An area of uncertainty for employers when contemplating restructuring & redundancy processes concern obligations associated with disclosing relevant information.
The law requires employers provide employees who are adversely affected by any formal processes, for example - a redundancy process - with access to all relevant information (in writing) before any decisions are made. This is a requirement that employers often completely overlook and/or fail to do their due diligence on before commencing change processes with their employees.
The important point to make here is: That failure to provide employees with relevant information in these situations can be fatal to defending subsequent personal grievance claim(s). Namely, a claim for unjustified dismissal premised on employer failing to provide access to all relevant information.
Problems associated with this area of law can be illustrated in a recent judgment by the Court of Appeal in Birthing Centre Ltd v Matas [2024] NZCA 139, which dismissed an appeal from the Employment Court in Birthing Centre Ltd v Matas [2023] NZEmpC 162 that was in favour of five ex-employees who were employed as midwives.
In this case, Birthing Centre Limited (‘BCL’) transferred its services to MidCentral District Health Board (‘MDHB’). The commercial agreement between the parties had a condition that the arrangement be strictly confidential. After the transaction was completed, announcements followed, and concerns subsequently picked up by Midwifery Employment Representation and Advisory Services Union (‘the Union’).
In summary, employees were informed they would be transferred to MDHB – but the deal had already been completed by that stage. Five midwives who worked for BCL raised personal grievance claims for unjustified dismissal. Their claims centred on the lack of consultation and provisions of information occurring prior to being notified of their employment transferring.
BCL attempted to argue that it was exempted from consulting with employees because there was a good reason to maintain confidentiality in terms of the commercial agreement between BCL and MDHB.
The Court of Appeal declined the application for leave to appeal - essentially confirming the ruling of the Employment Court which was:
- ". . . A fair and reasonable employer could in the circumstances have considered options for exploring whether it could maintain the integrity of BCL’s commercial position as well as the DHB’s commercial position, while informing its employees of the proposal in a confidential way".
The Employment Court determined that there had been a failure by the BCL to consider:
- Options for exploring whether the integrity of their commercial position could be maintained while informing employees of a potential sale in a confidential way.
- Whether providing information to the Union was viable on embargoed basis.
- Direct employees not to share information during the consultation process.
- Include a condition of sale that employees be consulted on a conditional basis and their views sought before the sale agreement became unconditional.
As a result, remedies previously imposed in by the Employment Relations Authority (‘the Authority’) were required to be paid by BCL to the midwives. The total value of the claims exceeded $35,000.00 across each of the employees, including compensation payments for injury to feelings and four weeks wages equivalent for each of claimant. This is not to mention the legal costs and time which would have been incurred that were associated with three sets of separate legal proceedings, i.e. a determination in the Authority, the Employment Court and the Court of Appeal, which would have been significant.
The outcome associated with this case is a chilling reminder to employers to ensure they do their due diligence when contemplating restructuring processes, including business transfers and sales. Failure to sufficiently plan and understand an employer’s legal obligations can translate to successful legal challenges. It is vital an employer does careful due diligence, along with understanding any specific areas of legal risk (and plan for contingencies – if necessary) before embarking on these sought of processes.
If an employer is going to attempt to rely on confidentiality to withhold information from affected employees, then it must be able to show & explain why confidentiality is necessary to protect its commercial position.
More importantly, employers who are considering withholding relevant information need to understand that the legal threshold for not disclosing information on grounds of ‘confidentiality’ and/or ‘commercial sensitivity’ is extremely high (and open to challenge). Accordingly, the ‘least risky’ approach is for an employer to consider making provision of all relevant information available to the affected employees via a formal consultation process before any decisions are made.