New Zealand Fasteners Stainless Ltd v Thwaites

IN THE COURT OF APPEAL OF NEW ZEALAND

CA10/99

BETWEEN	NEW ZEALAND FASTENERS STAINLESS LIMITED
Appellant

AND	OWEN CAMPBELL THWAITES
Respondent

Hearing:	6 March 2000
Coram:	Richardson P Gault J Thomas J Keith J Tipping J
Appearances:	J F Timmins for Appellant A R Drake and S R Codling for Respondent
Judgment:	17 May 2000

JUDGMENTS OF THE COURT

Judgments

Paras No

Richardson P, Gault, Keith and Tipping JJ [1] – [33]
Thomas J [34] – [57]

RICHARDSON P, GAULT, KEITH AND TIPPING JJ
(DELIVERED BY GAULT J)

This appeal from a decision of the Employment Court delivered on 1 December 1998 arises from the termination of Mr Thwaites’ employment by the appellant company on 22 December 1994. Neither party seems to have been concerned at the slow pace of the proceeding.
Mr Thwaites claimed by way of personal grievance before the Employment Tribunal that he had been unjustifiably dismissed from his position as Finance Manager with the company. On the other hand the company maintained that his position had become redundant and the termination of his employment flowed from that.
The decision of the Employment Tribunal was given before the decision of this Court in Aoraki Corporation Ltd v McGavin [1998] 3 NZLR 276. The judgment in that case effectively overruled Phipps v New Zealand Fishing Industry Board [1996] 1 ERNZ 195 which was relied upon by the Tribunal in the present case. By the time the matter came before the Employment Court the Aoraki appeal had been decided so that Judge Travis was required to deal with the matter on a different legal basis. He placed considerable weight on a passage in the judgment of this Court in McKechnie Pacific (NZ) Ltd v Clemow [1998] 3 ERNZ 245, decided after Aoraki and now said to be inconsistent with it. If that is so, since the Court in McKechnie was purporting merely to apply the principles set out in Aoraki, Judge Travis also approached the matter on a legal basis that cannot be upheld. That is at the heart of the appeal.

The Facts

In the Tribunal decision there is a narrative of the circumstances of Mr Thwaites’ period of employment by reference to correspondence produced and evidence given. There are no express findings on the evidence nor on the credibility of witnesses. But it seems that the facts set out in the judgment should be taken as findings of the Tribunal. They can be summarised quite briefly. Mr Thwaites was employed in the position of Finance Manager in January 1992. A review by consultants of the group of companies involved in July 1992 resulted in a recommendation for the appointment of a General Manager – Finance supported by a newly or recently qualified accountant with the effective disestablishment of Mr Thwaites’ position. The company adopted this recommendation in part. A new General Manager – Finance, Mr Robson, was appointed over Mr Thwaites but Mr Thwaites was retained because of his detailed knowledge of the accounts and the workload arising out of the consultants’ report. This was not perceived at the time as a transitional situation. Mr Thwaites, although disappointed at what was in fact a demotion, accepted the situation and told the group General Manager (Mr Meiklejohn) that “he was glad to have a job in today’s market and getting a job at his age would be near impossible”.
Following Mr Robson’s appointment there were considerable advances and changes within the accounting and finance sections. Mr Robson was occupied initially implementing new systems but once they were in place he was able to absorb a considerable amount of the finance work that previously had been undertaken by Mr Thwaites. Mr Thwaites’ own role had also diminished because of increased efficiencies in the system.
In June 1994 Mr Thwaites was given a new job description. While he never agreed to it nor signed a new employment contract proposed in July of that year, he did agree in evidence that the job description reflected his functions and responsibilities at that time and up to his dismissal. In a letter dated 20 June 1994 to Mr Thwaites confirming discussions “regarding the position of Finance Manager” Mr Robson referred to additional work involved in certain changes and expressed the intention of employing an additional person to assist Mr Thwaites on a temporary basis. The letter also made reference to long term goals and indicated a salary review “for upward recommendation” in September.
By October 1994 it had become apparent that the company did not require a senior person in the position of Finance Manager. There remained only a “focused and somewhat mechanical accounting function” suitable (as had been recommended by the consultants two years earlier) for a newly or recently qualified accountant. It was decided that the position of Finance Manager was redundant and that there would be created a new full time position but at a much lower level.
Mr Thwaites was not consulted at all. On 26 October he was called into Mr Meiklejohn’s office and told that his position had been made redundant and “we will have to let you go”. The meeting was brief. He was told he could leave immediately if he wished or he could work out his notice and finish on 26 December. He was also told he would receive a redundancy payment calculated as six weeks pay for the first year of service and two weeks pay for each subsequent year. He was not told of the intention to appoint someone to a new accounting position. He said in evidence that if he had been offered that lesser position he would have accepted. He learned subsequently that there had been an appointment to a position of financial accountant on an income package substantially below that he had received.

