Does a large employer have greater obligations than a small one?

This is an interesting question. Employment lawyers know an employer’s resources should be taken into consideration when assessing whether its actions were justifiable; this is clear from the test of justification in the Employment Relations Act 2000, s 103A. But no prudent lawyer would advise a small employer that having fewer resources excused it from meeting the same standards as large employers.

The policy rationale for considering an employer’s resources is strictly practical. It is simply not realistic to expect the same level of diligence in employment matters from a small family-owned café that employs only a single kitchenhand, as you would from the multi-national McDonald’s corporation, with access to a large HR department and an in-house legal team.

So, larger employers are held to stricter standards. The Employment Court has put it this way (per Edwards v Board of Trustees of Bay of Islands College [2015] NZEmpC 6 at [10]):

“…the Court will expect the quantity and the quality of the employer’s investigation and decision-making to be determined, in part, by the resources reasonably available to the employer to do so. That will mean that a large employer with in-house or otherwise available human resources and legal advice may be held to a higher standard than an employer… which cannot afford such resources.”

A recent case in the Employment Court, E tū v Singh [2024] NZEmpC 84, directly touches on this point. This case concerned a union organiser who was dismissed by the E tū union. Two years prior, he attended a meeting with a company director (with whom he had a relationship, including sending “flirtatious” messages online) and one of her employees who had made allegations of migrant exploitation.

When the director later complained about him to E tū, it suspended him and investigated. E tū considered that the organiser had attended the meeting as the director’s representative, as well as a “mediator” and “adjudicator”, and dismissed him for serious misconduct as it considered this went strongly against the union’s values.

However, Chief Judge Christina Inglis found that E tū had committed multiple procedural errors, making the organiser’s dismissal unjustifiable.

In particular, E tū had failed (among other things) to:

• speak to other relevant parties who had attended the meeting;
• adequately put to the union organiser the key reason why his dismissal was contemplated;
• take into account that two years had passed since the meeting; and
• consider alternatives to dismissal, such as additional training.

Although these procedural failings would have been an issue for any employer, no matter how well-resourced, Chief Judge Inglis considered that E tū should be held to a higher standard than other employers, saying (at [49]):

A further balance is reflected in s 103A in the requirement that the Authority/Court must (not may) have regard to the employer’s resources in assessing the justification for what they did and how they did it. A well-resourced employer can be expected to do more; an owner/operator of a small business not so much. Resources may impact at each stage of the process – the nature and extent of the steps reasonably required of employer X as opposed to employer Y; and the scope of the options that may reasonably be available to employer X as opposed to Y in terms of (for example) disciplinary outcome. This is a key consideration which is often overlooked. As the Act makes clear, a one-size-fits-all approach is not the applicable framework for assessing justification.

The reference to the “scope of the options that may be reasonably available” is interesting as it implies that there will be circumstances where a small café’s kitchenhand (to use my earlier example) may be justifiably dismissed, but not a kitchenhand employed by McDonald’s, even though he or she may have committed the same misdemeanour and been subject to the same disciplinary process (perhaps McDonald’s will have greater ability to explore options like additional training or redeployment).

This contrasts, however, with previous case law where the court has emphasised a reducible minimum standard required by all employers, despite arguments made by small and medium-sized employers about their lack of resources. For example:

• Stormont v Peddle Thorp Aitken Ltd [2017] NZEmpC 71, where the Chief Judge commented, in response to a submission from the defendant employer: “…[The defendant] is a mid-sized employer and not a multi-national oil company, and… the sort of ‘bells and whistles’ process that might be expected of the latter should not be imposed on the former. That is true. However, a disingenuous decision to dismiss for redundancy will not be justified no matter how small- scale the employer is.”
• Gorrie Fuel (SI) Ltd v Marlow EmpC Christchurch CC14A/05, 21 November 2005, where, in response to a submission from the plaintiff employer that it did not have the resources to undertake a proper inquiry into an employment matter, the court said:

“…I reject that proposition entirely… In most small businesses, disciplinary investigations will be a rare occurrence. When they do occur, the time and effort required to conduct them properly must be regarded as an essential management responsibility.”

• Edwards v Board of Trustees of Bay of Islands College [2015] NZEmpC 6, where it was noted that the defendant, a rural school board, had access to employment law assistance from its professional advisory body, the New Zealand School Trustees Association, and the school’s decision-maker (in the matter giving rise to the claim) was a practising lawyer and consultant on matters of governance. Therefore, the defendant employer was not entitled “to justify its dismissal of the plaintiff by any lower standard of decision-making because of resource limitations”

This appears to be the court’s general approach to dealing with the difficulties inherent in applying different standards to differently-resourced employers.

Where a small employer is concerned, a lack of resources does not excuse it from failing to meet employment standards but where a large employer is concerned (such as a Regional District Health Board in de Bruin v Canterbury District Health Board [2012] NZEmpC 110), a higher standard of compliance may be expected.

Arguably, this is the only commonsense way to make the consideration of resourcing required by the statute work, without compromising the rights of employees of small businesses.

That leads us to the real problem with incorporating resourcing into the test of justifiability. The reason employment law obligations are thrust on employers is to protect employees from unfair and arbitrary decisions affecting their employment. Why shouldn’t a small café’s kitchenhand have the same employment protections (and therefore enjoy the same enhanced job security) as an employee of a large multinational? And further, why should an employer, who presumably engages HR and legal resources to better meet employment standards, be punished by needing to comply with more difficult standards?

In my opinion, this aspect of the justification test should be done away with. It is far clearer and fairer for all employers to be held to the same employment standards, regardless of whether they are a family-owned café or a McCafé. ■

Ben Cleland is an in-house employment lawyer at Fisher & Paykel Healthcare and a member of The Law Association’s Employment Law committee ■