ERA clarifies employer's obligations during business transfers
The Employment Relations Authority (ERA) recently dealt with a case involving a worker who was dismissed without notice after her employer sold its business. The worker claimed her dismissal was unjustified because the employer didn't give her an opportunity to put herself forward for employment with the business purchaser.
At issue was whether the employer followed proper procedures during the business sale, particularly regarding employee protection provisions in the worker's individual employment agreement (IEA).
The worker sought compensation of $30,000, lost earnings for three months after termination, payment for a 4-week notice period, and costs.
The case raises important questions about employer obligations during business transfers, especially for employees on long-term medical leave.
Employee protection during business sale
The worker had been employed at the vehicle logistics company since 2016 but had been away from work for nearly two years on accident compensation due to a serious non-workplace injury that occurred in July 2021. During her time off work, she had retained the use of a company car, laptop, and mobile phone.
The employer denied all claims, stating it was outside their control that the purchaser didn't choose to employ the worker. They also argued that she had been unable to work for two years prior to termination and that her continued use of company property during this time was due to the director's generosity.
When examining the evidence, the ERA found that the worker was likely not informed about the business sale before receiving an invitation to meet on 12 June 2023. The invitation email from her direct manager stated: "You may have heard that Rick and Dean have entered into an agreement to sell the company to [purchaser name]. Accordingly, I need to meet with you to discuss the impact this will have on staff, including yourself."
At the meeting on 15 June 2023, the worker was told her employment was ending because she wasn't selected by the purchaser, and that she wasn't owed any final payments. The worker challenged this dismissal in writing the next day.
The ERA uncovered an email exchange between the employer's chief financial officer and the purchaser's HR manager. The purchaser had asked the employer to follow up with the worker regarding a "letter of offer," listing her among 13 employees who had yet to return signed offers.
The employer's chief financial officer responded: "If you remember we took [the worker] off the list – she had been on ACC for two years. She has been made redundant from our end." This contradicted the employer's claim that the purchaser had decided not to employ the worker.
The worker's employment agreement required the employer to "use his/her best endeavours to negotiate whether or not [the purchaser] proposes to offer employment" to the worker. The ERA found the employer had breached this obligation by removing the worker from consideration without her knowledge.
The worker's employment agreement also contained provisions for termination on medical grounds. After six weeks of absence due to illness, the employer could require a medical examination. If deemed incapable of performing duties, the employer could terminate with at least one month's notice.
Despite the worker being off work for two years, the employer never started this process. Instead, they continued to accept her medical updates and allowed her use of company property, creating a reasonable expectation of ongoing employment.
An assessment from May 2023 had recommended the worker could potentially perform light duties with a work-from-home arrangement. However, the report noted that a manager had said there were "no light duties available" and that "as of June 2023 they no longer have an employment role for [the worker]."
The ERA member stated: "The company could more reasonably have better considered the situation for [the worker]. It could also have utilised a process to better inform itself about her medical situation which I am satisfied it did not."
The ERA concluded that the employer had unjustifiably dismissed the worker, writing: "I find that in the above circumstances [the employer] did not act as a fair and reasonable employer could have done in all the circumstances at the time and that [the worker] was unjustifiably dismissed."
The worker was described as a "plausible and dignified witness" who was humiliated by the way her employment ended after years of loyal service. The Authority ordered the employer to pay $18,000 in compensation for "humiliation, loss of dignity, and injury to feelings."
In the determination, the Authority member explained: "I do not accept [the employer's] submission that there was no point in promoting [the worker] to a purchaser. The reality is that under the employee protection provision of her [individual employment agreement] and given she was likely at a point for being assessed for light duties she lost opportunities to continue in employment albeit on a potentially limited basis."
However, the ERA did not award lost wages or the claimed 4-week notice period, noting the worker had surgery around the time of dismissal that would have affected her ability to work. Claims about COVID-19 lockdown payments were also dismissed due to insufficient evidence.
The case reminds employers to ensure that they meet their contractual obligations when negotiating employment opportunities during business transfers and follow appropriate processes when considering termination on medical grounds.
