Good Faith Obligations In NZ Employment Law: Employer Duties And Breaches

Most small business owners don’t set out to end up in an employment dispute. You’re trying to run a business, keep customers happy, and build a team you can rely on.

But in New Zealand, there’s one legal requirement that sits underneath almost every “people decision” you make: your good faith obligations in the employment relationship.

Good faith isn’t just about being “nice” or having good intentions. It’s a legal obligation under the Employment Relations Act 2000, and it can affect how you hire, manage performance, change hours, consult on restructures, and even how you communicate day-to-day.

Below we break down what good faith means in practice, what employers generally need to do, and some common breaches we see (often from otherwise reasonable employers who simply moved too fast or didn’t document their process properly).

What Is “Good Faith Employment” In New Zealand?

In NZ employment law, good faith is a legal duty that applies to employers, employees, unions, and others involved in the employment relationship.

At a practical level, good faith is about the way you behave and communicate when you’re dealing with employment matters. It’s not limited to “big” issues like dismissal or redundancy - it can also apply to everyday interactions and decision-making.

Good faith requires more than not lying. The law expects parties to be active and constructive in maintaining a productive employment relationship.

Why Good Faith Matters For Small Businesses

For small businesses, good faith is especially important because:

• you often don’t have a dedicated HR team to run formal processes;
• communication is usually direct and fast (which is great - until a process needs structure);
• employment decisions can have an immediate operational impact (rosters, cashflow, customer service).

If a dispute ends up in the Employment Relations Authority (ERA), a common issue is not whether the employer’s decision was “understandable”, but whether the employer followed a fair process and acted in good faith in getting there.

Good Faith Is Not The Same As Agreeing With The Employee

A key point: acting in good faith doesn’t mean you must always say “yes” to the employee. You can still make tough calls - performance management, changing duties, investigating misconduct, or proposing a restructure.

Good faith is about how you do it. The focus is on things like:

• being clear and honest about what’s happening;
• not misleading the employee;
• sharing relevant information where appropriate;
• giving them a genuine chance to respond before decisions are final.

Getting your Employment Contract right from day one also helps, because a well-drafted agreement sets expectations about duties, hours, processes, notice periods, and policies - and that makes good faith communication much easier when something changes.

What Does “Acting In Good Faith” Look Like In Practice?

Good faith can feel vague until you translate it into real workplace steps. If you want a simple way to think about it, it’s this:

Where a decision could significantly affect someone’s job, avoid springing it on them if it’s reasonable to consult first.

In practice, acting in good faith often involves the following behaviours.

1) Communicate Early (Not After The Decision)

If you’ve already decided an outcome and you’re only meeting the employee to “tell them”, that’s a red flag.

Good faith will often mean you should:

• raise concerns early (performance, conduct, restructure pressures);
• explain what’s being considered and why;
• outline the possible outcomes (where appropriate);
• invite feedback before you make final decisions.

2) Provide Relevant Information (Where Required Or Appropriate)

When a decision may negatively affect an employee’s employment (for example, reduced hours, role changes, redundancy), you may need to provide relevant information so the employee can respond meaningfully.

That might include (depending on the situation):

• the business reasons driving the proposal (e.g. loss of a major client);
• a draft restructure proposal (not a final outcome);
• proposed selection criteria for disestablishing roles;
• how changes may affect pay, hours, duties, or location.

You don’t necessarily have to hand over everything in the business. There are valid confidentiality and privacy limits, and what you need to provide can depend on the context and the employment agreement. But if you’re relying on certain information to justify a change, it’s often important to share enough detail for the employee to properly understand the proposal and give informed feedback.

3) Give A Genuine Opportunity To Respond (And Actually Consider It)

One of the most common process mistakes is treating consultation like a “tick-the-box” step.

Good faith means you should:

• allow a reasonable timeframe to respond (especially where job security is at stake);
• encourage the employee to bring a support person if appropriate;
• consider feedback with an open mind;
• respond to key points raised (even if you ultimately disagree).

