Local Putaruru Business Faces Costly Employment Determination: A Cautionary Tale
A recent Employment Relations Authority determination involving a Putaruru-based business (the Company), serves as a stark reminder of how expensive employment mistakes can be for small businesses. The case of Udumullaga v Hopkins Joinery Limited, determined in May 2025, is a reminder that even where an employer might have a genuine reason for ending an employment relationship, they can face significant financial consequences when they get the process wrong.
The cost of getting it wrong
The Company was ordered to pay over $40,000 in compensation and penalties after the Authority found that the employee had been unjustifiably dismissed. For a small business, this represents a substantial financial burden that could have been avoided by obtaining legal advice from the outset and following the most appropriate lawful procedures from the beginning.
The breakdown of costs tells the story. The Company was ordered to pay:
$25,000 in compensation to the employee for her hurt and humiliation
$12,116 in compensation to the employee for three months' lost wages
$1,677.60 to the employee for nine days’ unpaid wages when the employee was instructed to stay at home
$1,103.48 to the employee in holiday pay (an additional 8% of the employee’s successful lost/unpaid wages claims)
$6,000 in penalties for breaching good faith obligations ($3,000 of this was to be paid to the Crown, with the other $3,000 to be paid to the employee)
Relying on the wrong process
One of the critical errors the Company made was demonstrating a predetermined intention to end the employment relationship on grounds that ultimately the Company could not rely on. As the employee had suffered a back injury and had required an extended period of absence, the employer’s focus was on her medical capacity. As stated by the Authority, the Company “had simply not expected [the employee] to return” from her back injury and had sought to end the employment relationship on medical incapacity grounds. However, the Authority found that the employee’s medical capacity was not the Company’s genuine reason for wanting to end the employment relationship.
The Authority concluded that the Company’s real reason was that the employee's position had been "de-established" while she was on leave (otherwise referred to as being “disestablished” that may often can lead to an employee being made redundant). The business had made operational changes, including shifting to pre-cut materials, which reduced the need for the employee’s role. However, the employee was not consulted on the proposed restructuring before the change was made, and her termination was therefore unjustified.
The predetermined decision
Perhaps the most damaging aspect of this case was the evidence showing that the Company had predetermined the outcome before following a proper consultative process with the employee. The Authority noted several red flags:
The resignation letter: At a meeting, where the employee expected to discuss her return to work, she was presented with a pre-written resignation letter and asked to sign it. She was shocked and refused to sign it, as she had no intention of resigning.
Rejecting medical evidence: When the employee had provided medical certificates confirming she was fit to return to work (at the Company’s request), the Company rejected them. Meanwhile, the Company obtained its own opinion from a chiropractor, who had not seen or examined the employee, without the employee’s knowledge or consent.
No genuine consultation: When the "de-establishment" of the employee’s role was finally raised at a meeting shortly before her termination, the employee was given no advance notice of what would be discussed at the meeting, and was given no opportunity to bring a support person. She was simply told her job was gone.
Breach of good faith obligations
The Employment Relations Act 2000 (the Act) requires an employer to act in good faith toward their employees. Section 4 of the Act imposes specific obligations, including being active and constructive in maintaining a productive employment relationship and not acting in a misleading or deceptive way.
The Company breached these obligations in several ways:
Obtaining medical information from a practitioner without the employee's informed consent
Attempting to pressure the employee into signing a resignation letter
Failing to meaningfully consult the employee about the restructuring
The Authority found that these breaches were "deliberate, serious, and sustained" or "intended to undermine an employment relationship", thus meeting the high threshold for an additional penalty under section 4A of the Act. The Company was therefore ordered to pay a penalty of $6,000 (with half of this being payable to the employee and the other half to the Crown).
Failing the test of justification
For an employer to defend a personal grievance raised against them for unjustified dismissal, their actions must meet the test of justification at section 103A of the Act. This test investigates 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. This requires that the employer:
Sufficiently investigate the circumstances before dismissing the employee
Raise their concerns with the employee before dismissing them
Give the employee a reasonable opportunity to respond before dismissing them
Genuinely consider the employee's explanations before dismissing them
The Company fell short of their obligations on all counts. The Authority found that even if the position genuinely had been disestablished, the Company had made that significant decision without discussing it with the employee at all. The final meeting, where the Company’s true reasons were finally revealed to the employee, did not remedy these defects – this meeting was merely a notification that the decision had already been made.
The human cost
Beyond the financial consequences for the Company, there is also a real human impact of an employment process gone wrong. The employee had worked for the Company for eight years. She had maintained regular contact with the business during her injury, frequently visiting the office to provide updates and medical certificates.
When her employment ended abruptly, just before Christmas, she described feeling "angry and betrayed." She had to rely on food banks and had to walk when she would otherwise drive (as she couldn't afford petrol). While aspects of this hardship may have remained even with a lawful process having been followed, a fair consultative process would likely have been easier for the employee to accept.
These mistakes were avoidable
While hindsight is 20/20, these costly errors were entirely preventable. In most situations, where an employer has a genuine need to end an employment relationship, there is a lawful way to do so – but following the correct process from the start is required.
If the Company had sought legal advice from the beginning, they would have:
Handled their medical capacity concerns lawfully: where there are genuine doubts about an employee's fitness for work, there are ways an employer can address this, including obtaining appropriate medical information with proper informed consent. Initially, the Company requested information appropriately. However, when the employee provided evidence she was fit to return, the Company unreasonably refused to accept the employee’s medical clearance and proceeded unlawfully from that point (without being transparent about its predetermined intention to end the relationship due to operational change).
Conducted a lawful restructuring process: This includes genuine consultation with affected employees, providing information about proposed changes, and considering feedback.
Complied with its duty of good faith: An employer’s actions must be directed toward maintaining a productive employment relationship (unless there are genuine, lawful reasons to end it), being transparent and honest, and avoiding predetermined outcomes.
Key takeaways for employers
This case offers several important lessons for New Zealand businesses:
Seek legal advice early: Before you take any steps toward ending an employment relationship, talk to an employment lawyer. The cost of proper advice is minimal compared to the potential cost of getting it wrong.
Be clear about your legal justification: Don’t pursue one ground for dismissal (such as medical incapacity) when your real legal justification would be something else (like restructuring).
Follow proper process (the right one): Whether it's performance management, misconduct, restructuring, or medical incapacity, each situation has specific procedural requirements. You must follow them. Obtaining legal advice will also assist you to know when an approach being taken must change, based on the circumstances.
Never present predetermined outcomes: The consultation process must be genuine. If you've already made up your mind before hearing the employee's response, you're in breach of good faith obligations.
Get it right from the start
At MDL, we understand that sometimes employment relationships need to come to an end. Whether it's due to redundancy, ongoing performance issues, serious misconduct, or other reasons, there are lawful ways to navigate these difficult situations.
The key is getting advice before you start the process, not after things have gone wrong. We can help you:
Identify any genuine grounds for potential dismissal
Design and implement a fair and lawful process
Prepare appropriate documentation
Conduct meetings in a way that meets good faith obligations
Make decisions that will withstand scrutiny if challenged
Small businesses in our community work hard to build their operations and their teams. The last thing you need is an avoidable employment determination that costs tens of thousands of dollars and distracts you from the great work you want to be doing.
If you're facing a difficult employment situation, or if you simply want to ensure your employment practices are compliant, please feel free to contact us before taking action. We're here to help Waikato businesses get it right.
This article provides general information only and should not be relied upon as legal advice. For specific advice about your situation, please contact McLuskie Dalziel Lawyers.
