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What is an Employer’s Duty to Act With Good Reason?

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When you employ people to work for your company, you should seek to encourage productive employment relationships to keep your business thriving. As you are paying your workers’ wages, they should be carrying out their roles to your expectations. Unfortunately, you may encounter various problems with your employees. One of your legal obligations when handling issues in the workplace is to act with good reason. If you fail to do so, you may find that the affected employees take the issue to the Employment Relations Authority (ERA). This article will explain your duty to act with good reason in New Zealand so that you can make informed decisions when handling any workplace disputes. 

What is an Employer’s Duty to Act With Good Reason?

The duty to act with good reason applies when you, as an employer, take any type of action against your employee. It ensures that the reason you give for your action is fair. Another term for this is ‘substantive justification’. 

There are two legal parts to the duty to act with good reason, which are:

  • you must believe you have a valid and genuine reason to start the action or procedure; and 
  • if you make a decision, you must have a good and fair reason to do so.

An employer’s duty to act with good reason applies to any actions you take concerning your employees, including cases of disciplinary action or dismissal.

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How Does This Duty Work in Practice?

In practice, carrying out your duty to act with good reason means acting in a way that is:

  • fair; and 
  • reasonable.  

You must, however, always assess this in the context of the individual situation. Ways of ensuring that you are being fair include:

  • making sure you take reasonable action to find all the facts about the issue;
  • listening to what your employee says about those facts;
  • taking into account how you have responded in the past to a similar issue;  and 
  • considering other relevant facts, such as how long your employee has worked for you and any mitigating circumstances.

Therefore, if your employee has done something fairly trivial and only done so once against a lengthy work history of good behaviour, it is unlikely that dismissal would be reasonable. However, as you must consider each action individually to act with good reason, other factors could also affect how you act. For example:

  • the size of your business;
  • if the issue goes to the ERA; and
  • any media coverage of the issue. 
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When Might I Have a Good Reason to Take Action? 

Commonly occurring, genuine and valid reasons for taking action against your employee include if:

  • your employee has done something wrong at work, such as misconduct or serious misconduct;
  • your employee is not meeting the reasonable expectations for their job, and you have previously given them a Performance Improvement Plan;
  • you have a genuine work-related reason to rescind your employee’s job; 
  • your employee can no longer carry about their job role adequately, which could be due to poor health; and
  • it is not workable to continue employment as your relationship with your employee has significantly broken down.

Key Takeaways

As an employer, you must act with good reason and behave fairly when taking any actions against your employees in the work environment, such as dismissal. This is your legal duty when you employ staff. To act with good reason means you must have valid reasons to take any action, and a decision must be on reasonable grounds and involve a fair process. In practice, this means to act as a fair and reasonable employer would do so in the context of the situation. This includes, for example, gathering all the facts you reasonably can about the issue. There are various reasons you may need to take action against your employee. For instance, if they reacted incorrectly, such as through misconduct.

If you need help understanding what an employer’s duty to act with good reason is in New Zealand, LegalVision’s experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0800 005 570 or visit our membership page.

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Clare Farmer

Clare Farmer

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