zealand Council
of Trade Unions to the ILO (Case No 1698) that the 1991 Act contravened
Conventions Nos 87 and 98 through
various violations of the right to organise
and to bargain collectively.
Unjustifiable dismissal or action: the statutory
scheme
It is convenient to develop the discussion in a series of seven steps. In
doing so it is important to focus on the provisions of
the Employment Contracts
Act 1991.
First, s40(1) lists remedies which the Tribunal or the Employment Court may
provide for "in settling a personal grievance". It
operates where the
Tribunal or the Employment Court "determines that an employee has a personal
grievance". The remedy is for the
wrong done to the employee. So too, the
remedy under s41. The form of remedy must be directed to the particular wrong.
The statutory
scheme requires the Tribunal and the Employment Court to identify
and focus on the nature and scope of the personal grievance which
it determines
the employee has.
Second, justifiability is directed at considerations of moral justice. It
is not tied to common law rights. Conduct is unjustifiable
if it is not
capable of being shown to be just in all the circumstances. It is a matter of
considering and balancing the interests
of employee and employer. It is
whether what was done and how it was done is just to both parties in all the
circumstances.
Third, the application of s40(1) in dismissal cases will be affected by the
reason for the purported termination of the employment.
Broadly speaking
employment may be terminated in three situations: (i) for cause, that is, and
again broadly speaking, for misconduct
or incompetence or incapacity; (ii) for
redundancy, that is where the job has disappeared, ordinarily because of
insolvency, closure
or restructuring; or (iii) on notice, either as specified
in the contract or on reasonable notice at common law.
Under the Employment Contracts Act there are justifiable and unjustifiable
terminations. If unjustifiable, appropriate personal
grievance remedies are
available. As well, the common law remedy for contractual breach also remains
available.
Fourth, it is convenient in other termination cases, and essential in
redundancy cases, to consider whether the dismissal was substantively
unjustified. Thus, if the dismissal is said to be for cause it may be
substantively unjustifiable in the sense of cause not being
shown or being
subject to such significant procedural irregularity as to cast doubt upon the
outcome. For example, had there
been an earlier warning to the employee or
an opportunity for the employee to give an explanation the dismissal would not
or might
not otherwise have occurred.
Redundancy is a special situation. The employees affected have done no
wrong. It is simply that in the circumstances the employer
faces their jobs have
disappeared and they are considered surplus to the needs of the business. Where
it is decided as a matter
of commercial judgment that there are too many
employees in the particular area or overall, it is for the employer as a matter
of
business judgment to decide on the strategy to be adopted in the
restructuring exercise and what position or positions should be
dispensed with
in the implementation of that strategy and whether an employee whose job has
disappeared should be offered another
position elsewhere in the
business.
It cannot be mandatory for the employer to consult with all potentially
affected employees in making any redundancy decision. To
impose an absolute
requirement of that kind would be inconsistent with the employer's prima facie
right to organise and run its business
operation as it sees fit. And
consultation would often be impracticable, particularly where circumstances are
seen to require mass
redundancies. However, in some circumstances an absence
of consultation where consultation could reasonably be expected may cast
doubt
on the genuineness of the alleged redundancy, or its timing. So, too, may a
failure to consider any redeployment possibilities.
Fifth, where, as here, the Employment Court has found that there was a
genuine redundancy situation and Mr McGavin's dismissal for
redundancy as from
30 June 1995 was substantively justifiable, the next question is whether the
steps taken to implement that termination
of employment were unjustifiable. A
just employer, subject to the mutual obligations of confidence, trust and fair
dealing, will
implement the redundancy decisions in a fair and sensitive way.
The procedural fairness standard will determine the period of notice
or payment
in lieu which recognises that commercial circumstances may dictate that
redundancies take immediate effect. It is a
matter of how long would a just
employer provide for in treating the employee fairly. Where the contract is
silent as to the
redundancy notice period and payment in lieu, the contractual
period for terminating on notice and in the absence of any contractual
provisions the common law requirement of reasonable notice in the circumstances,
may help in striking a reasonable balance between
employee and employer, but
modified to recognise that the employment is being terminated in a redundancy
situation and the inevitable
impact on the employees of the manner in which it
is done and the time involved. As well, fair treatment may call for
counselling,
career and financial advice and retraining and related financial
support. No doubt other considerations will be relevant in particular
cases.
Sixth, it is not entirely clear from the statute whether, where the dismissal
is substantively justifiable, procedural unfairness
in implementing that
decision is better
described as "unjustifiable dismissal" within s27(1)(a) or "unjustifiable
action" within s27(1)(b). Reported redundancy cases have
tended to proceed on
the assumption that the personal grievance in that respect can be classified as
unjustifiable dismissal.
But in Brighouse Richardson J referred
to both unjustifiable dismissal and unjustifiable action and Gault J expressed a
preference for categorising
procedural deficiencies as unjustifiable action.
On one view it is contradictory to hold that the employment has been justifiably
terminated and then go on to conclude that the dismissal was unjustifiable.
Another view is that unjustifiable dismissal can be
either dismissal which lacks
its purported foundation (e.g. redundancy) or a dismissal which is implemented
in a way which breaches
the employer's obligation of fair dealing; and it may
be said that the structure of s27(1) draws that distinction between
terminating
employment (para (a)) and continuing employment (para
(b)). A further possibility is that in some circumstances there
may be an
overlap between (a) and (b).
However, it is unnecessary to reach a concluded view on that classification
point because the test of unjustifiability is the same
whether viewed under (a)
or (b). What is crucial, however, is to recognise that the remedy can relate
only to the particular wrong,
to what has been lost or suffered as a result of
the particular breach or failure. In this case the personal grievance is not
that
the employment was terminated, but that the manner of implementation of the
decision to terminate was procedurally unfair.
