New Zealand: Fair and reasonable dismissals

The New Zealand Court of Appeal has ruled on the standard for employers in justifying dismissal decisions, finding it requires an overall assessment of whether the decision was fair and reasonable in the circumstances.

In A Ltd v H [2016] NZCA 419, the Court of Appeal found that the employer had acted fairly and reasonably in dismissing an employee accused of violating its sexual harassment policy despite minor changes to witness accounts, procedural discrepancies in the investigation and inconsistent treatment of another employee in similar circumstances.

Background

The issues arose out of allegations against the employee (a pilot) during a 2-night layover. It had been alleged that the employee had touched the leg of a female colleague during dinner, had made an inappropriate comment and had entered her hotel room, sat on her bed under the blanket and touched her leg in a sexual manner. The employee did not deny that touching occurred, but maintained that it was accidental. The employer's human resources department investigated the allegations and ultimately, the employee was dismissed.

The employee successfully challenged the dismissal on the basis of procedural flaws in the investigation and the Employment Court ordered his reinstatement. The employer appealed this decision to the Court of Appeal.

Sufficient investigation of allegations

The key issue in the proceedings was whether the employer had adequately investigated the allegations for the purpose of justifying dismissal. The Employment Relations Act (Act) provides that the test to be applied in determining whether a dismissal is justifiable is "… whether the employer’s actions, and how the employer acted, were what a fair and reasonable employer could have done in all the circumstances at the time the dismissal or action occurred."

The Employment Court found that, in its investigation into the allegations, the employer had failed to question all witnesses with the same degree of intensity as the employee had been questioned and it had not fully investigated various small discrepancies in their accounts. It held that this meant that the evidence on which the outcome was based was unreliable. Further it found that, when considering the dismissal, the employer had not given due regard to the treatment of another employee in relation to a previous, similar complaint.

The Court of Appeal disagreed with the Employment Court's interpretation of the requirements under the Act and said that what is fair and reasonable should be assessed in all the circumstances. The Court of Appeal concluded that there was an "inherent implausibility of an innocent purpose and accidental touching", which the investigator was entitled to structure the approach to the investigation around. The Court of Appeal also considered the phrase "could have done" in the Act and referred to the Act's explanatory note which stated that the wording recognised that "that there is a range of fair and reasonable responses that could be made by an employer in any situation" and was drafted "to ensure that minor or technical defects in an employer’s processes" will not be decisive.

The Court of Appeal reiterated that the requirement is for an assessment of substantive fairness and reasonableness rather than minute and pedantic scrutiny to identify any failings in the process leading to the dismissal. It concluded that the Employment Court's approach was incorrect and allowed the appeal.

Practical implications

This decision gives employers further guidance on what will amount to a sufficient investigation which forms the basis for a dismissal. It acknowledges that employers may take different approaches having regard to the circumstances provided that the approach they choose is fair and reasonable in those circumstances.

By Fatim Jamubhoy, Tess Lumsdaine and Sarah Yazid