Good Faith Obligations in New Zealand Employment Relationships

If you employ staff in New Zealand, good faith is not just a nice idea. It is a legal duty that affects hiring, performance management, restructuring, disciplinary action, and the way you communicate day to day. Many business owners get caught by assuming good faith simply means being polite, thinking they can keep plans confidential until the last minute, or treating difficult conversations as a purely managerial call. Those mistakes can become expensive fast.

The key question is often, what is acting in good faith in a real workplace situation? The answer is more practical than many employers expect. It usually means being active and constructive in your dealings, sharing relevant information at the right time, avoiding misleading conduct, and giving workers a fair chance to respond before decisions are made. This guide explains what good faith means in New Zealand employment relationships, where founders and managers commonly get it wrong, and what to check before you sign an employment agreement or start a formal process.

Overview

Acting in good faith in New Zealand employment relationships means more than acting honestly. Employers and employees must be active and constructive in maintaining a productive relationship, and employers must not mislead or deceive workers, directly or indirectly. In practice, this affects the wording of your employment agreements and the way you handle decisions before you sign, before you hire your first worker, and before you begin any process that could affect a person's job.

• Good faith applies from recruitment through to termination, not just after an issue arises.
• You generally need to share relevant information before making decisions that could adversely affect an employee.
• Employees must be given a real opportunity to comment before you decide.
• Confidentiality can still matter, but it does not let you avoid consultation altogether.
• Poor communication, pre-decided outcomes, and inconsistent processes are common employer mistakes.
• Your employment agreement should support good faith obligations rather than cut across them.

What What Is Acting in Good Faith Means For New Zealand Businesses

Good faith means employers must deal with employees openly, fairly, and constructively, especially when a decision could affect pay, duties, performance, or ongoing employment.

In New Zealand, the duty of good faith sits at the centre of employment relationships. It is broader than a standard contract duty of honesty. The law expects both sides to be active and constructive in maintaining a productive relationship. For employers, that usually means communication must be genuine, timely, and fair.

This matters most in founder-led businesses and SMEs because workplace decisions are often made quickly. A manager may want to move a person into a different role, issue a warning, reduce hours, or propose redundancy with little formality. The legal risk is not only the final outcome. The process you follow is often where problems start.

Good faith is more than honesty

A lot of employers assume that if they are telling the truth, they are acting in good faith. That is too narrow. You can be technically truthful and still breach your obligations if you leave out key information, create a misleading impression, or refuse to engage properly with an employee before making a decision.

For example, if a business has already settled on a restructure outcome but describes the process as consultation, that can be a problem. If a manager says a role is safe while internal plans suggest otherwise, that can also raise issues, even if no formal decision has been signed off yet.

When does good faith apply?

Good faith applies throughout the employment relationship. It can arise:

• during recruitment and contract negotiations
• when setting expectations, pay, hours, and duties
• during performance management and disciplinary processes
• when dealing with leave, flexibility, or workplace concerns
• during restructures, redundancy proposals, and role changes
• when ending employment

It also matters before you classify someone as a contractor. If the working relationship is really one of employment, calling someone a contractor in a contract will not remove your obligations. Worker status should be assessed carefully before you sign.

What does acting in good faith look like in practice?

In practical terms, acting in good faith often includes:

• raising concerns clearly instead of hinting at them
• sharing relevant information early enough for the employee to respond
• keeping an open mind until after feedback is considered
• letting the employee have support where appropriate
• using a process that matches the seriousness of the issue
• communicating consistently across managers and decision-makers

Founders often run into trouble when they move too fast. A decision may feel commercially obvious, but employment law still expects a fair process. If you skip straight from concern to outcome, the business may face a personal grievance or a challenge to the validity of the process.

Relevant information and adverse decisions

One of the most important parts of good faith is the duty to provide access to information relevant to the continuation of employment, or to decisions about adverse action, before the decision is made.