The decision of the Tribunal

The Tribunal was satisfied from the evidence that the position held by Mr Thwaites was no longer in existence and that the position was made redundant for good commercial reasons. The Tribunal went on to hold that while the position had gone it was not shown that Mr Thwaites needed to be dismissed. The lack of consultation, the failure to discuss compensation and the failure to offer Mr Thwaites the position of financial accountant – all necessary steps prior to declaring a worker redundant -–meant that the dismissal was unjustified.
In the result Mr Thwaites was awarded compensation in the form of a further one month’s salary to reflect a reasonable notice period of three months and loss of expected remuneration for nine months at the lower rate of the salary the company paid for the position of financial accountant which Mr Thwaites said he would have accepted. This was to be paid along with the employer’s superannuation contribution, but reduced by the amount of redundancy compensation that had been paid. Also awarded was compensation for hurt feeling, humiliation and loss of dignity of $10,000, and in respect of the nine month period, for loss of a vehicle ($6,000), for medical insurance cover ($1,050) and for telephone rental ($375), and costs.

The Decision of the Employment Court

After summarising the facts from the evidence in a substantially similar way to the Tribunal, the Judge referred to the Tribunal finding that it was a genuine redundancy situation and the challenge to that finding made on behalf of Mr Thwaites. He rejected a submission that whether the position itself was redundant was a separate and distinct issue from the need to consult an affected employee in discharge of the employer’s obligation of fairness. He did this by reference to the judgments of this Court in Aoraki which, he said, were further clarified by the decision in the McKechnie case. After reviewing the evidence the Judge concluded that there was not a genuine redundancy situation because there was another position in the company suitable to Mr Thwaites which he should have been offered. The Judge made a comparison between the job specification which Mr Thwaites accepted and the Tribunal found (which finding had not been challenged) was a description of his duties at the termination of his employment with that for the new position of financial accountant. He first found on the evidence that Mr Thwaites by then no longer carried out management or supervisory functions stated in the job description and concluded that there was “a striking similarity between the two positions” – the responsibilities “were substantially similar and in most respects identical”. That notwithstanding, the Judge said:
I agree with the Tribunal’s conclusion that the financial management position previously held by Mr Thwaites was no longer in existence but the evidence satisfies me that it had ceased to exist from early in 1994. Whilst Mr Thwaites remained the incumbent of the position it was in name only because his management and supervisory functions had been removed.
The Judge upheld the finding of the Tribunal that the dismissal was unjustified because the financial accountant position was suitable for Mr Thwaites and should have been offered to him. He based his reasoning on this passage in the McKechnie judgment (p251):
In circumstances in which there was no longer any requirement for a full-time company secretary, a fair employer should have given consideration to redeployment. Consultation, while not a mandatory requirement, was desirable in the interests of both employer and employee. If in fact another position existed within the McKechnie group in New Zealand which was suitable for Mr Clemow it could not be said that he was surplus to requirements, so that there would not be a situation of redundancy. But it was artificial for the Court to deny to the employer the full opportunity of demonstrating ex post facto that if redeployment had been considered it would have emerged that in fact no suitable substitute position existed.
The Judge upheld the company’s appeal against the Tribunal finding that a reasonable period of notice was three months and held, as in Aoraki, that one month was sufficient. He rejected a cross-appeal seeking to have the loss of income quantified by reference to Mr Thwaites’ salary at termination rather than that for the position he said he would have accepted. Similarly he rejected claims to have the period of lost income increased and the ruling requiring deduction of the redundancy compensation paid reversed. Nor was the Judge persuaded to increase the award for hurt feelings and humiliation. He did, however, overturn the award of $6,000 for loss of a vehicle as unsupported by evidence. All other awards, though challenged, were upheld.

