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Appeal Court rules for Auckland City in PSA Case


10 December 2003

Appeal Court rules for Auckland City
in PSA consultation case

Auckland City has won its appeal against an Employment Court ruling which would have forced all employers to consult with unions, even when union members might not be affected by proposals.

The Court of Appeal set aside all four determinations made by the Employment Court in a case brought against the council by the Public Service Association (PSA).

The Court of Appeal says the Employment Court’s determinations all flowed from a finding that the city had not acted in good faith in its dealings with the PSA between 19 December, 2001, and early April, 2002, when the council was deciding whether or not to cut its public affairs and communications and marketing budget by $2.5 million.

The cut was recommended in the William Birch Consulting Group Ltd review of city spending.

The Employment Court determined the city was required to consult with the PSA about the implementation of the report’s recommendations.

The city had advised affected staff (not being aware one contractor was a PSA member) before the Birch report’s recommendations had been made public.

The appeal court finds the council had clearly recognised it needed to deal with the PSA in good faith. The fact that there was only one PSA member in the communications group was clearly relevant. There was no suggestion that information was concealed from the PSA by the council “nor could there have been”. Staff had been included in the review process carried out in the communications and marketing group. There did not appear to be any inquiry from the PSA between 19 December 2001, when all proposals were made public, and February 8 2002. There was no basis in the evidence for the Employment Court judgement reference to the PSA having made “repeated enquiries”.

“Further, there was no evidence of a refusal by the council to deal with the PSA in relation to the particular Birch proposals,” the Court of Appeal says.

“We do not consider that any wide and general consultations would have been required before it became apparent that the position of the particular member might be affected. And when that occurred there was appropriate consultation.”

The Employment Court’s finding had reflected unreasonably upon those council employees responsible for the group review.

Auckland City’s Deputy Mayor, David Hay, who chairs the council’s Assessors’ sub committee, which decided to appeal the Employment Court ruling, said today other local authorities and employers nation-wide would be breathing a huge sigh of relief that common-sense had prevailed through the Court of Appeal.

“We faced the prospect of employers having to consult unions, even when their members were not affected by proposals, in order to comply with the good faith provisions of employment law. Now it’s been made very clear that, as the appeal court says, ‘it is not possible to lay down rules and protocols defining what may or may not constitute dealing in good faith’.

“It is confirmation the council consulted properly, treated affected staff excellently – and made the right decision not to accept the Employment Court’s determinations – all four of which have now been set aside.”

Auckland City’s chief executive officer, Bryan Taylor, said the ruling completely swept away previously unfounded allegations that the city had not properly consulted with and taken care of staff.

The PSA’s decision to take the issue to the Employment Court had cost the city $149,752. The appeal had cost $73,210, Mr Taylor said.

The appeal court awarded the council $6000 in costs for the appeal and noted the council was entitled to costs to be fixed in the Employment Court.

Note for editors:
A full copy of the Court of Appeal ruling is attached.

CA CA112/03 [10 December 2003]

Hearing: 11 November 2003
Coram: Gault P
Blanchard J
Tipping J
McGrath J
Glazebrook J
Appearances: P M Muir and S J Beale for Appellant
J P Watson and P D Appleton for Respondent
P T Kiely and A K Knowles for Intervener
Judgment: 10 December 2003


[1] This is an appeal from a judgment of a Full Court of the Employment Court delivered on 21 March 2003 in which it was held that the conduct of an employer was lacking in good faith.

[2] The Public Service Association (PSA), a union with approximately 40,000 members in a wide range of organisations, has a policy designed to advance its members’ interests by which it seeks collective participation in decision making in workplaces. That has been embraced by some employers. It may well constitute an enlightened policy conducive of good employer/employee relations. But that does not mean it necessarily should be imposed on employers by litigation. That appears to be what underlies this case because the particular matter in dispute in the appeal is narrow indeed.

[3] Approximately 360 PSA members (326 according to the Council) were employed by the Auckland City Council (the Council) in its various departments at the material time. The Council had some 1500 full time equivalent employees.

[4] Upon the election of a new Mayor and Councillors in late 2001 the new Council resolved on 6 November to urgently initiate a review of expenditure. It was contemplated that proposals arising from the review would be incorporated into the development of the annual plan the Council was required to formulate under the Local Government Act. Work on the annual plan had already commenced and the PSA was among stakeholders being consulted.

