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Getting employment disputes right

No one wants to be involved in an employment dispute, but they do happen, and there are right ways and wrong ways to deal with them. Ben Rickard identifies what the risks are and how to handle any disputes the right way

In January 2021, a plumber was awarded $51,749 after being unjustifiably dismissed from his job just two weeks after arriving in New Zealand. The employer expressed concerns about the plumber’s skill level and called a meeting to discuss this. There were differing views over what was said in that meeting. The plumber told the Employment Relations Authority that he left the meeting believing his job to be in jeopardy.

The authority ruled the dismissal was unjustified because the employer had failed to properly investigate the issues and give the plumber time to respond to their concerns. The employer was ordered to pay $35,000 in compensation, $12,480 in lost pay and $4,269 for expenses.

If you are an employer, you have legal obligations towards your employees. As the above example shows, failure to meet your obligations can be very expensive. Some of your responsibilities include:

  • Paying employees what their employment contract states, and at least the legal minimum wage.

  • Giving the employee at least four weeks’ annual holidays.

  • Giving the employee the day off on 11 public holidays or give them an alternative holiday if they work, if it is a normal working day for them.

  • Paying the employee at least time and a half if an employee works on a public holiday.

  • Giving employees at least five days’ sick leave per year.

  • Acting in good faith and with honesty.

  • Providing a safe workplace.

  • Not deducting money from wages unlawfully.

Another example

A Christchurch man was awarded nearly $30,000 for unjustified dismissal after he was sacked for sharing details of his salary with a co-worker.

James was hired as a salesman for a Christchurch building firm, along with two other sales staff. After his base salary was reduced, he discussed this with another staff member, who confronted the employer with the information he learned and subsequently resigned. The employer then confronted James about sharing the information.

The employer claimed he had not dismissed James, but had told him to go so that there was some space for them both to cool off.

However, the ERA found James was unjustifiably dismissed and suffered an unjustifiable disadvantage in his employment by having had his pay reduced unilaterally, and was entitled to a payout. He was awarded $28,630, after a 30% discount was applied due to breaching good faith by revealing his salary.

This is just one of far too many examples of trade firms being penalised for not following the right processes when dealing with an employment issue. The key message is that, regardless of the merit of the dispute, if you don’t follow the right procedures, you could be in trouble.

If you do experience an issue or dispute with an employee, there are three things you must do as an employer:

  1. Always act in good faith.

  2. Have a good reason to take the action you have.

  3. Follow a fair process.

Always act in good faith

When an employer is making a decision which might cause an employee to lose their job (such as a disciplinary process), the employer must:

  • Provide the employee with access to relevant information about the decision.

  • Give them an opportunity to comment on this information.

Good reason

An employer’s reasons for the action must be what a fair and reasonable employer could have done at the time of the dismissal or action. To ensure fairness in the circumstances, before making a decision, the employer needs to ensure:

  • That they have all of the facts that they can reasonably gather.

  • That they have heard the employee’s response to those facts.

  • That they have considered how they have acted in similar circumstances.

  • They have taken any other relevant considerations (such as length of service, any mitigating circumstances, etc).

Every situation must be considered on its own facts and in context of your particular workplace.

Fair process

When taking action against the employee, the employer must follow the requirements of the Employment Relations Act 2000 and natural justice. This means that the employer must:

  • Fully investigate the concerns, taking into account the resources that they have to do this.

  • Properly raise their concerns with the employee. This involves telling the employee exactly what the problem is, providing all relevant supporting information and telling them that disciplinary action is a possibility.

  • Give the employee a reasonable opportunity to tell their side of the story.

  • Genuinely consider the employee’s explanations (if provided).

The employer should also:

  • Make sure the decision maker is as impartial as possible.

  • Tell the employee that they may have a representative or support person present at any disciplinary meetings.

  • Give the employee an opportunity to seek independent advice throughout the process.

  • Give the employee an opportunity to give their explanation or response to the person who will make the final decision.

  • Not make the decision on what action to take until after hearing and considering the employee’s response to the proposed course of action.

  • Treat employees without bias and in a way that takes into account any similar situations that have occurred.

  • Consider all options before making a final decision.

It is important to note that both parties must also comply with the duty of good faith during this process. In particular, the parties must be responsive and communicative.

Employee Disputes Insurance

Even with the best processes in place, you may at some point have to deal with a disgruntled employee and have to face the Employment Relations Authority. At the very least, you will need to engage professional legal services to help you through a dispute.

Employee disputes insurance provides protection from allegations of wrongful acts committed by you against an employee. The policy covers the cost of defending these actions and any damages awarded against the directors, management or company. The average cost of defending such a claim from one specialist insurer is $14,000. Common areas of exposure include:

  • Personal grievance actions.

  • Claims for unjustified dismissal or demotion.

  • Discrimination or harassment (with sexual harassment claims in particular on the rise).

  • Unlawful, constructive or actual termination.

  • Emotional distress.

  • Failure or refusal to hire potential employees.

  • Invasion or breach of privacy rights under the Privacy Act.

  • Other alleged disadvantage under the Employment Relations Act.

Typically, employee disputes insurance comes as part of a ‘management liability’ package, which includes a whole bunch of good stuff to protect businesses from the cost of liability. Employee disputes claims can represent up to 40% of all management liability claims. With Builtin, you can simply add it when you take out a public liability policy.

In a nutshell

Employment law is a minefield and can easily trip you up if you get it wrong. Following the right processes is critical if there is a dispute, and good professional advice could save your bacon. Employee disputes cover will help pay the bills if it does turn to custard.

This article is not exhaustive and you should conduct your own assessment of your specific needs, perhaps along with an insurance/risk management professional adviser. There are other policies to cover different risks. Individual policy wordings from different insurers may vary. You should refer to the specific exclusions in your own policy wordings and discuss them with your insurance adviser if you are unsure.

Builtin are New Zealand’s Trade Insurance Experts. For more information visit, or contact us at or 0800 BUILTIN.


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