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duty of good faith

Good faith in employment

Recruitment

9 May 2025 (Last updated 3 Dec 2025)

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The requirement of good faith is central to the employment relationship in terms of which both employer and employee have a reciprocal duty to the other.

The concept of good faith is based on the premiss that an employment agreement is a special relationship in which employers and employees have obligations of confidence trust, fair dealings and good faith behaviour. For this reason, the employment contract cannot be considered on the same basis as a commercial agreement and implies that the parties have additional obligations in the manner in which they deal with each other.

The duty of good faith applies to employers and employees in a current employment relationship and does not survive once the relationship is terminated. It further applies to a union - employer relationship and a union – employee relationship as well as the parties to collective bargaining.

Understanding good faith

In addition to a well-established common law, the Employment Relations Act of 2000 (the Act) requires that the parties to an employment relationship must deal with each other in good faith, which includes, but is not limited to:

  • Either party refraining from doing anything that is likely to or actually does mislead or deceive the other
  • Either party complying with the obligation of confidence and trust towards the other
  • Either party being active and constructive in establishing and maintaining a productive employment relationship in which the parties are, among other things, responsive and communicative

  • Where an employer is proposing to make a decision that will (or is likely to) have an adverse effect on the continuation of employment of an employee, they must provide that employee:

    • With access to relevant information (that is not confidential as defined in the Act)
    • An opportunity to comment on such information before the employer makes a decision

Acts of good faith may include examples such as: honesty, raising issues in a fair and timely manner, treating the other party with respect, and giving the other party information which may be referred to in any future discussions.

In addition to the duty of good faith, employers must:

  • Have a good reason for their actions
  • Follow a fair process

If the parties to an employment relationship are guided by these basic principles, they will be better placed to build a constructive and healthy employment relationship.

Application of the duty of good faith

In addition to the above, the Act sets out that the duty of the parties to an employment relationship to deal with each other in good faith includes:

  • Bargaining for a collective agreement or the variation thereof
  • Any matter arising from a collective agreement, whilst it is in force
  • Negotiating an individual employment agreement (IEA) or the variation thereof
  • Any matter arising from an IEA, whilst it is in force
  • Consultation with a union or employees about the employees’ collective employment interests, including the effect on employees of changes to the employer’s business:
  • A proposal by an employer that might impact on their employees, including contracting out work done by the employees or selling or transferring all or part of their business
  • Making employees redundant
  • In relation to pay equity claims, under Part 4 of the Equal Pay Act 1972
  • Access to a workplace by a representative of a union
  • Communications between a union and an employer relating to any secret ballots held for the purposes of bargaining for a collective agreement.

The employer will breach their duty of good faith, if they do anything with the intention of inducing an employee to not be involved in bargaining for a collective agreement or not to be covered thereby.

Failure to act in good faith

A breach of good faith by an employer may result in the Employment Relations Authority imposing a penalty over and above any compensation awarded to the employee for a personal grievance related thereto (such as lost wages, hurt and humiliation damages, punitive damages, and legal costs).

Penalties would be imposed where the breach is serious, deliberate and sustained or was intended to undermine negotiations for and IEA or a collective agreement, an existing agreement or the employment relationship.

Ensure duty of good faith with Peninsula

The duty of good faith lies at the heart of the employment relationship. Peninsula can provide tailored support and resources to integrate these principles in your business. We customise our advice to meet your industry and business needs and are available to you 24/7, 365 days a year. For advice on good faith, or support following allegations of a breach, call Peninsula on 0800215030.

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