A recent determination of the Employment Relations Authority (Authority), Anne Abernethy and Others and Kono NZ LP, underscores the fine balance between an employer's business decisions and the requirement to consult with employees about decisions that put their jobs at risk. The Authority found that consultation with employees was not required where that consultation would require disclosure of confidential information.
Background
Kono NZ LP (Kono) operated a mussel business in Marlborough. In 2023, Kono decided that it needed to sell the mussel business and commenced negotiations for a sale with Talley's Limited.
Kono decided not to consult with its employees about the sale. It considered that meaningful consultation with its employees about the proposed sale of its mussel business would require disclosure of highly confidential financial information. Kono's concerns included that if information about its financial situation or the impending sale became public, it could prompt suppliers to alter terms or cease supply, pushing the mussel business closer to closure.
Kono did not consult with affected employees prior to signing the sale and purchase agreement. Kono only began consulting with employees after the sale became unconditional in late April 2023. The transaction was then completed in late May 2023, at which time the employees’ employment was terminated.
The claim
The terminated employees claimed that their dismissals were unjustified. Their claim was based on two key points:
- The decision to sell the business was one that would have an adverse effect on the employees' continued employment. As such, Kono was obliged to provide affected employees with relevant information about the proposed sale, and give them an opportunity to comment on the decision before it was made (in accordance with section 4(1A)(c) of the Employment Relations Act 2000 (the Act))
- Kono was obliged to consult with any affected employees about the sale of the mussel business pursuant to a clause in the relevant collective agreement.
Kono argued that the dismissals were justified in the circumstances.
Kono considered that the obligation to consult under the Act did not apply because of the exception to consultation where an employer is required to maintain confidential information. Kono contended this exception applied because of the commercial sensitivities involved in the sale of the mussel business. Kono considered that it had complied with the employees' collective agreement, as the relevant clause noted staff consultation in the context of a sale of assets would only need to occur where it was 'practicable'.
Determination of the Authority
The Authority identified that the issue centred on whether Kono met its employment law obligations regarding consultation in situations involving the sale of business assets and resulting redundancies. Ultimately, the Authority was satisfied that Kono had complied with the Act and the terms of the collective agreement.
The Authority held that the confidentiality exception to consultation applied in the situation. It found that a fair and reasonable employer could have reached the same conclusion as Kono. Because Kono's commercial position could be unreasonably prejudiced if information about the sale was released, consultation with employees was not required until after the sale became unconditional. In reaching its decision, the Authority considered whether there were alternative means for Kono to consult the affected employees in the circumstances, and found that there were not.
The Authority also found that Kono had complied with the collective agreement, chiefly because consultation was not 'practicable' because of the commercial sensitivities surrounding the sale.
Key takeaways
The Act allows for an exception to the consultation requirement when an employer is planning to make a decision that will have an adverse effect on the continuation of its employees' employment. This includes where consultation would unreasonably prejudice an employer’s commercial position. Notwithstanding this exception, employers who are challenged on any decision to not consult staff for commercial reasons will be required to demonstrate what these reasons are, and that there were no alternatives to consultation available. Accordingly, employers should rely upon this exception with caution, and consult to the extent possible.
In addition to an employer's duties to consult employees under the Act, the terms of any employment agreement will be important in the context of employee consultation for a sale of an employer's assets. In this case, the employees' union had agreed to an exception to consultation within the collective agreement, and this exception was found to apply in the circumstances.
Authored by Michael Henderson-Rauter (senior solicitor).