[5] Having learned of the review of expenditure, the PSA wrote to the Mayor formally requesting to be actively involved in the review. The PSA also approached the consultant instructed to undertake the review (William Birch Consulting Group Ltd) seeking participation. The PSA was referred to the Council’s Chief Executive who responded by email stating: In response to your request to meet to discuss the review of Council activities. I am of the view that meeting at this time will not meet your concerns as the review has been commissioned by Council and [is] due to be completed by the 14 December 2001.

The report will be released on 14 December. Until the Council has reviewed the findings and agreed on its recommendations I will be unable to provide you with further information.

May I suggest that you contact Mike Richardson, Human Resources Manager, early in the New Year to discuss Council recommendations.

[6] The review was completed by 14 December on which date the Human Resources Manager advised the PSA and referred to the Council’s website where the report could be accessed. The letter stated that the report would be considered at the direction setting meeting of the Council’s Finance and Corporate Business Committee on 19 December. The letter concluded with an undertaking to advise as soon as it was known whether there would be an impact upon staff, at which stage the parties could meet.

[7] At the 19 December meeting some recommendations in the review report were accepted, others were rejected. The committee’s resolutions relevant to the present case related to a recommendation to set a target to reduce by at least $2.5m over three years the Public Affairs, Communications and Marketing budgets. This was adopted and the Chief Executive was asked to report back on proposals for implementation. The minutes of the meeting (which was a public meeting) were circulated to Council staff the next day.

[8] The Council’s proposed processes were described in a communication to staff, which was sent also to the PSA on 8 February 2002. It stated: Council considered the recommendations made in the Birch review on the 19th December 2001.

Some of the recommendations were rejected, however others were referred to officers who will be reporting back to the various committees, and community boards, this month (February).

They will have the opportunity to make comment and provide feedback for the formulation of the draft annual plan.

On March 20-21 the Combined Committee and Council will consider the draft Annual Plan and make any relevant changes to the budgets presented. In April/May the draft annual plan will be released for public comment and open for submissions until the end of May.

During this time the community boards host a series of public meetings around the city to present the annual plan to their communities.

In June hearings will be held by the council to hear verbal submissions and consider written submissions and the action officers have recommended. Combined Committees will make a final report on the rates set based on the outcomes from these hearings and report to council for the adoption of the final annual plan.

Most of the recommendations will be picked up through this process, and some will incorporated under the district plan.

Staff will be kept informed throughout this process.

[9] One of the officers to whom matters had been referred was the Group Manager, Communications and Marketing, Ms Cranshaw. She had identified the recommendation in the review report directed to her Group and had brought it to the attention of her staff at a meeting on 14 December 2001, the day the report became available. The savings target in this Group was not considered to be of such significance as to be included in the annual plan process and so was the subject of an internal consultation process. This occurred with a number of meetings beginning in January 2002. The details of this consultation process involving staff need not be described. It appears to have been open, inclusive and fair. What is material is the absence of any consultation with the PSA. The affidavit of Ms Cranshaw states in this respect: MIKE RICHARDSON [Human Resources Manager] and his team briefed me on the consultation process that needs to be followed in such an organisational review. He advised me that we did not have any PSA members in our Communications and Marketing Group.

Therefore, we did not need to specifically consult with the PSA.

HOWEVER, all staff were entitled to bring support people (including union delegates or otherwise), to any of the meetings during this process.

UNFORTUNATELY, due to an initial oversight, we were unaware that one employee in the Communications and Marketing Group (Kate Loughmane), was a PSA member at the time the review commenced.

I can only assume that this was because Ms Loughmane was employed in a different location at one of our libraries on a 12 month fixed-term employment agreement as a Marketing Assistant. That contract was due to expire on 4 October 2002.

[10] It transpired that Ms Loughmane’s position was affected. In due course, with the assistance of the PSA, she secured a wholly satisfactory outcome in which, after the expiry of her fixed term contract (which was never threatened), she became a permanent employee in the same position but under a different budget head.

[11] The PSA concern in the period with which we are concerned was with the refusal of the Council to engage in consultation generally in respect of the review of expenditure other than as a stakeholder in the course of the annual plan development.

A mediation in April 2002 resulted in an agreed consultation process of which there is no complaint. As the Employment Court judgment records, the substantive problem relates to the Council’s conduct prior to the mediated settlement. It is not apparent why the settlement was not regarded as encompassing the matters said to remain alive. It seems that the PSA wanted to resolve wider issues of principle. But the judgment noted that the remedies sought all were directed to the Birch report recommendations. That certainly was the focus of the argument in this Court. It seems, however, from some parts of the judgment that broader issues were canvassed in the Employment Court.