In terms of s40(1)(a) and (c) and s41(1) the relevant remedies are
"reimbursement" of wages or other money "lost by the employee as
a result of the
grievance" (s40(1)(a)), "compensation ... including compensation for ... loss of
any benefit ... which the worker
might reasonably have been expected to obtain
if the personal grievance had not arisen" (s40(1)(c)(ii)), and compensation for
"lost
remuneration" where the employee has "lost remuneration as a result of the
personal grievance" (s41). Where the grievance concerns
the manner in which a
substantively justifiable dismissal was carried out, that is the wrong
to
which remedies may be directed, and there is no power under the statute to
make an award for the loss of the job.
Seventh, except where the employment contract requires payment of
compensation when an employee becomes redundant, in which case the
court will
enforce that contractual obligation, the statute does not empower the Tribunal
or the Employment Court to require any
such payment. The contract rules and
there is no basis conformable with the settled principles governing the
implication of terms
in other contracts to read in any implied obligation of
that kind or to extend the mutual obligation of trust and fair dealing in
that
way. To do so would alter the substantive rights and obligations on which the
parties agreed; it would change the economic
value of their overall agreement;
and it would erode the statutory emphasis on the free negotiation of employment
contracts.
And where the personal grievance concerns the manner in which the
termination of the employment was implemented, the remedies are
limited to the
consequences of that procedural failure. The mutual obligation is directed to
fair treatment in the employment and
there is no basis in principle for
converting it into a specific variation of the contractual arrangement so as to
impose substantive
obligations, e.g. as to redundancy or pensions or long
service leave or employee shares, which the parties did not agree to
undertake.
Brighouse: the majority judgments
Cooke P took the view that in considering the duties of a reasonable employer
there is no sharp distinct line between substantive
justification and procedure.
And so in discussing compensation he identified the manner in which a dismissal
for redundancy was carried
out and the failure to give some special notice or
payment in lieu as grounds for compensation. Amongst the considerations which
he saw the Employment Court as entitled to take into account were whether the
employer had taken steps to make a just choice if there
were only some
redundancies. And he drew on the language of s40(1)(c)(ii) in concluding that
where the employment contract does
not contain a redundancy
provision
there is jurisdiction to award compensation for any benefit, whether or not
of a monetary kind, which the worker might reasonably
have been expected to
obtain if the personal grievance had not arisen. This, he considered, could
encompass compensation for the
loss of employment.
With respect, the first error in the Judge's reasoning is in failing to focus
at the remedy stage on the precise characteristics of
the proven grievance. The
remedy can relate only to what has been lost as a result of the particular
breach or failure. In a
genuine redundancy situation where any
unjustifiability is procedural in character any compensation must be tied to the
particular
personal grievance, which is not the loss of the job as such. Sir
Gordon Bisson's reasoning, that where the employment contract does
not provide
for compensation, then in considering the overall duty of fair treatment the
Employment Court may decide that the duty
of fairness calls for compensation for
redundancy, is subject to the same criticism. And s40(1)(c)(ii) cannot be
invoked to support
a claim to redundancy compensation. Unless there is a basis
in law to imply an obligation to pay redundancy an employee cannot
claim to have
lost a benefit under the contract - under an implied term - because a redundancy
payment was not received. So the
argument for compensation is circular and
unsupported by the language of s40(1)(c)(ii).
This leads on to the second error in the reasoning. The essence of Cooke
P's reasoning has already been noted. Casey J accepted
that the stage had not
been reached where an obligation to pay redundancy could be implied as a matter
of course in all employment
contracts. But, he concluded, as a component of
procedural unfairness the Tribunal and the Employment Court were entitled to
develop
the concept of unjustifiable dismissal so as to take into account the
moral obligation of a fair-minded employer to pay compensation
for redundancy in
appropriate circumstances.
In a genuine redundancy the remedies for procedurally flawed dismissal are
compensation for the resulting hurt and loss of benefit.
They are necessarily
limited to the
effects of the procedural deficiencies. So there can be no compensation in
a genuine redundancy situation for the loss of the job
except as provided in the
employment contract itself. Neither as a matter of implication applying
general principles for implying
terms in contracts nor under the mutual
obligation of trust and fair dealing is there any foundation for requiring that
some payment
be made because there is a redundancy. The 1991 Act leaves any
redundancy compensation arrangements to the bargaining process under
the statute
and goes the further step of expressly excluding the Tribunal and the Employment
Court from fixing the redundancy levels
or formulas where there is a dispute
over the interpretation of a redundancy provision (s46(3)). The philosophy
running through
the majority judgments is that even though the dismissal is for
genuine redundancy it is still permissible to award compensation
for loss of the
employment.
The language and scheme of the Employment Contracts Act is clear and direct.
The focus at the remedy stage is necessarily on the nature
and extent of the
proven personal grievance. The statutory remedies are directed to what has
been lost as a result of the particular
breach or failure. Where it is found
that the dismissal was for genuine redundancy it is the loss or hurt occasioned
by the manner
in which that redundancy was carried into effect that is
compensable in accordance with the provisions of ss40(1)(a) and (c) and
41.
There is nothing in those provisions empowering the Tribunal or the Employment
Court to provide compensation for redundancy
itself or for the hurt which comes
from no longer having a job. The parties may provide for it in their
employment contract;
the employer may offer it on redundancy; but the Tribunal
and the Employment Court have no jurisdiction to impose it.
