As the final episode in a long running saga, the Court of Appeal in Coutts Cars Limited v Baguley has dealt a swift blow to any idea that the Employment Relations Act 2000 (the ERA) has imposed a new look, higher standard of care approach to employment relations in a redundancy setting.

It has halved the $10,000 award made against the employer by the Employment Court for compensation for hurt and humiliation and quashed the lost benefit award entirely.

The judgment is significant for a number of reasons:
> There is a clear statement about the impact of the requirements under the Employment Relations Act 2000 (ERA) to act in good faith in situations of redundancy.
> It reaffirms the principles contained in major redundancy cases decided under the Employment Contracts Act 1991 (ECA).
> It attacks the Employment Court's judgment.
>It reduces the remedies awarded by the Employment Court.

Facts
Mr Baguley was one of four car groomers employed by Coutts Cars Limited. Coutts decided to disestablish two of the grooming positions. During the redundancy process, the company refused to give Mr Baguley details of the selection criteria it was using to determine which two of the four positions would go. It then dismissed Mr Baguley and one other worker for redundancy. The dismissals were effected in October 2000. The ERA had just come into force on 2 October 2000.

Employment Court's decision
Emphasis on intention of Parliament 
Last year the Employment Court ruled Mr Baguley's dismissal was unjustified. The Court's judgment was heavily influenced by "Parliament's declared intention to reform the nature of the employment relationship". On this basis, it said, a new approach was required to the question of whether or not a particular employer acted fairly in a redundancy situation. The Court held that employers had greater obligations under the ERA when carrying out redundancies than they had previously under the ECA because of the new express requirements of good faith.

Shift away from 'pure contract' approach 
The Employment Court declared that it was inappropriate to rely on cases decided under the ECA. In particular, the case of Aoraki Corporation Limited v McGavin [1998] (one of the leading cases on redundancy under the ECA) no longer applied as the new legislation showed a shift away from the 'pure contract' approach espoused in that case. The duty to act in good faith would apply even if the employment agreement was silent on the issue of redundancy or the employer's obligations in relation to redundancy.

Dismissal unjustified because process seriously flawed 
The Employment Court heavily criticised Coutts for its failure to show Mr Baguley the selection criteria used. It went on to say the redundancy process was misleading, a charade and displayed total disregard for the position and feelings of Mr Baguley. The Court found the process was so flawed that it rendered the dismissal unjustified, even though there was a genuine commercial reason for the action. It awarded Mr Baguley $10,000 compensation for hurt and humiliation, and $5,750 (the equivalent of 3 months wages) as a lost benefit because the grievance left him depressed and unable to look for alternative work.

Court of Appeal judgment
This is the Court of Appeal's first decision on redundancy under the Employment Relations Act 2000. The full bench of the Court of Appeal was convened, recognising the significance of the issues for determination.

ERA good faith introduces nothing new to redundancy setting
In contrast, the majority of the Court of Appeal has taken the view that the new statutory duty of good faith does not, in a redundancy setting, introduce any significantly different obligation to that the Courts have placed upon parties to employment contracts over recent years.

The majority decision reiterated that the relationship between employer and employee is still a contractual one governed by the terms of the employment agreement. It said the ERA was not a warrant to introduce into that contractual relationship terms the Authority or a court might consider fair, but which the
parties had not agreed to.

There was a dissenting judgment. McGrath J said he believed the ERA does impose a greater obligation and a higher standard of conduct on employers in relation to redundancy.

Aoraki and Thwaites still good law 
Having decided that the law under the ECA already required the observance of good faith, the Court of Appeal went on to confirm that the ERA does not substantially change precedents set under the ECA in relation to redundancy. In particular, it said, Aoraki and New Zealand Fasteners Stainless Ltd v Thwaites [2000] still provide good guidance as to the relevant principles.

Criticisms of Employment Court judgment 
The Court of Appeal was particularly acerbic in reference to the judgment of the Employment Court. Not only did it criticise the approach taken towards the interpretation of the requirements of good faith but also the Employment Court's interpretation of the evidence before it.

Outcome of appeal 
However, the Court of Appeal agreed with the Employment Court's finding that Mr Baguley should have been treated more fairly and sensitively. It referred to the minimal information he was given about the reasons for the restructure. The Court said Mr Baguley was not given a reasonable opportunity to comment on the restructure and how it affected him. It commented on Coutts' refusal to provide to him details of the selection criteria and confirmed that information like this should be disclosed during redundancy consultation. This is particularly so given the express recognition in the ERA of the importance of access to information.

As stated earlier, the Court of Appeal dramatically reduced the remedies awarded by the Employment Court. It reduced the compensation awarded by half saying that the Employment Court had 'overstated' the criticisms of the employer. The Court of Appeal quashed the lost benefit award as it could not understand how 3 month's wages to compensate for an impeded ability to look for other work could be characterised as a benefit which might reasonably have been expected to be obtained if the grievance had not arisen. The Court also noted that there seemed to be an overlap between the two awards.

Conclusion
The decision means that employers can consider and implement restructures and redundancies with greater certainty about the rights and duties of the parties involved - for now anyway. After calls by the CTU to amend the definition of good faith in the ERA, to force Court of Appeal compliance, the Minister of Labour is waiting to see what trends arise as more cases are decided under the ERA. Legislative change may not be far away.

This is a general summary only and should not be taken as a substitute for specific advice.

For further information contact:

Auckland: John Hannan
john.hannan@phillipsfox.com

Wellington: Sean O'Sullivan
sean.osullivan@phillipsfox.com

Web site: Phillips Fox