New Zealand: Employment Court Confirms ‘Statutory Curb’ On Ability To Justify Dismissals

Last Updated: 5 July 2006
Article by John Hannan

In late 2004 a new definition of what counts as ‘justifiable’ dismissal or other employer action was inserted into the Employment Relations Act (the ERA). The Employment Court has just issued a definitive judgment confirming that the new test, in section 103A of the ERA, makes it substantially more difficult for an employer to justify dismissal or other disciplinary actions. This is a significant decision.

The case is noteworthy for Judge Shaw’s dissection of Air New Zealand’s investigative procedures - it is clear the Court is now taking the view that employers must get every jot and tittle of the investigation process right - otherwise they face a significant risk of being found to have acted in an unjustified way.

Air New Zealand Limited v Hudson – the facts

Andrea Hudson had been a customer service agent with Air New Zealand since 1995. Air New Zealand dismissed her in December 2004, relying on three incidents:

  • A claim that she had pushed another Air New Zealand boarding agent at the gate of an Air Tahiti Nui flight.
  • Complaints from LAN Chile about the way that Ms Hudson had treated a business class passenger at check-in. LAN Chile asked that Ms Hudson no longer perform any work for it.
  • A passenger complaint that Ms Hudson had required them to pay departure tax when this was not necessary.

There was a history of discontent with Ms Hudson’s services - some airlines going back over a period of time had asked that she not be assigned to work for them but Air New Zealand did not take this up in any formal way. Air New Zealand had issued her with a written warning about three customer complaints sometime previously, relating to ‘poor attitude’ and ‘lack of appropriate and professional customer service’. But by the time of the incidents involved in this case this warning had expired. Air New Zealand had arranged training and mentoring for Ms Hudson about these issues.

Ms Hudson had also received a final written warning in October 2003. This was about a significant breach of regulations. The incident had occurred at a time of considerable personal stress for her.

Despite this history, Judge Shaw found Air New Zealand’s decision to dismiss was unjustified.

How did Air New Zealand go wrong?

First, Judge Shaw found the dismissal was unjustified because Air New Zealand’s investigation was not carried out in a fair and reasonable way.

Specifically:

  • Air New Zealand did not give Ms Hudson any date or details about the LAN Chile complaint. The complaint was made in November 2004. Air New Zealand did not bring it up until December 2004. This was too long. Ms Hudson had little recall of the incident by then and so could not explain her version of what had happened.
  • The customer service complaint from Air Tahiti Nui was dated 9 October 2004. It was not specific. Two months on, Ms Hudson had no memory of the event so could not answer the complaint.
  • Air New Zealand should have given Ms Hudson prompt notice of the complaints and a full opportunity to comment on them when they were made. So the way it had raised these two matters was unfair. Ms Hudson did not have a proper opportunity to answer the complaints. Judge Shaw found that Air New Zealand's findings of serious breaches by Ms Hudson were not sustainable.

There were also serious flaws in the investigation of the ‘pushing’ complaint. First, Air New Zealand failed to interview a Ms Rorke, Ms Hudson’s team leader. Ms Hudson and the other person involved in the pushing incident had been to see Ms Rorke the day after the incident. Ms Hudson had apologised. The other staff member accepted the apology. Ms Hudson thought the matter was at an end.

Judge Shaw said that had Air New Zealand had this information from Ms Rorke there was a strong possibility its perceptions of the incident might have been altered.

Second, the Air New Zealand manager conducting the initial disciplinary meeting had directed that Ms Hudson’s representative (who was in fact Ms Rorke) was an observer only and could not speak on her behalf or intervene or give explanations. Judge Shaw found this was a serious error. Ms Rorke had remained silent throughout these two meetings. So Ms Hudson had not had proper representation. This was unfair.

Also, Judge Shaw found Air New Zealand unfairly deprived Ms Hudson of Ms Rorke’s input by directing that Ms Rorke could not speak or intervene. Air New Zealand should have told Ms Hudson that Ms Rorke was not an appropriate representative as she was a potential witness. Judge Shaw found that the investigation was not what a fair and reasonable employer would have done.

Air New Zealand decision to dismiss held to be wrong

Because the investigation was unfair, Judge Shaw concluded that Air New Zealand could not have properly reached the conclusion that dismissal was justified. Air New Zealand had not reached this decision properly. The investigation was not one that a fair and reasonable employer would have carried out. So the decision to dismiss could not be justified.

Observations by Judge Shaw on the adjusted test

Section 103A provides:

For the purposes of section 103(1)(a) and (b), the question of whether a dismissal or an action was justifiable must be determined, on an objective basis, by considering whether the employer’s actions, and how the employer acted, were what a fair and reasonable employer would have done in all the circumstances at the time of dismissal or action occurred.

Judge Shaw noted that this means that the justification for a dismissal must be determined objectively. That is, the matter must be viewed from the point of view of a neutral observer. This made no real change in the law as it had previously existed.

However Judge Shaw found section 103A did make a change by requiring that the decision must be one which a reasonable and fair employer would have taken, not what a reasonable and fair employer could have done.

So there was no room for a ‘range of reasonable responses’ approach. Previous cases on unjustified dismissal had said that all that an employer had to establish was that the decision was one which a fair and reasonable employer could have made. This meant that there could be a ‘range of possible responses’. Some reasonable and fair employers would dismiss if certain facts were established. Others would not. But now, that ‘band of tolerance’ has been much narrowed. Judge Shaw was explicit. She said that section 103A:

Represents a statutory curb on the range of responses an employer may justifiably take.

Judge Shaw was clear that the changes to the personal grievance provisions of the Act had the objective of redressing what she called the ‘inherent inequality of power in employment relationships’.

She pointed out that the changes made in section 103A require decisions about whether a dismissal is justified or not to be made by reference to the standards which a ‘hypothetical fair and reasonable employer’ would apply.

She also noted that there is an emphasis in the ERA on ‘early and informal intervention to resolve employment relationship problems’.

Implications for dismissal decisions

Inevitably employers will now need to act more cautiously and conservatively in relation to dismissals or other disciplinary action. It will be much more difficult to justify dismissal in marginal cases.

It is also apparent from this decision that the Employment Court is going to undertake minute scrutiny of an employer’s investigation procedures. It will readily find the decision to dismiss or impose other disciplinary action unjustified if these procedures have not protected the rights of the employee.

Finally, the Employment Court seems to think that employers who fail to make adequate attempts to resolve difficulties informally, and are over-ready to use formal disciplinary processes, will have difficulty justifying dismissal decisions. In summary, employers need to dust off their processes and check that they are rigorous and robust. A high standard of evidence-gathering will be required. And caution, and thinking twice and three times, will be needed before making a decision to dismiss, or impose other disciplinary action.

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.

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