We often hear the term “good faith” thrown into conversations or agreements.  People seem to treat it like an incantation.  In reality it is a nebulous term which means different things in different circumstances.

In employment law the term good faith has a more defined meaning.  Section 4 of the Employment Relations Act 2000 (the Act) provides that parties to an employment relationship must deal with each other in good faith. 

The Act goes on to give some definitive meaning to ‘good faith’ by stating that it is ‘wider in scope than the implied mutual obligations of trust and confidence’ … and requires the parties to an employment relationship to be active and constructive in establishing and maintaining a productive employment relationship.

There must be good faith behaviour by both the employer and the employee.

What is required when acting in good faith?  The Act assists with this.

Examples include if an employer is proposing to make a decision that might adversely affect the ongoing employment of any of its employees the employer needs to advise those employees and provide them with information relevant to the decision and their employment and give them an opportunity to respond – give their perspective on it before the employer makes that decision.  This will be familiar to those who have experienced redundancy.

Obviously there will be some confidential information that the employer is not obligated to disclose but we will not cover that here.

The Courts have considered the good faith obligations in many cases and it is worth noting what they have said:

Good faith connotes honesty, openness and absence of ulterior purpose or motivation…

[Parties] must communicate and, where appropriate, consult in the sense of imparting and receiving information… with an open mind when that still realistically can influence outcomes…

… good faith dealings… might be referred to as the honesty or transparency of dealings between parties so that deceiving or misleading, whether intentional or of consequence are prohibited.

Good faith obligations do not prevent an employer from engaging in lawful bargaining tactics as long as they are done so honestly and truthfully and maintains an open channel of communication.

Examples of bad faith can assist in identifying good faith.

The selection of an employee for redundancy was tainted by an improper motive – the employee’s wife was suspected of theft and the employee was suddenly made redundant.

An employer failed to correct an employee’s mistaken belief that his employment had terminated when the employee heard a rumour from a third party.  This was a breach of the good faith obligation to be responsive and communicative.

An employee’s refusal to answer questions orally during an employer’s disciplinary investigation was also a breach of this duty.

An employer chose not to tell an employee that it disagreed with her understanding of how her performance was to be measured.

While this is a large topic and this article barely scrapes its surface, hopefully these examples impart a sense of the party’s obligations of good faith in an employment relationship.