The concept of “good faith” is central to New Zealand employment relationships, as outlined in the Employment Relations Act 2000 (ERA). It’s a term we all assume we can use and understand, but as I’m sure you can imagine, it’s not as straightforward as it first appears; it has nothing to do with faith, and good is a slippery concept!
In the interests of full disclosure, it suits us that our clients fully understand this concept. But we are posting here in case this information is useful for anyone else, too. We want to help employers understand the importance of good faith and how to apply it in practice, fostering positive work environments, successful outcomes should there ever be a challenge, and thriving businesses.
What is Good Faith?
Good faith is a two-way street. It involves dealing with each other in a fair, open, and honest manner. According to the ERA, it means “not acting in a deceptive or misleading way, and not behaving in an arbitrary or capricious way.” Section 4 of the Employment Relations Act 2000 also requires the parties to an employment relationship to be active and constructive in maintaining a productive employment relationship in which the parties are, among other things, responsive and communicative. Essentially, good faith is about building a transparent and respectful workplace where everyone feels heard and valued.
Key Elements of Good Faith:
- Mutual trust and confidence: Both parties must trust each other and work towards maintaining that trust.
- Informed decision-making: Decisions should be made based on accurate and reliable information.
- Constructive communication: Regular and meaningful communication is essential for resolving issues and fostering positive relationships.
- Responsiveness: Employers and employees must promptly respond to each other’s concerns and requests.
Applying Good Faith in the Workplace:
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Job expectations and policies: Be transparent about job roles, performance standards, and company policies.
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Open discussions: Engage in honest conversations about workplace issues or concerns.
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Consider all views: Take into account each other’s perspectives when making decisions impacting the employment relationship.
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Opportunities for improvement: Provide reasonable chances for employees to contribute to business improvements.
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Rights and obligations: Respect each other’s rights and obligations under employment agreements, legislation, and workplace policies.
Poor Form: Ignoring Good Faith
A helpful demonstration of good faith is to tell a story of when it was not present. Sarah (not her real name) is part owner and full-time manager of a café just outside Wellington. One of her employees – we will call her Phillipa – has been consistently arriving late to work. Sarah becomes frustrated with all the implications of one of her staff members arriving late, and decides to “teach her a lesson” by reducing Phillipa’s hours to those she usually works, ie approximately 2 1/2 hours less per week. She didn’t discuss this decision with Phillipa, nor did she effectively discuss the bigger issue.
In this situation, Sarah did not act in good faith. Instead of engaging in open communication and considering Phillipa’s perspective, she made a unilateral decision that negatively impacted their employment relationship. As a result, Phillipa’s morale and job satisfaction declined steeply, leading to decreased productivity. Please note that any subsequent claim action on Phillipa’s part has a very likely chance of success based in this initial lack of good faith. In practice, unilateral changes to agreed hours without consultation are also likely to breach the employer’s contractual and statutory obligations.
Had Sarah approached the issue with good faith, she could have addressed the problem more constructively. She could have had a conversation with Phillipa, listened to her reasons for being late, and worked together to find a solution. This approach would have demonstrated respect for Phillipa and fostered a more positive work environment.
Why Good Faith Matters:
The example above illustrates how acting in good faith can lead to authentically better outcomes for everyone involved. By prioritising open communication and respect, employers and employees can maintain positive relationships, boost morale, and increase productivity. This means work becomes and remains an all-round pleasant place to be.
Ultimately, acting in good faith is not only a legal requirement but also a practical way to create successful businesses and satisfied employees – and business owners!
For more information on good faith in small businesses, or even to share your experiences of trying to maintain good faith in your business, please feel free to reach out to our team for expert guidance HERE. Together, we can foster better employment relationships and create thriving businesses across Aotearoa.