Redundancy provisions in employment contracts
The available statistics of collective employment contracts and individual
employment contracts indicate that in the wake of Brighouse there
has been a substantial increase in the proportions of contracts containing
redundancy clauses. The Brighouse
decision records at p168 that approximately one-third of the collective employment contracts lodged with the Department of Labour down to the end of 1992 contained a redundancy formula. The Department of Labour analysis also reported that 80% of the
150,000 employees involved were subject to four weeks or less notice of
redundancy.
In their latest study, Employment Contracts: Bargaining Trends
and
Employment Law Update 1996/97, Harbridge, Crawford and Kiely report
that by March
1997 88% of employees in their collective employment contracts dataset were covered by a collective employment contract that provided for redundancy situations (p54). The Employers' 1997 National Wage and Salary Survey Report covering some 120,000 employees with 50% of the participating employers reporting all or predominantly individual employment contracts, records that 61% of the surveyed participants included a redundancy provision in their employment contracts. The bulletin of the Industrial Relations Service of the Department of Labour, Volume 18, August 1996, records that within the collective employment database 81% of total database contracts covering 82% (266,355) employees contained some form of redundancy provision and in most industry sectors the period of notice was four weeks or less. And the Russell McVeagh study, Redundancy in New Zealand, of October 1995, dealing both with actual redundancies, where the balance was
76% under collective employment contracts and 24% under individual employment
contracts, and with contractual provision for redundancy,
records that one
month's notice was most common for redundancy under both forms of contract;
that 78% of employers with collective
employment contracts had redundancy
clauses in all their contracts compared with 50% of employers with individual
employment contracts;
and that one month's notice was the most common period
provided for.
Statistical data before the court indicates that four weeks or a month is the
most common notice period in contracts containing redundancy
clauses with well
over half providing four weeks or less. That four week period also
corresponds closely with the notice actually
given and largely matches the 1992
statistical data referred to in Brighouse.
Otherwise there is considerable diversity in the content of redundancy
clauses, including some significant inter-industry variations.
Some caution is needed when considering contractual practices in relation to redundancy. They are the product of the bargaining process. As part of an employment package they may need to be balanced against other elements in the resulting contract. And the various provisions applying in the event of redundancy may need to be looked at together rather than each in isolation. Nevertheless, two points are clear. First, and for the reasons given earlier, stipulated redundancy payments provided for in redundancy clauses must be disregarded when considering unjustifiability in relation to employment contracts containing no provision for redundancy. Second, general practice as to the period of notice is so clear as to provide no support for fixing the period of notice, in the absence of a contractual stipulation, at much in excess of one month.
The Employment Court decision in this case
In the light of our analysis of the Employment Contracts Act and the
principles which we have outlined as applicable to termination
for redundancy,
we are satisfied that the Employment Court erred in law in its approach in this
case. It is sufficient to focus
on the two awards, $37,688 for future economic
loss and $50,000 compensation for humiliation and distress.
Mr McGavin's salary had continued up to the hearing and in effect provided
the total of one month's base salary and two additional
months salary which
Aoraki provided at the outset for all redundant employees, including Mr McGavin.
The Employment Court recognised
that there was no evidence of actual loss but
accepted that Mr McGavin would experience considerable difficulties in obtaining
employment
and could expect to wait in excess of nine months to obtain suitable
alternative employment. The Judge expressly invoked the equity
and good
conscience jurisdiction and awarded for future economic loss the equivalent of
four months salary. That four months figure
took into account the three months
for which remuneration had been paid and the seven months total may have had
its
genesis in the Judge's earlier conclusion that a just employer
would have offered a redundancy package which was the
equivalent of between
six and nine months notice.
Clearly it was wrong in law to found the award on the court's equity and good
conscience jurisdiction. It is not an independent
remedy. As earlier noted,
the exercise of that jurisdiction cannot be inconsistent with the Employment
Contracts Act (s104(3)).
It does not allow the Employment Court when
determining a personal grievance to depart from the proper interpretation of
unjustifiable
dismissal and unjustifiable action within the meaning of s27(1)(a)
and (b); to substitute another contract containing provision
for redundancy
for the actual contract between the parties lacking any such provision; or to
go beyond the statutory remedy for
the particular grievance.
Even if looked at more closely in terms of s40(1)(c) we cannot see any
evidential foundation for an award of more than the equivalent
of the three
months salary which Aoraki provided for. Whether expressed as a matter of
procedural fairness or in terms of the
implied obligation of trust and fair
dealing, the implementation of the redundancy required fair notice or, as in
this case, payment
in lieu. But there is no basis in principle or in the
evidence for an award exceeding the equivalent of three months salary.
Compensation, whether under the general opening words of s40(1)(c) or under the
"loss of benefit" provision of subpara (2), is not
for the redundancy as such
and so is not to be measured by future economic loss pending obtaining other
employment. Mr McGavin did
not lose seven months salary (three plus four) as a
result of the particular personal grievance. That grievance as established
was about how the dismissal was handled, not about its substantive
justifiability.
Mr McGavin was senior in age and had been with Aoraki and its predecessor for
over a decade. He was a middle manager, but not one
of the senior executives
or highest income earners. In deciding what would have been reasonable notice
and accompanying salary
and incidental recompense in the carrying out of the
redundancy, allowance may need
to be made for such matters as counselling, career advice and assistance, and
financial advice. But there is nothing in the evidence
to warrant the
conclusion that a just employer would in all have provided for more in time or
money than the three months' salary
allowed.
We turn to the $50,000 awarded for humiliation and distress. The Judge reviewed what he described as the considerable evidence which was led as to the injuries sustained by Mr McGavin and the effect the dismissal had on him. Unfortunately neither in that evidence nor in the judgment was any attempt made to focus on the trauma and stress caused by the manner in which the redundancy was carried out, that is the procedural unjustifiability as distinct from the effects of the loss of the job. That was so even though the psychiatrist called for Mr McGavin acknowledged in cross-examination that the three matters operating on Mr McGavin were the fact of his dismissal, the manner of the dismissal, and the stress of litigation, and that the central element was the dismissal. The Judge must be taken to have set the award at $50,000 to cover the trauma from loss of the job as well as the trauma of the manner in which the dismissal was carried out. The
$50,000 award must be set aside.