[12] The Employment Court, in a lengthy judgment containing extensive summaries of counsel’s arguments ranging well beyond the Birch recommendations, concluded with the Court making the following determinations: i. that to comply with its duty to deal with the applicant in good faith, the respondent was required to consult with the applicant about the implementation of such of the Birch Report recommendations as the respondent’s council adopted on 19 December 2001, and which potentially affected the employment interests of its members; ii. that such consultation was a specific requirement on the employer, and separate to the respondent’s obligation to consult with the public under the Local Government Act 1974; iii. that such of the Birch report recommendations as the respondent’s council adopted on 19 December 2001, and which potentially affected the employment interests of PSA members, were proposals for the purposes of section 4(4)(d) of the Employment Relations Act 2000; and iv. that the respondent’s refusal to consult prior to the public consultation process under the Local Government 1974 was not in accordance with the duty to act in good faith.

[13] These determinations are the outcome of reasoning by which the Court first rejected the PSA claim that the Council was required to consult the PSA in respect of the expenditure review from the outset. But, as the Court said, once any of the recommendations were adopted by the Council they became “proposals” potentially impacting on employees giving rise to an obligation to consult the union, and it constituted a breach of the Council’s obligations to deal with the union in good faith not to do so.

[14] The Court’s reasoning was that by s4(2) of the Employment Relations Act 2000 the PSA as a union is in an “employment relationship” with the Council as an employer. By s4(1) the parties to an employment relationship must deal with each other in good faith. The duty of good faith applies (non-exhaustively) by s4(4) to: (c) consultation (whether or not under a collective agreement) between an employer and its employees, including any union representing the employees, about the employees’ collective employment interests, including the effect on employees of changes to the employer’s business: (d) a proposal by an employer that might impact on the employer’s employees, including a proposal to contract out work otherwise done by the employees or to sell or transfer all or part of the employer’s business.

[15] The PSA and the Council had been negotiating a collective agreement over some considerable period though no agreement had been concluded.

[16] The Court took from the decisions of this Court in Coutts Cars Ltd v Baguley [2002] 2 NZLR 533, [2001] ERNZ 660 and Goldsboro v Walker [1993] 1 NZLR 394, 401 that parties to employment relationships “should be energetic and positively displaying good faith behaviour” to be determined on “an objective assessment of the effect of the behaviour”. It was said further that this included a requirement to consult as “[f]ollowing Baguley and under the 2002 Act, it is no longer possible to take a narrow view of situations in which consultation is mandatory”. Once the Birch recommendations were taken up by the directionsetting meeting on 19 December they were “proposals” within s4(4)(d) in respect of which consultation with the union was mandatory.

[17] The Court then said: The Act is founded upon exchanges of relevant information between parties in s4(2) relationships. That is evident in ss3 and 4 and from other provisions such as ss32(1)(e) and 101(a). Information is relevant if it is likely to assist employees and their unions to know that an issue exists about which it may be in their interests to associate with each other and to consider making it the subject of collective bargaining, at once or in the near future. This is a natural consequence of a proper interpretation of s3(b).

[18] It was therefore concluded that consultation was required, as a general element of good faith dealing under s4, “immediately after the council resolution of 19 December”.

[19] This reasoning represents an almost unlimited approach to the Act and to the decisions of this Court cited. On such an approach it could be equally reasoned that the initial Council resolution determining to review expenditure amounted to a proposal potentially impacting on employees and relevant to future collective bargaining. On that basis it is hard to think of a decision in the conduct of a business that would be outside the obligation.

[20] When considering general statutory provisions such as those contained in ss3 and 4 of the Employment Relations Act it is important not to regard as substitutes for the words in the statute statements in judgments made in particular contexts. In this respect, dicta in Goldsboro v Walker relating to the prohibition against misleading and deceptive conduct in trade under the Fair Trading Act 1986 might help with the obligation not to mislead or deceive as a particular aspect of good faith but they do not necessarily help more generally with the scope of the obligation of good faith so as to exclude subjective intention and limit consideration to objective consequences.

[21] Similarly, conduct to which obligations of good faith adhere in one context will not necessarily lead to the same obligations in another context.

