This was an appeal to the Employment Court from an Employment Relations Authority (“ERA”) decision. The case arose from the termination of someone’s (Mr Darren Pyne’s) employment as part of a restructure, where the employer had concerns about his conduct and performance. Redundancies are meant to be about the position (being superfluous to the employer’s requirements), not about the person (i.e. not about performance or behaviour issues).
The employer admitted that the decision to make Mr Pyne redundant was “…a kind of mixed motives type situation…” However, the ERA held that the employer’s decision was “…predominantly about [Mr Pyne] and his performance, not about the position and its business needs…”
Mr Pyne’s claim was largely upheld by the ERA. However, he appealed to the Employment Court, and argued that the remedies awarded by the ERA were inadequate. The appeal was successful.
Mr Pyne was employed by Invacare New Zealand Limited (“Company”) in August 2019, in a “Rental Business Operations Manager” role. The role was initially fixed term, but became permanent in February 2020.
In 2019 Mr Pyne made comments to colleagues that were said to have been offensive. One comment concerned the impact of Brexit on immigration issues in Britain. Another was a negative comment made to a colleague, Mr Dar, about women wearing the hijab. Mr Dar made a complaint. There were also general expressions of concern about Mr Pyne’s cultural fit for the workplace, and about his performance (including competency and time-keeping).
When considering disestablishing Mr Pyne’s role, there was a management communication referring to Mr Pyne as being “…not the right person for the role…” and that “...he did not fit the business values…”
The Company considered keeping Mr Pyne’s role in place, but changing his reporting line. One of the Company’s Vice Presidents emailed a senior manager, suggesting a “viable alternative” to disestablishing the role would be that Mr Pyne reported to her. However, the Vice President added that this would mean that she would inherit “…a people problem…”. The senior manager quickly replied that “…I don’t want to manage [Mr Pyne]…” and “…we have way too much to get done that to try and performance manage him.”
The Company put the investigation of Mr Dar’s complaint on-hold to see whether Mr Pyne’s employment survived the restructure.
Two roles were disestablished in the restructure (including Mr Pyne’s) and one new role was created. Mr Pyne was not given the opportunity to interview for the new role (despite the Company having told Mr Pyne that he was “qualified” for it).
Mr Pyne was given a redundancy notice in April, and his employment ended on 1 May 2020.
The ERA decision was issued in June 2022. The ERA held that the Company’s decision to make Mr Pyne redundant was predominantly about the person and his performance, not about the position. The termination of Mr Pyne’s job (and the failure to redeploy him) was therefore an unjustified dismissal.
There was only limited evidence in the ERA about how the redundancy had personally impacted on Mr Pyne. However, he did say it had affected his self-confidence and appetite. There was more detailed evidence about his attempts to find alternative employment. Mr Pyne had gone 20 months without securing alternative full-time permanent employment. During that time, he had applied for over 600 other jobs, attended many interviews, and moved to Australia. However, during those 20 months he had undertaken some fixed-term employment and part-time self-employed work.
The ERA awarded Mr Pyne $27,500 compensation for 3 months lost wages (which is usually seen as a ceiling for lost wages, but subject to the ERA or Court’s discretion). The ERA also awarded $10,000 hurt and humiliation compensation under s 123(1)(c)(i) of the Employment Relations Act 2000. However, the $10,000 award was then reduced by 15 per cent, to $8,500, for contribution (because of the culturally inappropriate comments that Mr Pyne had made to Mr Dar). The Authority found that the Company had breached its obligations of good faith to Mr Pyne, but it declined to impose a penalty for that breach (the ERA held that the other awards sufficiently addressed the Company having acted with a lack of good faith).
The Court considered whether the ERA’s award for lost wages was adequate.
Section 128(2) of the Employment Relations Act 2000, read in isolation, treats 3 months wages as a ceiling for such an award (the lesser of actual wages lost or 3 months wages). However, s128(3) provides this is subject to the ERA and Court’s discretion.