Appropriate award for humiliation and distress
Counsel invited the court, should we conclude that a particular element in
the award could not be sustained, to exercise our powers
under s135(3) and fix
the appropriate figure, rather than remitting the matter to the Employment Court
after this long lapse of time.
To the extent that the humiliation and distress suffered by Mr McGavin was a
result of the manner in which the dismissal was carried
out it is compensable
under s40(1)(c)(i). Mr Kiely for Aoraki reviewed levels of awards under this
head, noting that the great majority
had been set below $10,000 with few in
excess of $25,000. He submitted that the appropriate award in this case would
be of the
order of $5,000. The six factors which he emphasised were: (i) that
there were genuine reasons for the redundancy, (ii) that the
dismissal did not impugn the conduct or character of the employee as
dismissal would where the basis is an unwarranted dismissal for
cause, (iii)
that there was no immediate loss of income by Mr McGavin or financial
embarrassment to him, (iv) that before the hearing
Aoraki had offered and Mr
McGavin had declined and continued to decline two other employment opportunities
with Aoraki, (v) that
Mr McGavin was treated the same as the other 95 redundant
employees and so would not be seen within the community as being singled
out,
and (vi) that Aoraki had behaved in an open and honest way, Mr Kiely pointing to
the Judge's finding that the company had acted
in a conscientious way and that
its process of disseminating information was deserving of praise.
Also to be weighed are the abruptness of the advice to Mr McGavin of his
dismissal and the three other factors the Judge emphasised:
failure to consult,
failure to provide counselling, and failure to give reasons. The Judge was
entitled to find that the circumstances
surrounding notification of dismissal
for redundancy and in particular the abruptness of the dismissal meeting,
although understandable
given the emotions at the time which were also affecting
Mr White, did breach the procedural fairness standard. In that regard,
in
assessing how far Aoraki fell short of the just employer standard, it is
important to take account of the expert advisers' recommendation
that
information be given without prior small talk. An associated aspect is the
failure to give adequate reasons. While some
bare information was given at the
time, certainly in the letter that was passed over, the Judge was entitled to
find that there was
some room for complaint in that respect. Next, as a matter
of procedural fairness, consultation could not have been expected in
the
circumstances which obtained. This was company-wide restructuring in forced
circumstances which warranted across the board
action carried through promptly
and at the same time. The absence or inadequacy of prior warning to the extent
that it was practicable
is relevant here, recognising of course that
consultation as to the need for redundancy was not required. Aoraki did give
general
warning to employees of the likelihood of redundancy but the Judge was
entitled to find that the company must accept some responsibility
for inducing a
false sense of security in Mr McGavin, which would have increased the force of
the blow which fell
upon him when the announcement was made but might have been dissipated to
some extent by an earlier and fuller explanation. There
is also some basis in
the evidence for concluding as the Judge did that, although a general offer of
counselling was made, the circumstances
were such that Aoraki should have taken
further steps given the particular situation and the reaction by Mr McGavin to
his dismissal.
Weighing these matters as best we can, we have concluded that compensation
for humiliation and distress for the manner in which the
proper dismissal for
redundancy was implemented could not be more than $15,000 and, in the special
circumstances of this case, should
be fixed at that figure.
Costs
Given the result of the appeal it is obvious that the costs order in the
Employment Court cannot stand. It is unnecessary to review
the costs
judgment. It is sufficient to record that we are not to be taken as endorsing
the Employment Court jurisprudence on
the point and, in particular, Harris
v Nurse Maude District Nursing Association (No 2) [1992] 2 ERNZ 943 on
which Judge Travis relied. The discretion as to costs is a judicial one to be
exercised according to what is
reasonable and just to both parties and the
public interest in the fair and expeditious resolution of disputes requires that
full
weight be given to the extent to which costs were properly incurred
subsequent to the non-acceptance of an offer of settlement at
a figure above the
amount eventually awarded in the litigation.
In this very special case we have concluded, however, that the interests of
justice will be met by letting costs in both courts lie
where they fall. It is
a very unusual case on its facts. The result for Mr McGavin has been
disastrous. It has become a
test case. Mr McGavin's advisers relied on the
decision of this court in Brighouse and on a long line of
Employment Court cases which in the result have been overruled. And it was not
until
the Employment Court hearing that Mr McGavin received a full explanation of
why his position was redundant.
Result
The court being unanimous as to the result the appeal is allowed and the
judgment entered in the Employment Court is quashed. In
lieu of the awards
totalling $87,683 made by the Employment Court and in accordance with the views
of the majority the amount to
which Mr McGavin is entitled to remedy his
personal grievance is fixed at $15,000. The order for costs in the Employment
Court
is also quashed and costs in both courts will lie where they
fall.
Solicitors
Parks, Wellington, for appellant
Weston Ward & Lascelles, Christchurch, for respondent
IN THE COURT OF APPEAL OF NEW ZEALAND CA 2/97
BETWEEN AORAKI CORPORATION LIMITED
Appellant
AND COLIN KEITH McGAVIN Respondent
Coram: Richardson P Gault J
Henry J Thomas J Keith J Blanchard J Tipping J
Hearing: 25 March 1998
Counsel: J A Langford and P T Kiely for Appellant
I J D Hall and J N Williamson for Respondent
Judgment: 15 May 1998
JUDGMENT OF THOMAS J
Introduction
I have read the judgment of the other members of the Court and agree that the
appeal should be allowed. If Brighouse Ltd v Bilderbeck [1995]
1 NZLR 158 is authority for the proposition that the Employment Court can award
“redundancy compensation” to an
employee whose employment is
terminated on the basis of a genuine redundancy, it is rightly overruled. I
also expressly agree with
and endorse the seven principles or
“steps” succinctly set out at pp 23-27 of that
judgment.