That does not mean every internal note must always be disclosed. Some material may be protected for genuine reasons, including confidentiality. But you usually need to think carefully before withholding information that the employee needs to understand the issue and respond meaningfully.

For example, if you are considering disestablishing a role, changing reporting lines, or issuing a warning based on alleged conduct, the employee generally needs enough information to know what is proposed or alleged and why.

Why this matters before you sign an employment agreement

Your contract should not be the first place good faith appears. The way you negotiate and explain the agreement also matters.

Before you sign, make sure the proposed employee understands the key written terms, including:

• job title and duties
• hours, location, and any flexibility expectations
• trial period or probation wording, if relevant and legally valid
• pay structure, commissions, or bonuses
• leave arrangements
• restraint, confidentiality, and intellectual property clauses

If a term is likely to affect the person in a meaningful way, explain it plainly. Overly dense or one-sided contract drafting can create practical and legal problems later, especially if the business relies on it in a dispute.

Legal Issues To Check Before You Sign

Before you sign an employment agreement or start a formal process, make sure your documents and decision-making approach support genuine good faith obligations.

Many employment disputes begin long before the dispute itself. The problem often sits in a rushed offer letter, an outdated agreement template, vague job expectations, or a manager who starts a process without the right paperwork or information.

Check the employment agreement wording

Your agreement should be clear, lawful, and suited to the role. It should also match what will happen in reality. If the contract says one thing but the business operates differently, trust breaks down quickly.

Pay close attention to clauses dealing with:

• the employee's role and reporting lines
• hours of work and overtime expectations
• workplace policies and whether they can be changed
• probation or trial period clauses
• notice periods
• disciplinary and performance expectations
• confidential information and post-employment restraints

A clause that looks useful on paper may still be hard to rely on if it is drafted too broadly or introduced without proper discussion before you sign.

Check whether the person is really an employee

Before you classify someone as a contractor, step back and test the reality of the arrangement. Good faith obligations are tied to employment relationships, but disputes often start because a business labels a worker incorrectly.

Look at the actual working relationship, including:

• how much control the business has over hours, work methods, and duties
• whether the worker can genuinely work for others
• who provides tools and equipment
• whether the worker carries real business risk
• how integrated the worker is in the business

If the relationship operates like employment, the business should not assume a contractor agreement will solve the issue.

Check your process before performance or disciplinary action

Before you begin a formal process, identify what concern exists, what information supports it, and what outcome is genuinely open. If the manager has already decided to dismiss or warn the employee, the process may be flawed from the start.

Before you proceed, confirm:

• the allegations or concerns are specific
• the employee will receive the relevant information
• the employee will have time to respond
• the employee can bring a support person if appropriate
• the decision-maker will consider the response with an open mind
• notes and communications are accurate and professional

This is where founders often get caught. A short informal conversation may feel efficient, but if the issue is serious, the process must still be fair.

Check consultation obligations in restructures and redundancies

If business changes may affect roles, good faith requires more than announcing a final decision. Employees should usually be consulted while the proposal is still a proposal.

Before you sign off on restructuring changes, consider:

• what business reasons support the proposal
• what information can be shared with affected employees
• whether any material needs limited withholding for genuine confidentiality reasons
• how long employees should have to comment
• whether alternatives to redundancy have been assessed

A commercially sensible proposal can still become legally risky if the consultation is rushed or performative.

Check policies and manager training

Good faith failures often come from inconsistent managers rather than bad contracts. Policies should align with your agreements and your managers should know how to use them.

Key areas to review include:

• disciplinary and grievance procedures
• performance management guidance
• leave and flexible work practices
• bullying, harassment, and complaint handling
• record-keeping and internal communications

If one manager promises outcomes that another manager contradicts, the business may look disorganised or misleading. That can undermine trust and expose the business to claims.

Common Mistakes With What Is Acting in Good Faith

The most common mistake is treating good faith as a soft behavioural standard instead of a legal duty that shapes process, timing, and communication.

Small businesses often make these errors because decisions happen quickly and relationships feel informal. Informality is not the problem by itself. The problem is when informality replaces fairness.