This is also why properly running performance management matters. If you’re heading towards warnings or termination, you generally need a fair and well-documented process. Many employers use a structured approach like a Performance Management Process to make sure meetings, expectations, improvement plans, and outcomes are handled consistently.

4) Don’t Mislead Or Deceive (Including By Omission)

Acting in good faith includes an obligation not to mislead or deceive each other. Importantly, this can include situations where:

• you say something that is technically true but gives a misleading impression;
• you leave out key context that would change how the employee understands the situation;
• you imply a decision is reversible when it’s already final (or vice versa).

For example, telling an employee “your role is safe” while you’re actively planning a restructure that may remove the role can become a serious issue later.

Where Good Faith Often Applies Most: Common High-Risk Scenarios For Employers

Good faith applies across the board, but there are certain situations where disputes most often arise. If you’re time-poor, this section is your “watch list”.

Restructures And Redundancy

When you’re facing financial pressure, a restructure can feel urgent. But redundancy decisions made without genuine consultation are a common source of personal grievances.

Good faith in a restructure often involves:

• providing a proposal (not a final decision);
• explaining the business rationale;
• consulting on alternatives (cost-saving ideas, redeployment, adjusted duties);
• using fair selection criteria if multiple people are affected;
• considering redeployment options genuinely.

If you’re considering this path, it’s worth getting tailored advice early. Even a “small” change can trigger consultation obligations depending on the agreement and the situation. For example, changing rosters or reducing hours can become contentious if the contract doesn’t allow it or the process isn’t handled carefully - issues we often see in scenarios like reducing staff hours.

Where redundancy is on the table, many employers also want clarity on payments and documentation. Depending on the circumstances, you may need specific advice about redundancy entitlements, notice, and process, and it can help to engage a Redundancy Advice package before you present anything to staff.

Performance Management And Misconduct Processes

When an employee isn’t meeting expectations, it’s tempting to move quickly - especially in a small team where one underperformer affects everyone.

Good faith will often require you to:

• tell the employee what the concerns are (with examples);
• give them a real chance to improve (where appropriate);
• support improvement (training, supervision, clarified expectations);
• follow your policies and be consistent with other staff.

If there’s misconduct, you’ll generally need to investigate fairly. This can include putting allegations to the employee and considering their explanation before concluding what happened and what the outcome should be.

Annual Leave Directions And “Forced Leave”

Leave can become a pressure point during quiet periods, shutdowns, or when you’re trying to manage staffing costs.

But directing annual leave is not simply a business preference - the legal rules matter, and good faith is part of the picture. You’ll want to check what the Holidays Act allows and how consultation should occur in your circumstances. This is where issues commonly arise in situations like forcing annual leave.

Termination, Notice, And Payments In Lieu

If you need to end employment, good faith doesn’t disappear at the “paperwork” stage. It continues through how you communicate, whether you allow representation, whether you’ve listened to responses, and how you handle notice and final pay.

For example, if you want the employment to end immediately, you might consider paying notice instead of requiring the employee to work it. But whether that’s allowed depends on the agreement and the circumstances. This is a common topic in payment in lieu of notice situations.

Common Breaches Of Good Faith (And How They Happen In Real Life)

Most examples of breach of good faith aren’t dramatic. They’re usually process slip-ups that happen when you’re busy, stressed, or trying to “keep things simple”.

Here are some of the most common breaches we see in good faith employment disputes - and how to avoid them.

1) Predetermining The Outcome

What it looks like: You invite the employee to a meeting about a proposed change, but you’ve already decided what will happen and you’re just delivering the decision.

Why it’s risky: Consultation needs to be genuine. If the employee can show the decision was effectively made in advance, the process can be challenged even if the business reasons were real.