Brighouse Ltd v Bilderbeck
I do not consider that the Court’s decision to reconsider
Brighouse requires the extensive justification it receives in the
main judgment. For myself, it is enough that no single ratio is discernible
in
the judgments of the majority and that the decision has proved controversial.
To decline to review the decision would be to deny
the law its social utility
and capacity to develop.
In Brighouse, Cooke P does not refer to “redundancy compensation” as such. He holds that it would be fallacious in principle to distinguish dismissals based on redundancy which are made unjustly from other dismissals which are made unjustly. In either situation the unjustifiable dismissal jurisdiction may be invoked. Thus, it is open to any employee to establish that a dismissal for redundancy has been carried out in an inconsiderate manner, inconsistent with and amounting to a repudiation of the relationship of confidence and trust, or that in the particular circumstances some special notice or payment in lieu thereof would be given by a reasonable employer (at 167). The learned President held that it is not correct to draw a distinction between the reason for dismissal and the manner of dismissal as if these were mutually exclusive, with the industrial tribunal limited to considering only the reason for dismissal (at 166). He considered that the Employment Court was entitled to take into account such aspects as whether the employer has taken steps to make a just choice if there are only some redundancies, whether counselling or payment for it has been made available to the redundant employees, and whether the possibilities of redeployment have been adequately explored (at 166-167). The Court could also have regard to the fact that a fair and reasonable employer would have offered more in compensation having been requested to do so by the employees and agreed to that course (at 163). In the result, it was open to the Employment Court to award compensation under both subparas (i) and (ii) of s 40(1)(c) of the Act. Under the latter subparagraph, he held, the employee is entitled to compensation for the loss of benefits of continued employment. This finding was confirmed in the contemporaneous case of Jones Schindler Lifts Ltd v Johnson [1995] 1 NZLR
190, at 193, in which Cooke P stated that, once it has been established that
the dismissal is unjustifiable because of treatment which
has been found to be
unfair, the employee has in
fact lost his employment and the reasonable expectation of benefits which
went with it. Basically, the President concluded, it was
for the Employment
Court which administers the jurisdiction to establish guidelines (at
167).
Casey J was more specific. He held that it could not be said that the stage has been reached where an obligation to pay “redundancy compensation” can be implied as a matter of course in all employment contracts. He concluded, however, that the scope of the employer’s obligation to act fairly could embrace compensation for redundancy in appropriate circumstances (at 179). Bisson J’s reasoning is more akin to that of Cooke P. The learned Judge regarded it as important that a distinction be drawn between compensation for redundancy under a contract of employment on the one hand, and compensation as a remedy on a personal grievance claim under the Act for unjustifiable dismissal arising out of unfair treatment in respect of an otherwise justifiable dismissal on the other. As there was no contractual obligation for the appellant to pay the employees’ compensation, their claim for compensation was limited to a remedy under the Act for a personal grievance that they had been unjustifiably dismissed (at 188-189). He expressly recorded that the Chief Judge of the Employment Court did not hold that redundancy “of itself ” requires compensation to be paid to the dismissed employee, but then went on to state that the Chief Judge had correctly summarised the judgment of this Court in G N Hale
& Son Ltd v Wellington, etc, Caretakers, etc, IUW [1991] 1
NZLR 151, when he said, inter alia, that circumstances calling for a
compensatory payment as part of the overall duty of fairness may arise in the
absence of prior
agreement where, for example, an employer has voluntarily
decided on redundancy as a cost-saving measure and can reasonably afford
to pay
compensation.
While believing that no sharp line can be drawn between a substantive
decision and procedure, I am at one with the other members of
this Court in
holding that compensation is not available under s 40(1)(c) for the redundancy
in itself. Where the termination arises
because the employee’s position
has genuinely been made redundant, compensation can only be recovered where the
manner of dismissal
or the procedure or treatment adopted by the employer in
dealing with the employee in relation to the redundancy is unfair. As
I
apprehend Gault J’s judgment in Brighouse (at 181-182), the
fact the redundancy was
genuine precludes the suggestion that the dismissal was substantively unjustifiable. I approbate the logic of that argument. Compensation for unjustifiable dismissal where the dismissal arises out of a genuine redundancy situation can only be recovered under s
40(1)(c)(ii) for loss of benefits which are attributable to unfairness in the
manner and treatment of the employee by the employer
in terminating his or her
employment. It is the unfair manner and treatment which is a breach of the
employer’s obligation
of confidence, trust and fair-dealing which, for the
purposes of ss 27(1) and 40(1), becomes the employee’s personal
grievance.
I would therefore reject as sound law the broad construction of Brighouse which would permit compensation which is unrelated to the procedure followed or method adopted by the employer in terminating the employee’s employment. Undoubtedly, perhaps understandably, it is this broad construction which has been adopted and applied by the Employment Court. But I am not satisfied that this broad construction was warranted. The common thread in the judgments of the majority in Brighouse is that compensation may be recovered, irrespective that the reason for the dismissal is a genuine redundancy situation, for loss of benefits which the employee might reasonably have been expected to obtain resulting from the unfair manner of dismissal or unfair treatment of the employee. Such benefits can include compensation for inadequate notice or payment in lieu thereof (at 167). But compensation requiring special notice or payment in lieu thereof does not seem to differ substantially from the view expressed by Richardson J (as he then was) that procedural fairness may require that the employer provide a cushion either by allowing additional time beyond the minimum period of formal notice or by payment in lieu (at 171 and 177). Nor does it seem to be far removed from Gault J’s acceptance that some unjustifiable action may disadvantage the employee in a manner that can be seen as earnings-related. One example which the learned Judge gives is the failure to give notice of the intended dismissal when that could reasonably have been done so as to maximise the employee’s opportunity to find other work. Such a failure, he states, might warrant earnings-related compensation assessed by reference to the lost benefits that might reasonably have been obtained (at
182).