[22] The judgments in the Coutts Cars case should not be taken as comprehensive expositions of the obligations of good faith under the Employment Relations Act in all circumstances. No judgment can substitute for the words of the Act. We do note, however, that while some general guidance on the new Act was offered, the case itself was in the context of a personal grievance in respect of the redundancy of an employee. In that context there is a particular statutory emphasis on the provision of information (s101(a)). Further, it does not follow that because good faith was related to the mutual obligations of trust, confidence and fair dealing, the Court should be taken to have mandated a wholly objective assessment by reference to effect. That would be to exclude consideration of honesty or lack of it which can be an important element in the concept of good faith. To suggest that conduct, undertaken honestly, that has an adverse effect for reasons completely unforeseen, is to be held to have been undertaken other than in good faith would be a significant departure from the natural meaning of those words. To judge conduct solely by reference to effect in this way would be to invoke hindsight and to disregard the influence of the circumstances in which conduct is undertaken. We think a broader and more balanced approach is called for.

[23] We agree with the Employment Court that the content of an obligation of good faith will depend on the circumstances. While in an abstract sense it may be said, as the Court said, that the PSA was entitled to the same good faith behaviour as the Council exhibited towards individual employees, in a practical sense the conduct required in discharge of that obligation will not necessarily be the same, as we will demonstrate by reference to the facts of this case.

[24] There can be no dispute that the parties to an employment relationship must deal with each other openly and fairly. They must communicate and, where appropriate, consult in the sense of imparting and receiving information and argument with an open mind when that still realistically can influence outcomes. To adopt an approach calling for mandatory consultation at specified times risks inflexibility. What is practicable in the exigencies of particular business operations and workplaces must be kept in mind. Similarly the issue in question may affect the nature and timing of the provision of information and consultation. Redundancy of particular positions presents different issues than does the formulation of business plans.

[25] We need say no more about the general approach dictated by the Act. It is not possible to lay down rules or protocols defining what may or may not constitute dealing in good faith. The statute is seeking to promote good employment relationships. It seeks to have the parties embrace that objective and to deal openly and fairly to that end. That will not exclude vigorous bargaining and even industrial action. But even those cauldrons must be tempered by behaviour that avoids the corrosiveness of bad faith. It is necessary only to contemplate those situations to realise that any general requirement of “energetic and positive displaying of good faith behaviour” goes too far.

[26] We turn to the present case. There is no cross-appeal against the findings of the Court beyond the four determinations we have already quoted. The issue therefore concerns the obligation on the Council to deal with the PSA in good faith between 19 December 2001 and early April 2002 in respect of the Birch recommendations taken up by the Council committee on the first of those dates.

[27] As already mentioned, the only recommendation taken up by the Council to which evidence was addressed in this proceeding was that directed to the Public Affairs, Communication and Marketing budgets. There was some evidence relating to reviews in the Council’s Auckland City Environments Department but they were outside the scope of the Employment Court determinations.

[28] We turn then to the issue of the obligations upon the Council arising from the good faith requirement of the Act in respect of the Public Affairs, Communications and Marketing budgets. The resolutions of the Council Committee on 19 December 2001 were: That Council set a target saving of at least $2.5 million from the Public Affairs, Communications and Marketing budgets over three years, and that the Chief Executive be asked to commence implementation of this saving as part of the 2002/2003 budget.

That the Chief Executive report back to the Strategy & Governance Committee on proposals for implementing the savings and improving outputs from the Public Affairs, Communications and Marketing budgets.

[29] It could not be seriously contended that because the resolutions required the formulation of implementation proposals there was no proposal that might impact on employees once the resolutions were passed.

[30] Accepting then, as the Court below found, that there was a proposal within s4(d) of the Act, the section directs that the duty of good faith in subs (1) applies to the proposal. Subsection (1) requires that the parties to an employment arrangement must deal with each other in good faith. The parties therefore must deal with each other in respect of the proposal in good faith.

[31] The Council clearly recognised that. It embarked upon a process involving consultation with staff in the relevant department. There was no consultation with the PSA because it was believed that there were no PSA members employed in the Communications and Marketing Group. If that belief had been correct, while there were obligations of good faith towards the employees, because there would have been no PSA members upon which the proposal might impact, there could have been nothing about which the Council and PSA had to deal with each other.

[32] What then were the obligations of the Council because there was one PSA member employed in the Group to which the proposal related? Certainly there was the obligation to deal with that employee in good faith. There was no complaint that that was not done. The obligation to deal with the union in good faith must be considered by reference to the context. Just as in the collective bargaining situation where the Act provides that a relevant matter in determining whether parties are dealing with each other in good faith is the proportion of the employees who are members of the union (s32(3)(c), the fact that there was only one PSA member employee in the Group is clearly relevant. While drawing that analogy we note that this proposal was not a proposal put forward in the course of bargaining for a collective agreement so that it did not call for direct consideration of obligations under Part 5 of the Act.

