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Selling your business is a complex process, and when it comes to employees, balancing confidentiality with transparency is crucial. Employment law in New Zealand is designed to protect employee rights, therefore it is important to navigate these waters carefully.
If you are selling your business's assets (rather than shares), you will need to carry out a consultation process with your employees before the sale and purchase is finalised (see our previous article which outlines some general considerations for a restructure).
However, the consultation process can sometimes be overlooked or skipped in order to protect commercially sensitive information. This could lead to grievance claims from employees if their employment is negatively affected by the sale.
The law requires employers to provide employees with access to information that will be relevant to decisions the employer might make that could negatively impact the employees' jobs. The employees should also have an opportunity to comment on this information before any decisions are made.
The above obligations are balanced with the employer's right to maintain confidentiality of information for valid reasons, such as protecting the employer's commercial interests.
These considerations were recently addressed by the Employment Court and subsequently the Court of Appeal in Birthing Centre Limited v Matas [2023] NZEmpC 162 and Birthing Centre Ltd v Matas [2024] NZCA 139.
Birthing Centre Limited (BCL) is owned by the Wright Family Foundation and BCL provided services to Te Papaioea Birth Centre (TPBC) in Palmerston North. In 2019, TPBC proposed transferring its services to the MidCentral District Health Board (MDHB). MDHB had a condition that this proposal was to be strictly confidential to prevent any gossip or doubts about their services in the public sphere or in the workplace.
After the transaction was complete, MDHB and the Wright Family Foundation publicly announced their agreement, which attracted the attention of the Midwifery Employment Representation and Advisory Services (the Union). The employees first became aware of the proposal through the Union.
Following the public announcement, TPBC informed the employees that they would be 'transferred' to MDHB. Although the employees were consulted about some terms and conditions of employment with MDHB, the transfer of their employment to MDHB was effectively a done deal by the time the employees were informed.
As a result, five midwives who worked for BCL raised personal grievances for unjustified dismissal claiming that they were not adequately consulted about the transfer of their employment to MDHB.
BCL disputed the personal grievances. One of the arguments put forward by BCL was that it was exempted from consulting with the employees because there was good reason to maintain confidentiality regarding MDHB's and BCL's commercial information.
The matter was heard at the Employment Court, which looked at (among other issues) whether a fair and reasonable employer could have concluded that sharing information about the proposal would cause unreasonable prejudice to the employer's commercial position, and if so, whether they had a good reason for keeping the information confidential.
In this case the Court concluded that "a fair and reasonable employer could in the circumstances have considered options for exploring whether it could maintain the integrity of BCL's commercial position as well as the DHB's commercial position, while informing its employees of the proposal in a confidential way." The Court believed that there were several mechanisms for doing this, but BCL did not give these any consideration.
BCL appealed the Employment Court's decision to the Court of Appeal, but the appeal was declined.
These cases highlight the need to consider basic employee rights when selling a business. Although it is important to protect commercially sensitive information, employers should explore ways of maintaining confidentiality while also ensuring that employees are kept in the loop about any decisions that will affect their employment.
Please contact us if you would like to discuss other matters related to this article:
Email: mjohnston@mcveaghfleming.co.nz
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© McVeagh Fleming 2024
This article is published for general information purposes only. Legal content in this article is necessarily of a general nature and should not be relied upon as legal advice. If you require specific legal advice in respect of any legal issue, you should always engage a lawyer to provide that advice.