Irrespective of the correct ratio to take from Brighouse,
however, it is certain that it has been construed so as to permit the payment of
“redundancy compensation” where the
employment contract is silent on
the topic, and that it has been applied in that manner by the Employment Court.
No such construction
can be allowed to persist. For myself, I would revert to
Parliament’s intent. As Gault J demonstrated, supra, it is contrary
to
reason to allow compensation for the fact of the redundancy, as distinct from
the unfair manner and treatment of the employee,
when the redundancy is a
genuine redundancy. I do not apprehend that Parliament contemplated such an
anomalous outcome. Essentially,
such a construction is contrary to the scheme
of the legislation which is based on the negotiation of collective and
individual employment
contracts between employer and employees. There are in
New Zealand no statutory provisions corresponding to Part VI of the Employment
Protection (Consolidation) Act 1978 in the United Kingdom which make express
provision for redundancy. The right to compensation
for redundancy in this
country has been left to be negotiated (per Cooke P at 163). Parliament cannot
be thought, then, to have
intended that employees would have a claim to
“redundancy compensation” where the employer has been unfair in the
manner
of implementing a dismissal for redundancy but no such claim where he or
she has been fair in the way the termination was accomplished.
Furthermore, Parliament’s intent is manifest by reference to s 46(3).
Section 46 relates to the procedure for settling disputes.
Subsection (3)
provides that where there is a provision in a contract dealing with the issue of
redundancy but it does not specify
either the level of redundancy compensation
payable or a formula for fixing that compensation, neither the Tribunal nor the
Employment
Court has jurisdiction to fix the compensation or specify a formula
for fixing that compensation. It would surely follow that, if
the industrial
tribunals cannot fix the level of compensation or a formula for fixing it when
the issue of redundancy has been dealt
with in the employment contract,
Parliament cannot have intended that the same tribunals would have the
jurisdiction to do just that
where the contract is silent on the
issue.
Working, therefore, within the bounds of Parliament’s intent, I
consider that it is not open to the Court to hold that compensation
could be
awarded for redundancy in itself, that
is, for the fact of redundancy as distinct from the unfair manner of a
dismissal and unfair treatment arising out of a true redundancy
situation.
The implied term of fair dealing
Adopting this view does not mean that redundancy is placed in a special
category. It is firmly established in New Zealand, following
the common law of
England, that parties to an employment relationship are bound by a broad mutual
obligation of trust and confidence.
This duty has frequently been referred to as
“the mutual obligation of trust, confidence and fair-dealing”. It
applies
in a redundancy situation as much as to any other aspect of the
employment relationship.
References to the mutual obligation of trust and confidence began appearing in England in the 1970s (see Mazengarb’s Employment Law, para 1027). In Woods v W M Car Services (Peterborough) Ltd [1981] ICR 666, a judgment of the Employment Appeal Tribunal, Browne-Wilkinson J (as his Lordship then was) said:
In our view it is clearly established that there is implied in a contract of
employment a term that the employers will not, without
reasonable and proper
cause, conduct themselves in a manner calculated or likely to destroy or
seriously damage the relationship
of confidence and trust between employer and
employees: Courtaulds Northern Textiles Ltd v Andrew
[1979] IRLR 84 ... We regard this implied term as one of great
importance in good industrial relations. (at 670-671)
This decision was affirmed by the English Court of Appeal (reported in [1982]
ICR 693) and Browne-Wilkinson’s J formulation is described in 16
Halsburys Laws of England (4th Ed, para 44, fn 3) as the locus
classicus. The existence of the implied term of trust and confidence in
England was recently confirmed by the House of Lords in Malik v Bank of
Credit and Commerce SA (in liquidation) [1997] 3 All ER 1. Lord Steyn
described the term as a “sound development” (at 16). In his
judgment in Brighouse, Cooke P noted that the obligation has been
repeatedly recognised and enforced in a line of cases in this Court, and those
cases
are cited in his judgment (at 164). More recently, the employer’s
and worker’s “mutual obligation of confidence,
trust and fair
dealing” was referred to in Principal of Auckland College of
Education v Hagg, [1997] 2 NZLR 537, per
Richardson P at 552. Moreover, it may be said that the obligation of fair
dealing is now implicit in the structure of the legislation,
in particular, the
personal grievance procedure which has been carried forward into the Employment
Contracts Act from previous labour
legislation.
Nothing in this case, therefore, is to be seen as weakening the duty of
employers and employees to deal fairly with one another.
Excluding payment of
“redundancy compensation” from the scope of that obligation does not
detract from its direct relevance
to the manner in which the employment of
employees is terminated in a redundancy situation. Indeed, the very fact that
there is no
provision in the contract for compensation to be paid in a
redundancy situation may make the employer’s obligation to deal
fairly
with his or her employees all the more acute.
I acknowledge that the decision whether a particular position or positions or
jobs are redundant is a matter of business judgment.
It is a decision which
falls within the prerogative of management. But it is a decision which must be
directed at the particular
position or positions or jobs as distinct from the
employees filling those positions or jobs. While the redundancy decision relates
to the positions or jobs which are considered redundant, the obligation of fair
dealing relates to the employees who fill those positions
or jobs, and it cannot
be submerged in the decision to make certain positions or jobs
redundant.