[33] In the circumstances, had Ms Cranshaw been aware that there was a PSA member in her Group, it is plain she would have communicated with the PSA sooner. In that respect, it is significant that Ms Loughmane became a PSA delegate in February 2002. She was accompanied at a meeting held as part of the Group review by a PSA delegate, yet neither of these matters seems to have alerted the PSA at an early point to the fact that its member might be affected by the review of the Group budget. That suggests a perception by them that any dealings between their union and the employer were not needed. They did not alert the Council to Ms Loughmane’s membership of the PSA.

[34] There was no suggestion that information was concealed from the PSA by the Council. Nor could there have been. The PSA was provided with a copy of the Birch report the day it became available together with advice that it was to be considered by the Finance and Corporate Business Committee on 19 December.

That meeting was open to the public. A report on the outcome was given to all staff the day after it was held. From that time the staff were included in the review process carried out in the Communications and Marketing Group. There does not appear to have been any enquiry by the PSA before about 8 February 2002 concerning the fate of the Birch recommendations. There is no basis in the evidence for the reference in the Employment Court judgment to “repeated enquiries”.

Further, there was no evidence of a refusal by the Council to deal with the PSA in relation to the particular Birch proposals.

[35] The judgment of the Employment Court reasons that because the Council was consulting with the employees, including one PSA member, its failure similarly to consult with the PSA amounted to a breach of the obligation of good faith owed to the union. That assumed the obligations to the employees and the union are coextensive.

In the circumstances of a single member in the Group we do not think that is so. Even had the Council been aware of Ms Loughmane’s PSA membership there must surely have been a margin of appreciation as to the timing and nature of consultation with the PSA. We do not consider that any wide and general consultations would have been required before it became apparent that the position of the particular member might be affected. And when that occurred there was appropriate consultation.

[36] In light of the foregoing and keeping in mind the wholly satisfactory outcome for the only PSA member in the Communications and Marketing Group, we see no basis for a finding that the Council did not act in good faith towards the union in the period in question. When the Council had turned its mind to the relationship with the PSA and acted in the honest belief that there were no members in the Group, the Employment Court’s finding reflects unreasonably upon those Council employees responsible for the Group review.

[37] Ms Watson submitted that it would be too narrow a view of the employer’s obligations to the union to determine that engagement could be deferred until impact on a particular position or positions had been identified. That might well be correct in some circumstances. But in this case there was no evidence of any wider indirect potential impact upon PSA members elsewhere in the Council nor any wider “collective employment interests” arising from the particular Group review.

[38] The wider question of whether consultation with the PSA as a stakeholder in the formulation of the Council’s annual plan sufficiently discharged good faith obligations was not really in issue. The review of the Communications and Marketing budgets was not at any point treated as a matter of significance requiring consultation under the Local Government Act process. In any event the mediated settlement led to specific consultations with the PSA on broader issues.

[39] The circumstances will vary. What may be appropriate in any year for particular local authorities will depend on the particular circumstances. It is unnecessary for us to make further comment on that matter in this judgment.

[40] Similarly, although Mr Kiely for Business New Zealand presented arguments directed to potential impacts of the decision on other employers, particularly small business employers, we do not consider the narrow scope of the case casts such shadows. The circumstances of a large local authority governed by the requirements of the Local Government Act present dynamics very different from the commercial sector.

[41] For the reasons given, we have concluded that the four determinations made by the Employment Court should be set aside. They all flow from the finding that in respect of the Birch recommendation relating to the Communications and Marketing Group’s budgets the Council breached its obligation to act in good faith in its dealings with the PSA between 19 December 2001 and early April 2002. We have concluded that this finding lacked an evidential basis when considered against the correct approach to the applicable statutory provisions.

[42] Accordingly we allow the appeal and set aside the four determinations of the Employment Court.

[43] The appellant is entitled to costs in this Court and the Employment Court.

The costs in the Employment Court are to be fixed by that Court in light of this judgment. For costs in this Court the Council shall have an award of $6000 together with disbursements including the travel and accommodation expenses of counsel approved, if necessary, by the Registrar. Business New Zealand Inc should meet its own costs.

Solicitors: Simpson Grierson, Auckland, for Appellant Ruby Law, Hamilton, for Respondent Kiely Thompson Caisley, Auckland, for Intervener

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