Our German Desk
The Court of Appeal has refused to grant leave to Birthing Centre Limited (BCL) in respect of its appeal from the Employment Court. The Employment Court and the Employment Relations Authority (Authority) had found that BCL’s failure to provide information before deciding about its employees’ employment was fatal to justification. BCL’s commercial agreement to maintain confidentiality did not absolve it of its good faith disclosure responsibilities.
A few facts…
BCL provided midwifery and birthing care services and facilities in Palmerston North. In August 2019, the MidCentral District Health Board (MDHB) asked BCL to transfer its business to the MDHB. The MDHB required that the proposal be treated as strictly confidential, and BCL agreed to this confidentiality.
On 19 September 2019, MDHB and BCL agreed that the MDHB would operate the service and that BCL’s employees would transfer to the MDHB. This was discussed by the MDHB Board in September 2019 and approved on 26 October 2019.
BCL and the MDHB released a media announcement on or about 11 December 2019 advising that BCL was transferring its services to the MDHB from April 2020. After the MDHB had lifted its confidentiality requirement BCL then notified its employees about the agreement on 12 December 2019. BCL had not provided any information to its employees or consulted with them prior to then.
BCL then engaged in some consultation with its employees about the terms and conditions of the proposed transfer of their employment to the MDHB, but most of that occurred between the union and the MDHB.
On 9 March 2020, each employee received a pack from the MDHB containing an offer of employment. The pack also contained a letter from BCL that informed the employees that their employment would end on 31 March 2020, advising that no redundancy compensation or payment in lieu of notice would be offered and that each of the employee’s employment with the MDHB would commence, on its terms, on 1 April 2020.
The Authority and the Employment Court …
Five employees who were midwives raised personal grievances claiming that they were unjustifiably disadvantaged and unjustifiably dismissed by BCL. In particular, they asserted that BCL had breached section 4 of the Employment Relations Act 2000 (Act) because BCL had failed to disclose relevant information to them before making a decision regarding their employment.
The Authority and the Employment Court both found in favour of the employees. The Authority considered the requirement in section 4(1A) of the Act that an employer proposing to make a decision that affects (or is likely to affect) employment, must provide employees with relevant information and an opportunity to comment on that information before a decision is made. It concluded that by the time BCL told its employees about the transfer on 12 December 2019, it was well beyond a proposal and had become a “fait accompli”.
BCL claimed that the “confidential information” exception in section 4(1B) of the Act applied. This provision protects against the disclosure of “confidential information… where it is necessary, for any other good reason, to maintain the confidentiality of the information (for example, to avoid unreasonable prejudice to the employer’s commercial position)”. The Authority concluded that this exception did not apply to BCL.
The Authority also held that BCL had failed to give notice of termination. In each case, the Authority awarded compensation for hurt and humiliation as well as a further payment of four weeks’ financial loss in respect of their notice.
The Court of Appeal…
BCL raised four points on appeal, which mirrored those it had raised in the Employment Court. These included that:
-
- It had not dismissed its employees, because they had all entered into an agreement with the MDHB. That was not considered credible by the Court of Appeal.
- Four weeks should not have been awarded to each of the employees for the failure to provide notice, as it was not an appropriate award of damages. The Court of Appeal recognised that awards of compensation under the Act are not awards of damages and that it was a matter that was not open for BCL to appeal.
The final two points were the two-pronged appeal of the decision that BCL had failed to provide relevant information:
-
- The first prong sought to appeal the finding that BCL had breached section 4(1A) of the Act because the Employment Court had misapplied the exception for withholding information, including confidential information in section 4(1B) of the Act. The Employment Court had applied case law prior to the 6 March 2015 amendment that introduced section 4(1B) of the Act and had found that the provision did not change the then existing law.
- The second prong was that in applying the section 103A objective test for justification to sections 4(1A) and 4(1B) of the Act the Employment Court had applied the wrong test.
The Court of Appeal affirmed the Employment Court’s view that the inclusion of section 4(1B) of the Act on 6 March 2015 did not detract from the consideration of those provisions prior to the amendment, and that the law was well settled. In short, the Court of Appeal confirmed that BCL was required to show that there were good reasons for it withholding information, which in this case was showing that its disclosure could harm its commercial position (rather than the MDHB’s) and there were no other ways of disclosing the information without doing so. BCL provided no evidence that it had investigated any other means of disclosure or made any effort to modify the MDHB’s confidentiality requirement in discussions.
The Employment Court had held that BCL was required to disclose the relevant information well before it made any decision and entered into the agreement to transfer its operations to the MDHB.
In relation to BCL’s point that the Employment Court had applied the wrong test in using the objective test under section 103A of the Act, the Court of Appeal considered whether an analysis of section 4(1B) of the Act required a subjective, objective test or a combined test is a matter of law, and that BCL had misconstrued the Employment Court’s application of section 103A of the Act. The Employment Court was considering whether BCL’s actions were justified, and to do so it had to apply the objective test under section 103A of the Act. On that basis, it considered that BCL was not justified in withholding the relevant information based on the facts it had considered.
The Court of Appeal clarified that it was not that the Employment Court had found section 4(1B) required an objective standard, but that the personal grievance alleged a failure to disclose relevant information, and therefore the personal grievance objective test applied.
What does this mean for employers?
This case contains a warning for employers that engage in commercial arrangements that demand confidentiality, which many do. Where these arrangements have the potential to affect the ongoing employment of its employees, an employer cannot rely on confidentiality in a commercial agreement alone. It must show that confidentiality is necessary to protect its commercial position and that it considered other means of disclosing the information that would not affect its commercial position. It is imperative that employers who are contemplating entering into commercial agreements that may affect the employment of their employees take advice from an employment lawyer in addition to their commercial advice.
If you have any questions about confidentiality in commercial agreements or redundancies and restructures, please get in touch with our Employment Law Team or your usual contact at Hesketh Henry.
Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where required.