I also acknowledge that the circumstances of a dismissal on notice or a
dismissal for cause and dismissal for redundancy will differ.
Consequently,
there may not always be the scope for the application of all the various aspects
of fairness in some redundancy situations.
In practical terms the requirements
of the obligation of fairness will differ depending on whether the redundancy is
a redundancy
of a financially parlous company or a company simply
“downsizing”, or whether there are a large number of employees or
only a single or few employees being made redundant, or whether the company is
being taken over by another company and is to be immediately
restructured or the
restructuring is a process and redundancies are taking place progressively or
are some time “down the track”,
or whether the employees are casual
workers or career senior employees having a long service.
Consultation, for example, may be practicable and therefore fairly required
in some cases, but not others.
Under the rubric of this implied term of fair dealing, the courts have imported many of the concepts of public law. As Sir John Laws has stated; “Employers and employees do not generally meet at a bargaining table, like two businessmen of equal power deciding what deal to strike. Nor is the contract like most that are made in a shop, a travel agency, or an insurance office. The prospective employee cannot, in many cases, take it or leave it. The offer of a job may be his only chance of a decent livelihood.” (The Hon Sir John Laws, “Public Law and Employment Law: Abuse of Power”, [1997] Public Law, 455, at pp
455-456). The same point is recognised by Casey J in Brighouse (at 179). Insistence on procedural fairness therefore assists to protect the employee against the abuse or arbitrary exercise of the power in the hands of the employer (see Laws, supra, at p 465; and Stephen Sedley, “Public Law and Contractual Employment” (1994) 23(3) ILJ 201, at pp
201 and 206. See also David Mullan, “Administrative Law at the
Margins” in The
Province of Administrative Law (1997 - Taggart, (Ed) Hart
Publishing, Oxford, 134).
In this respect my dictum in Principal of Auckland College of Education
v Hagg, supra, at 555, to the effect that the requirement of fair
dealing is implied into employment contracts, not because they are in
a special
category, but because such a term meets the criteria for the implication of
terms under the general law and that employment
contracts are not covered by a
special or separate law of contract was misleading, and I resile from it.
Unlike commercial or ordinary
contracts, contracts of employment possess
characteristics intrinsic to public law. In no other area of the law is the
divide between
private and public law less marked.
The infusion of public law doctrines, however, cannot be taken too far. They cannot be imported to expand Parliament’s intent as would be the case if “redundancy compensation” could be payable whenever the contract of employment is silent on the issue. It follows that I cannot accept, as was endorsed by the majority in Schindler, supra, at
193, that unfair treatment “vitiates” a dismissal substantively
based on a genuine redundancy situation. It is unrealistic
to suggest that a
genuine redundancy decision is “vitiated” because
the procedure followed in implementing that decision was unfair when the
element of unfairness may have had no bearing on the substance
of the decision.
In such circumstances, the validity of the decision itself remains; it is the
method by which it was executed
which is at fault, and it is that method which
properly may be the subject of the statutory personal grievance
procedure.
Where adherence to a fair procedure, however, would have resulted in a
decision not to make the position or job filled by the employee
redundant, it
cannot then be said to be a genuine redundancy. For example, if the duty of
fair dealing would in the circumstances
have required the employer to consult
with the employee, and the employer does not do so, and it can be shown that if
such consultation
had taken place the employee’s position would not have
been made redundant, the termination of the employee’s employment
will
constitute unjustifiable dismissal and compensation will be recoverable on the
basis that there was no true redundancy. In
other words, if consultation would
have led to the redundancy not applying to the employee, it cannot be said that
the redundancy
was genuine in his or her case. He or she have then been
unjustifiably dismissed and the measure of monetary compensation would be
the
salary lost as a result of the unjustifiable dismissal.
It is preferable to leave aside the question whether a finding to that effect
“vitiates” the decision, and simply regard
it as a finding of fact
that the purported redundancy was not a genuine redundancy. A dismissal said to
be for redundancy will always
be unjustified if there is no true redundancy
situation. (See e.g. Brighouse, supra, per Gault J at 180). The
line between a genuine and non-genuine redundancy situation because of the
absence of consultation
or other procedural defect may not be easy to draw, but
that shortcoming is preferable to the situation where the dismissal is vitiated
whenever an element of procedural fairness is absent irrespective of how
inconsequential to the redundancy decision the
absence of that element may
be.
Although New Zealand has not ratified the International Labour Organisation
Termination of Employment Convention 1992 (No 158), that
Convention provides
what might be seen as the minimum acceptable standards for protection against
unjustifiable
termination of employment. Article 13 of Convention No 158 applies where the
employer contemplates terminations for “reasons
of an economic,
technological, structural or similar nature”. It requires the employer to
“provide the workers’ representatives concerned in good time with
relevant information including the reasons for the terminations
contemplated,
the number and categories of workers likely to be affected and the period over
which the terminations are intended
to be carried out”. (Article
13.1(a)). It also requires the employer to “give, in accordance with
national law and practice, the workers’ representatives concerned, as
early as possible, an
opportunity for consultation on measures to be taken to
avert or to minimise the terminations and measures to mitigate the adverse
effects of any terminations on the workers concerned such as finding
alternative employment” (Article 13.1(b)). The Article indicates the
universality of notions of fairness in labour relations, such as providing the
employees
with all relevant information, including reasons, relating to the
proposed redundancy and the need for consultation on measures required
to
minimise the impact of the pending dismissals.
