As published in Employment Today magazine
The test for a justified dismissal changed last year. As Bridget Smith explains, the Employment Court has now provided guidance on the change from ‘would’ to ‘could’, and what this means in practice.
We all know that from 1 April 2011 the test for a justified dismissal pursuant to section 103A of the Employment Relations Act 2000 changed from what a fair and reasonable employer would have done in all the circumstances, to what a fair and reasonable employer could have done in all the circumstances. But what we haven’t known is what that change—from would to could—actually means in practice.
As a starting point, it is important to bear in mind that decisions in the employment jurisdiction are made on their facts, taking into account all the relevant circumstances at the time. Accordingly, there can be no one single right answer in terms of what constitutes a justified decision to dismiss in all cases. However, in light of the change in the wording of the legislative test, in its preliminary determination in Angus v Ports of Auckland and McKean v Ports of Auckland the Employment Court has provided guidance on the change from ‘would’ to ‘could’, and what this means in practice.
To put the amendment, and to a certain extent the decision, in context, the Court noted that the change is not ‘dramatic’ but nor is it ‘ineffectual nor even insignificant’.
From a practical perspective, our advice to practitioners and to employers is that despite the change in the wording and the Court’s determination there is still no panacea or right answer. Instead, the new test provides guidance on what an employer ought to do in order to have the best chance of having a decision upheld as being justified (if challenged), and the preliminary decision gives guidance as to what the Authority and/or Court will take into account and the approach the institutions will take. The practical reality is that where an employer’s decision is made and subsequently challenged, there will always be litigation risk arising from having the ultimate decision made by an independent third party in circumstances where the outcome cannot be guaranteed.
While it would seem to go without saying, an amendment in the legislation results in a change in the law.
Looking at the wording of the new section 103A test of justification, an easily identifiable difference is the addition of the list of factors in section 103A (3) (a)-(d) that the Authority or Court must consider. These include whether the employer sufficiently investigated the allegations, whether the employer raised its concerns with the employee before dismissing, whether the employer gave the employee a reasonable opportunity to respond and whether the employer genuinely considered the employee’s explanation (if any) before dismissing or taking action against the employee. These are all factors that have been considered as part of the issue of procedural fairness for some time. In that way, they are not new but they are now specifically codified.
The Court went on to note that the term ‘could’ contemplates that there may be more than one fair and reasonable response. That is, the test is no longer what a fair and reasonable employer will do in all the circumstances, but what can be done by the employer. The Court was very clear that it is not open for the Authority or Court to substitute what that institution would have done in the circumstances. Instead, it is incumbent on the Authority or the Court to objectively assess both what the employer did and how the employer did it, in order to decide whether it falls within what a fair and reasonable employer could have done in those circumstances.
It will be a relief for both practitioners and employers alike that the Court has confirmed that the emphasis is on substantial fairness and reasonableness and not on a counsel of perfection. The Authority and/or Court will not subject the employer’s process to the often quoted ‘pedantic or minute scrutiny’. Accordingly, one minor failing or procedural error is unlikely to be fatal to the test of justification—the particular circumstances of the case must be taken into account.
That said, the requirements set out in section 103A (3) above will not be the only factors your organisation may need to consider when conducting a dismissal process. A failure to meet any of the requirements is likely to result in the decision being found to be unjustified. However, it is not the case that compliance with those tests will guarantee a justified decision.
The starting point for any process should still be the employer’s own policies and procedures or contractual obligations. This is what the employer has held out as the process it will follow. Parity of treatment with other employees in similar circumstances can also be relevant.
The fact remains, each case must be assessed on its own particular facts, at the time the decision is made. The best starting point is to ensure that as a minimum, all the process boxes in section 103A (3) are ticked but, beyond that, it remains a question of judgement. Bear in mind that in the event your organisation’s decision is challenged, you may be asked to explain the process you followed and the rationale behind your decision. Will you be able to do that—do you stand by the decision?
In terms of assessing objectively what is fair and reasonable, the ‘family member’ test can often provide a useful guide. That is, if your partner or child came home and recounted the same treatment at the hands of their own employer (setting aside that you may not like it), would you think it was fair and reasonable in the circumstances? If so, it ought to be no problem to stand behind your organisation’s process and justification in the event of any challenge. If not, it might be worth thinking about why not. It may be that commercial imperatives necessitate proceeding regardless of risk, but equally, the risks might outweigh the benefits.