The fact that it had taken Mr Pyne about 20 months to find another full-time permanent job, despite serious efforts, led the Court to conclude that it should exercise its discretion and award more than 3 months lost wages (notwithstanding the evidence being vague about Mr Pyne’s part-time self-employment and limited fixed-term work over those 20 months). The Employment Court held that an award of 6 months wages was appropriate.
The Court then considered whether the ERA’s award for hurt and humiliation was adequate.
The Court noted that it generally applied the “banding approach” when determining the amount of an award for hurt and humiliation. There are three bands, ranging from $0 to over $50,000 depending on the level of hurt and humiliation.
The Court considered that the record was not sufficiently clear regarding how this issue had been dealt with in the ERA, so heard fresh evidence about hurt and humiliation suffered by Mr Pyne. The Employment Court held [para 41]:
The company’s unjustified actions left him feeling confused, unheard, side-lined, disrespected, stressed and uncertain. He was very concerned about his financial position and what his future might hold, and was obliged to take steps with his bank to protect his position…
And [at para 42]:
Mr Pyne was shocked and upset when he was advised that his role had been disestablished. The way in which the company came to that conclusion, and its failure to engage appropriately with him in good faith in respect of concerns it harboured, exacerbated the emotional harm he suffered. Mr Pyne gave evidence that in the months following his termination he felt betrayed, angry and frustrated, and that this impacted his personal relationships. He also had difficulty concentrating and sleeping. In the event, Mr Pyne had to explore alternative work in Australia, with the personal upheaval involved in that.
The Employment Court held that the hurt and humiliation type injury fell within Band 2 ($12,000 to $50,000 - mid-level hurt and humiliation level), and the compensation award should be $18,000 (overturning the $10,000 award set by the ERA).
The third issue the Court considered was whether the ERA was correct to reduce the hurt and humiliation award by 15% because of the comment he made to Mr Dar (about women wearing the hijab). The Employment Court took a different view of the evidence (and may have been provided with evidence that was not before the ERA). The Court found that Mr Dar had accepted an apology from Mr Pyne and they regarded the issue as resolved. The issue had and it had not contributed to the redundancy, and a reduction was not justified.
The Court considered whether a penalty should have been awarded against the Company, for breaching its obligation to treat employees with good faith.
It has been common for the ERA to decline to award penalties against employers who breach their good faith obligation in circumstances where significant compensation awards are made (compensation awards often being seen as already adequate to denounce the breach of good faith).
The Employment Court did not appear to consider that the award of significant compensation sums was a reason not to award penalties for breach of good faith. The Employment Court also declined to follow earlier cases that used to term “egregious conduct” as a test for when penalties were appropriate. Rather, the Court referred to the criteria in s4A of the Employment Relations Act 2000, which provides for penalties when a breach of good faith is deliberate, serious, and sustained; or when it is intended to undermine an employment relationship. The Court held that:
The inescapable inference is that the company’s breaches were deliberate, occurred over time, and were designed to undermine the employment relationship it had with Mr Pyne by bringing it to an end. The threshold in s 4A(b)(iii) is accordingly met.
The Court made an order for penalties in relation to conduct of this restructure and redundancy process, for $6,000, payable by the Company to the Crown.
The Court considered but declined making a second award of penalties for Company’s failure to treat Mr Pyne fairly in respect of potential redeployment (the issue was too close and too overlapping of the reasons for the penalties for the conduct of the restructure process).
The employee’s appeal to the Employment Court was successful. Important takeaways from the Employment Court decision include that:
• Employers should appreciate that it is dangerous to use a restructure as a way of getting rid of an underperforming or badly behaving employee.
• This decision will encourage the ERA to use its discretion to award lost wages for periods exceeding three months.
• This decision will pressure the ERA to follow the Employment Court more closely and consistently on the “banding approach “to hurt and humiliation compensation. This will push up the sums of such awards.
• This decision might pressure the ERA to be more cautious about reducing awards to employees because for “contribution” even though employees have behaved badly.
• This decision will encourage the ERA to award penalties, even though significant compensation has already been awarded against an employer.
For further information on this case or similar issues, please contact Director, Brigitte Morten.