It follows from what I have said that the employer’s obligation of fair
dealing continues to extend to those matters which have
been previously
identified as aspects of fair dealing. Their application will, of course,
always depend on the particular circumstances
of the case. But they include the
question whether a redundancy, however genuine overall, is a genuine redundancy
in relation to
the position or job filled by the particular employee; whether
the employer has taken steps to make a just choice if only certain
positions or
jobs are to be made redundant; whether the period of notice or payment in lieu
thereof is fair and reasonable in the
circumstances; whether consultation, not
as to the redundancy for that is the management’s prerogative, but as to
the pending
impact of the redundancy and the measures to be taken to mitigate
that impact is practicable and necessary to ensure fair treatment
for the
employee; whether counselling or payment for counselling is required; and
whether the possibility of redeployment has been
adequately explored. It may
also have a bearing on the question whether the employer has discharged his or
her obligation of fair
dealing that the employer has paid or offered to pay
compensation to the employees being dismissed. As there is no legal obligation
to pay redundancy compensation it cannot be unfair treatment not to offer it.
But no employer should be precluded from calling in
aid a
voluntary payment or offer in order to demonstrate that he or she has sought
to treat their employees fairly and reasonably.
The application of these principles
In the application of these principles to the present case, I differ from the
other members of the Court in one significant respect.
I would not preclude from
contention some degree of consultation, at least in the sense of keeping Mr
McGavin informed and discussing
what was taking place. Mr McGavin was a
relatively senior employee. He was senior in age and had been with Aoraki for
over a decade.
The salary levels of those employees made redundant by the
company indicates that he and one other employee were receiving a significantly
higher salary than the others who were rendered redundant. Also relevant are
the events leading up to the redundancy. In my view,
his seniority, management
role and these events required Aoraki to give Mr McGavin individual
attention.
Mr McGavin had held a series of positions within Aoraki, largely as marketing
manager of various products relating to a process called
LINC. It was accepted
that during the period 1985 to 1991 he was effective as a presenter, promoter
and adviser on the use and selling
of the LINC product. Shortly before the
termination of his employment he had been appointed to a new position of
marketing manager
for a software product known as JADE.
The Employment Court Judge found that during the period in question Aoraki
was experiencing considerable financial difficulties.
It issued monthly videos
which explained how it was intending to reshape and restructure the company, and
which announced that there
would be redundancies. Rumours as to redundancies
were rife within the company. But Mr McGavin felt secure in his new position.
Two senior executives had recently recommended him for the position of JADE
marketing manager. He was told by one of these senior
executives that he
considered Mr McGavin to be “the best promoter in the business”. He
was advised by the Chief Executive
that his appointment as JADE marketing
manager had been made on the recommendation of two senior executives and that he
had produced
the best marketing programme for a previous product, although the
product itself
had not produced the results the company had wanted. With these statements
duly heeded, Mr McGavin diligently continued with his
work as the JADE marketing
manager.
During this time, also, one of the senior executives spoke to Mr McGavin of
his personal anguish in having to select people to be
laid off. He indicated to
Mr McGavin that the JADE product represented the “future” for
Aoraki. He agreed in evidence
that because he had said this, Mr McGavin may
have had reason to feel secure. Although Mr McGavin acknowledged he had not
received
any explicit reassurances from the executive as to his own job
security, he thought that his recent promotion to the JADE marketing
position
would make him immune from the impending redundancies. Yet another senior
executive advised Mr McGavin that he, and another
senior employee, were both
“somewhat insulated from the forthcoming redundancies”. This senior
executive also confirmed
in evidence that he had told Mr McGavin that he and the
other person were lucky that they were somewhat insulated from the changes
occurring in that executive’s group. Largely because he felt secure and
somewhat isolated from the pending redundancies, Mr
McGavin’s dismissal
came as a severe shock to him. He was then initially treated on the same terms
as the other employees
who were dismissed. On 27 June 1995, the day before the
general announcement, he was advised in a letter of termination that his
position as marketing manager for JADE was redundant with effect from 30 June
1995. He, along with the other redundant employees,
was to be paid one
month’s salary in lieu of notice, plus two additional months’
salary, such payments to be spread over
three months.
Having regard to his relative seniority and the events leading up to his
dismissal, I consider that, to comply with its obligation
of fair dealing,
Aoraki should have had regard to Mr McGavin’s individual circumstances
and, if it had not consulted him about
the possible disappearance of his
position, at least have kept him informed and discussed with him the possibility
it would disappear.
On at least one and possibly two occasions a director of
the company had expressly reminded Aoraki of its obligation to consult.
Moreover, the consultant engaged to assist the company in the restructuring
exercise acknowledged in evidence that persons with
Mr McGavin’s
characteristics would need special treatment. He said that he had been aware of
those characteristics he would
have made a “special effort” to have
sought Mr McGavin out.
In these circumstances, therefore, I would agree with the Employment
Court Judge’s finding that some degree of consultation
would have been
possible, and was necessary to meet Aoraki’s obligation of fair dealing.
At the very least, Mr McGavin should
have been kept better informed and had the
opportunity to discuss his position. The events and assurances which led him to
believe
that his position was secure were known to, and should have been
appreciated by, a responsible management, and attempts should have
been made to
clarify his position and ensure that he was aware of the possibility of
redundancy. Consideration could properly have
been given to treating him
differently from the other less senior employees. Had these steps been taken,
the shock of his dismissal
would not have been as shattering to him as proved to
be the case.
For these reasons, while I would reduce the Employment Court’s
award of
$50,000 for Mr McGavin’s humiliation and distress, I would not reduce
it to the sum of
$15,000 as provided in the main judgment. To my mind, an amount in the order
of $25,000 to $30,000 would be an appropriate award.
Solicitors
Parks, Wellington, for Appellant
Weston Ward & Lascelles, Christchurch, for Respondent
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