September 2024

In the current economic landscape, a recent decision of the Court of Appeal comes as a timely reminder of employers’ obligations when carrying out a restructure process. In particular, the need to consult with affected employees during negotiations about a transfer of services (or business sale), and not waiting until after the decision has been made.

The Court of Appeal (CoA) declined an application for leave to appeal the Employment Court’s (EmpC) decision – Birthing Centre Ltd v Matsas [2024] NZCA 139.

Background

In September 2019, the MidCentral District Health Board (MDHB) confidentially proposed a business transfer whereby employees of The Birthing Centre Ltd (BCL), working at Te Papaioea Birthing Centre (TPBC), would transfer their employment to MDHB. BCL and MDHB entered into a memorandum of understanding in December 2019 and made a public announcement.

BCL’s affected employees became aware of the agreement via their union (and after receiving local media attention) and were advised that MDHB had undertaken to offer them employment, in their roles as midwives. In March 2020, affected staff received an offer of employment from MDHB, together with a letter confirming that their employment with BCL would terminate on 31 March 2020 (either because they accepted MDHB’s offer of employment, or because they declined the offer and BCL could no longer offer them work). No consultation process was undertaken by BCL prior to communicating that decision and no redundancy compensation or payment in lieu of notice was offered.

As a result, impacted staff raised personal grievances against BCL for unjustified dismissal and filed claims in the Employment Relations Authority (the Authority).

Authority decision

The Authority found that BCL had unjustifiably dismissed these employees through its failure to consult with the employees until after the decision to transfer TPBC’s services to MDHB had been made and publicly announced. Although BCL argued that it had to maintain confidentiality around the proposed business sale, the Authority found that BCL’s obligation to properly consult with affected staff outweighed its need to maintain confidentiality and that by the time the employees were made aware of the sale, matters had moved far beyond being a proposal.

The Authority determined that the terminations did not occur by mutual agreement; rather, the employees had no choice but to agree to the end of their employment as their positions with BCL would no longer exist. The Authority also found that the terms of their new employment with MDHB were not sufficiently similar to the terms of their employment with BCL and the employees were therefore entitled to payment of notice. The Authority also awarded hurt and humiliation compensation to each respondent.

Appeal decisions

BCL appealed the Authority’s decision, but the EmpC determined that the Authority did not err in its findings and dismissed the appeal.

BCL applied for leave to appeal that decision, but the CoA found that the Authority and EmpC had correctly applied the relevant provisions of the Employment Relations Act 2000 and that BCL’s proposed grounds of appeal did not meet the appropriate criteria or threshold for leave to be granted. The CoA noted that the EmpC’s decisions were well-grounded in law and evidence.

Commentary

This decision is a timely reminder that:

• when an employer is considering possible changes to the structure of its organisation, or provision of services, it must always put the proposal to its employees for their consideration and give them an opportunity to provide feedback;
• the need for confidentiality in relation to a business transaction does not give an employer a means of avoiding its consultation obligations and it must genuinely consider any employee feedback before making any decision;
• it is important to carefully adhere to the termination and redundancy provisions in affected employees’ employment agreements, particularly where payment of notice and/or redundancy compensation is payable;
• timing is everything! Even if affected employees’ employment remains continuous such as in this instance (having terminated with BCL on 30 March 2020 and commencing with MDHB on 1 April 2020), notice is still payable; and
• failure to consult or to undertake a fair process can result in significant awards against an organisation, especially if there are multiple affected employees.

If your organisation is considering undertaking a restructure, including transferring any part of its business, please contact your lawyer, who will be happy to assist.