Employment Relations Act 2000 ss 3, 4, 103A,123, 143,214& 216 –duty of good faith – fair and reasonable employer – adverse effect – provision of information – redundancy – unjustified dismissal –statutory entitlement – proposal – good reason – Bryson v Three Foot Six Ltd [2005] NZSC 34 – New Zealand Airline Pilots Association Inc v Air New Zealand Ltd [2017] NZSC – jurisdiction

Birthing Centre Limited v Matsas [2024] NZCA 139

Birthing Centre Ltd’s (BCL) application for leave to appeal an Employment Court’s decision on the unjustified dismissal of five midwives was dismissed.

BCL is a company owned by the Wright Family Foundation, providing primary care birthing services throughout New Zealand. BCL’s Palmerston North centre, Te Papaioea Birthing Centre (TPBC), was funded by the MidCentral District Health Board (MDHB). Matsas and the other four respondents were midwives employed at TPBC by BCL.

BCL closed TPBC and terminated the staff’s employment on 31 March 2020. MDBC took over the delivery of TPBC’s services and the lease for the premises and employed most of the TPBC staff from April 2020.

This happened in accordance with a memorandum of understanding between BCL and MDHB, signed on 11 December 2019. The memorandum was the culmination of discussions and negotiations between BCL and MDHB that began when BCL approached MDHB in April 2019.

BCL was running at a loss and asked for increased funding. It also suggested a shared staffing arrangement between BCL and MDHB for birthing services. BCL’s contract with MDHB was due to expire in December 2019. In August, MDBH raised the possibility of TPBC’s services being transferred to MDHB and insisted that the discussions remain confidential.

The future of BCL’s TPBC staff, among other matters, was on the agenda from the beginning of these discussions. In September, the MDHB board expressed a preference for TPBC staff to be transferred to MDHB and in October BCL gave MDHB a copy of its employment agreement template and confirmed it would keep MDBH informed of any new hires.

The MDHB board was asked to approve a proposal to transfer TPBC services to it. This was on the basis that the services would continue from the TPBC premises and the staff would be shared, but TPBC staff would not automatically be offered employment.

When the memorandum was signed, a public statement was made by MDHB and the Wright Family Foundation. It prompted a journalist to ask the midwives’ union (MERAS) to comment.

At this stage, BCL had not given any of its TPBC staff any information about the transfer of TPBC services or, specifically, about the potential for an adverse employment consequences.  The staff became aware of this only when the union informed them.

BCL held a meeting with its staff on 12 December 2019. Staff were told about the transfer and that MDHB would require them to work at both the hospital and TPBC, giving both primary and secondary care (they worked only in primary care at TPBC). Further, their rostered shifts would be 12 hours, rather than their usual eight. MERAS would negotiate the terms and conditions of their employment with MDHB. BCL did not engage in the negotiations.

MDHB issued a consultation document, with consultation closing on 23 February 2020 and a decision to be communicated on 27 February. On 9 March, MDHB gave most TPBC staff a pack containing a letter from BCL, advising that their employment would be terminated on 31 March 2020 with no redundancy compensation or payment in lieu of notice. Staff received another letter from BCL on 26 March, thanking them for their support and advising them of the date for their final pay.

The TPBC employment agreements stipulated four weeks’ notice or pay in lieu of notice when redundancy occurred. However, if employees were offered employment “on terms and conditions generally no less favourable,” there would be no redundancy or compensation payable.

The respondents commenced employment with MDHB and filed a claim with the Employment Relations Authority (ERA), which found they were unjustifiably dismissed and were entitled to be paid in lieu of notice under their employment agreements. The ERA found that a breach of good faith was also established but did not consider a penalty to be appropriate.

BCL challenged the ERA’s findings in the Employment Court. The court upheld the ERA’s ruling and dismissed BCL’s challenge that:

• the duty of good faith in s 4(1A)(c) did not apply because there was no proposal;
• if there was a duty under s 4(1A)(c), the exemption under s 4(1B) applied;
• there was no dismissal. BCL had waived the contractual requirement that the respondents give notice; alternatively, the employment was mutually terminated and there was no redundancy compensation due under the terms of the employment agreement;
• the respondents were obliged to mitigate their loss and their loss was mitigated by their immediate employment by MDHB.

BCL sought leave to appeal on issues 1, 2 and 4, asking:

• did the Employment Court err in interpreting s 4(1A)(c) wrongly or was it so unsupportable it was an error of law?
• did the Employment Court err in using the s 103A test of justification to determine if s 4(1B)(c) applied or did the court misapply the s 103A test?
• should the duty to mitigate loss in s 123(1)(c)(ii) have been applied?

Applicable principles: whether employers fulfilled duty of good faith – whether there was an adverse effect on employment – whether employer required to provide information – whether proposal existed – whether s 4(1B)(c) exemption applies – whether s 103A justification test applies to s 4(1B)(c) – whether employer fair and reasonable – Whether principles of contract interpretation misstated or misapplied – were respondents required to mitigate loss?– whether contractual entitlement or damages –whether question of law or fact– whether question is of public or general importance – whether employment terms and conditions changed.

Held: Leave to appeal issues 1,2 and 4 from the Employment Court was declined.

• There was no question of law regarding the interpretation of s 4(1A)(c) because the law was settled;
• whether “good reason” in s 4(1B)(c) should be determined subjectively or objectively is a question of law but it is not a matter “of public or general importance in this case”; and
• There was no jurisdiction because the court would be required to interpret the employment agreements.

After 14 years as general counsel for a local authority, Andrea Hilton is now a sole practitioner practising local government law

Birthing Centre Limited v Matsas [2024] NZCA 139