Making the decision before consultation

This is one of the biggest risks. An employer may prepare a proposal, hold a meeting, and ask for feedback, but privately view the outcome as fixed. If the employee's response cannot realistically change the decision, consultation may not be genuine.

That issue comes up often in:

• restructures
• redundancy processes
• major role changes
• performance exits presented as mutual solutions

A safer approach is to define what is proposed, explain why, and keep a real decision open until comments are considered.

Holding back too much information

Employers sometimes avoid sharing information because it feels sensitive, commercially awkward, or potentially upsetting. But if the information is relevant to the decision and needed for a fair response, withholding it can create risk.

Confidentiality may justify limiting some material, but it should be assessed carefully. You should not use confidentiality as a broad reason to avoid disclosure altogether.

Using vague allegations or feedback

Telling an employee they are "not the right fit" or that there are "concerns about attitude" is rarely enough in a formal process. If the issue is performance, conduct, or compatibility with the role, explain it in a way the employee can understand and answer.

Vague communication often leads to two problems. First, the employee cannot respond properly. Second, the business record later looks weak and inconsistent.

Relying on the contract instead of the relationship

Some employers assume that if a clause gives them discretion, they can simply use it. Employment agreements matter, but they do not override statutory obligations of good faith or basic procedural fairness.

For example, even if an agreement gives broad flexibility around duties or workplace changes, the employer may still need to consult before making a significant change that affects the employee materially.

Letting frustration drive the process

Managers sometimes move into formal action after a difficult meeting, repeated lateness, or a clash in working styles. That is understandable, but reactive decisions are where process errors happen.

Before you issue a warning, begin a disciplinary meeting, or discuss ending employment, pause and check:

• what the actual concern is
• whether there is evidence to support it
• whether expectations were previously communicated
• whether a less serious step should come first
• whether the employee has had a fair opportunity to respond

That pause can make the difference between a manageable people issue and a formal employment dispute.

Assuming good intentions are enough

Many founders care deeply about their team and still get into trouble. Good intentions help with culture, but they do not replace a lawful process. A respectful employer can still act unfairly if they move too quickly, communicate badly, or fail to provide relevant information.

The safest mindset is simple: before you sign, before you hire your first worker, and before you begin any serious conversation about role changes or misconduct, ask what the employee needs to know and when they need to know it.

FAQs

Is acting in good faith the same as being honest?

No. Honesty is part of it, but good faith usually requires more. Employers must also be active and constructive, avoid misleading conduct, and follow a fair process before making certain decisions.

Does good faith apply during redundancy or restructuring?

Yes. If a proposal could affect employment, employers generally need to consult genuinely, share relevant information where required, and consider employee feedback before making a final decision.

Can we keep some information confidential?

Sometimes. Genuine confidentiality can matter, but employers should think carefully before withholding information that an employee needs to understand and respond to a proposed adverse decision.

Do small businesses have different good faith rules?

No. The same legal obligations apply, although the right process may look different depending on the size of the business and the seriousness of the issue. Smaller teams still need fair and genuine communication.

Can an employment agreement remove good faith obligations?

No. An agreement can support how the relationship works, but it cannot contract out of statutory good faith duties. If a clause cuts across those duties, the business should not assume it will protect them.

Key Takeaways

• In New Zealand, acting in good faith means more than honesty. It requires active, constructive, and fair dealings in employment relationships.
• Good faith affects recruitment, contract discussions, day to day management, disciplinary action, restructures, and termination.
• Before making a decision that could adversely affect an employee, employers usually need to provide relevant information and a real chance to respond.
• Common mistakes include pre-deciding outcomes, sharing too little information, using vague allegations, and relying too heavily on broad contract clauses.
• Employment agreements, policies, and manager conduct should all align so the business can show a fair and genuine process before problems escalate.

If you want help with employment agreements, contractor classification, restructuring consultation, or disciplinary process documents, you can reach us on 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.