What to do instead: Communicate clearly that it’s a proposal, provide supporting reasons, invite feedback, and be open to alternatives.

2) Withholding Key Information

What it looks like: You say “business is slow” as the reason for changes, but you don’t provide any meaningful information and refuse to answer questions.

Why it’s risky: If the employee can’t understand the basis of the proposal, they may not be able to respond properly. That can undermine a good faith process.

What to do instead: Provide enough information for the employee to engage (while still protecting genuinely confidential details).

3) Rushing Timeframes Unreasonably

What it looks like: You give an employee 24 hours to respond to a proposal that could end their employment.

Why it’s risky: Good faith requires a fair opportunity to respond. In serious matters, “reasonable time” is often more than a day or two.

What to do instead: Build in time, offer a meeting, and expect that the employee may seek advice.

4) “Soft Pressure” Or Retaliation For Raising Issues

What it looks like: An employee raises concerns (e.g. about safety, bullying, pay, or workload), and soon after they are sidelined, rostered off, or targeted with discipline.

Why it’s risky: Even if you believe the later action is justified, the timing and communications can create an argument that you acted unfairly or in bad faith.

What to do instead: Treat concerns seriously, document your response, and separate complaint handling from performance management wherever possible.

5) Inconsistent Treatment Between Employees

What it looks like: Two employees do the same thing, but one gets a warning and the other gets nothing (or a lighter outcome) with no clear justification.

Why it’s risky: Inconsistency can look like bias or predetermination. It can also undermine your credibility if the dispute escalates.

What to do instead: Apply policies consistently and document why a particular outcome was appropriate in the circumstances.

A Practical Good Faith Checklist For Employers (Before You Make A Big Decision)

If you want a simple way to stress-test whether you’re meeting your good faith obligations, run through the checklist below before you announce any significant change.

Good Faith Employer Checklist

• Have we clearly identified the issue? (Performance, conduct, restructure, capability, operational change.)
• Have we checked the employment agreement and policies? Make sure your contract terms actually support the change you’re considering.
• Have we prepared a proposal (not a final decision)? Especially for restructure/redundancy or significant changes to duties/hours.
• Have we gathered the information we’re relying on? Financial reasons, performance records, customer complaints, roster requirements, etc.
• Are we ready to share relevant information? Enough detail for the employee to respond meaningfully (where required/appropriate).
• Have we allowed reasonable time to respond? And are we prepared to meet again if needed?
• Have we documented the process? Notes of meetings, letters, and what was considered.
• Are we genuinely open to alternatives? Even if you think the “best” option is obvious.

If you’re unsure, it’s usually cheaper (and faster) to get advice upfront than to defend a personal grievance later. Many employers also find it helpful to speak with an Employment Lawyer before starting a high-stakes process, so the steps, letters, and timelines are right from day one.

Key Takeaways

• Good faith is a legal obligation in NZ that can affect how you communicate and make decisions throughout the employment relationship.
• Acting in good faith generally means being active and constructive, not misleading or deceiving, and (where required/appropriate) giving employees relevant information and a genuine chance to respond.
• High-risk areas include restructures and redundancy, performance management, misconduct investigations, changes to hours/rosters, leave direction, and termination.
• Common examples of breach of good faith include predetermining outcomes, withholding key information, rushing consultation timeframes, retaliating after concerns are raised, and inconsistent treatment.
• A structured process (and clear documentation) is one of the best practical ways to show you acted fairly and in good faith.
• Strong contracts and tailored advice upfront can reduce disputes and help you manage staff confidently as your business grows.

Note: This article provides general information only and doesn’t constitute legal advice. Because good faith obligations and process requirements can depend on your specific facts and the employment agreement, consider getting tailored advice before taking action.

If you’d like help setting up your employment documents or managing a tricky employee situation in a way that meets your good faith obligations, contact Sprintlaw on 0800 002 184 or email team@sprintlaw.co.nz for a free, no-obligations chat.