The Arguments on Appeal

In support of the appeal Mr Timmins submitted that the Employment Court (and the Tribunal) erred in law in reasoning that in a genuine redundancy situation, Mr Thwaites was unjustifiably dismissed because he was not offered the new position in the company for which he was suitable. Counsel stressed that redundancy involves the position not the person. Here both the Tribunal and the Employment Court held that as a matter of business judgment for good commercial reasons the position of Finance Manager was disestablished as surplus to requirements. He submitted further that the creation of the new position of financial accountant did not detract from the genuineness of the redundancy nor did the failure of the company to consult with Mr Thwaites or to discuss with him or offer redeployment within the company. The dismissal therefore was justified. Reference was made to the evidence of Mr Meiklejohn that he and Mr Robson had considered Mr Thwaites was not suited to the new position and that there would have been “significant difficulties for Mr Thwaites in adopting that role”. It was submitted that too was a business decision which the employer was entitled to make.
For Mr Thwaites it was submitted that even where the position is shown to be surplus to requirements, the employer must show that there is no other suitable position for the employee before dismissal can be substantively justified; that the failure to consult and discuss redeployment, where a reasonable employer acting fairly would do that, can render a dismissal for redundancy unjustified. Therefore, it was argued, the Judge was right to embark upon his consideration of whether, objectively, the position of financial accountant was suitable for Mr Thwaites and his conclusion that it was and should have been offered was open to him.
Mr Drake did present an argument that Mr Thwaites’ position was not surplus to the company’s requirements. On its face that was confronted by the insuperable problems of being a question of fact which is not for this Court and having been the subject of concurrent contrary findings by the Tribunal and the Employment Court. The argument did, however, raise the issue of whether the position said to be redundant is that for which the employee was hired and paid or whether it was that defined by the duties actually carried out at the time the redundancy was declared. That will need to be addressed.
Mr Drake also argued that the company had used redundancy as a cloak to disguise dismissal for other reasons. That is a factual matter which was not the subject of any findings by the Tribunal or the Employment Court. It cannot be dealt with now in this Court.
Mr Thwaites cross-appealed against the assessment of compensation on four aspects. They can be dealt with in light of our conclusions on the essential issue of unjustified dismissal.

Dismissal for redundancy – consideration

It is important to restate that the Employment Court did not find there was no genuine redundancy situation because the position had not truly become surplus to the company’s requirements. It was held that there was no true redundancy because there was another new position which Mr Thwaites should have been offered. Further, it was not decided that the position was not redundant because the same position was offered to and filled by a new employee. It seems the only purpose in comparing the duties of Mr Thwaites at the termination of his employment with those of the new appointee as financial accountant was to ascertain whether the new position was “suitable” for Mr Thwaites.
In the Aoraki case, the joint judgment contains the following passage (expressly agreed with by Thomas J in his separate judgment) in the context of the statutory scheme as it relates to unjustifiable dismissal. (p293):
Redundancy is a special situation. The employees affected have done no wrong. It is simply that in the circumstances the employer faces their jobs have disappeared and they are considered surplus to the needs of the business. Where it is decided as a matter of commercial judgment that there are too many employees in the particular area or overall, it is for the employer as a matter of business judgment to decide on the strategy to be adopted in the restructuring exercise and what position or positions should be dispensed with in the implementation of that strategy and whether an employee whose job has disappeared should be offered another position elsewhere in the business.
It cannot be mandatory for the employer to consult with all potentially affected employees in making any redundancy decision. To impose an absolute requirement of that kind would be inconsistent with the employer’s prima facie right to organise and run its business operation as it sees fit. And consultation would often be impracticable, particularly where circumstances are seen to require mass redundancies. However, in some circumstances an absence of consultation where consultation could reasonably be expected may cast doubt on the genuineness of the alleged redundancy, or its timing. So, too, may a failure to consider any redeployment possibilities.
Fifth, where, as here, the Employment Court has found that there was a genuine redundancy situation and Mr McGavin’s dismissal for redundancy as from 30 June 1995 was substantively justifiable, the next question is whether the steps taken to implement that termination of employment were unjustifiable. A just employer, subject to the mutual obligations of confidence, trust and fair dealing, will implement the redundancy decisions in a fair and sensitive way.
In his separate judgment Thomas J said (p306):
It is unrealistic to suggest that a genuine redundancy decision is “vitiated” because the procedure followed in implementing that decision was unfair when the element of unfairness may have had no bearing on the substance of the decision. In such circumstances, the validity of the decision itself remains; it is the method by which it was executed which is at fault, and it is that method which properly may be the subject of the statutory personal grievance procedure.
Where adherence to a fair procedure, however, would have resulted in a decision not to make the position or job filled by the employee redundant, it cannot then be said to be a genuine redundancy. For example, if the duty of fair dealing would in the circumstances have required the employer to consult with the employee, and the employer does not do so, and it can be shown that if such consultation had taken place the employee’s position would not have been made redundant, the termination of the employee’s employment will constitute unjustifiable dismissal and compensation will be recoverable on the basis that there was no true redundancy. In other words, if consultation would have led to the redundancy not applying to the employee, it cannot be said that the redundancy was genuine in his or her case. He or she would then have been unjustifiably dismissed and the measure of monetary compensation would be the salary lost as a result of unjustifiable dismissal.
It is preferable to leave aside the question whether a finding to that effect “vitiates” the decision, and simply regard it as a finding of fact that the purported redundancy was not a genuine redundancy. A dismissal said to be for redundancy will always be unjustified if there is no true redundancy situation. (See e.g. Brighouse (supra) per Gault J at p180.) The line between a genuine and non-genuine redundancy situation because of the absence of consultation or other procedural defect may not be easy to draw, but that shortcoming is preferable to the situation where the dismissal is vitiated whenever an element of procedural fairness is absent irrespective of how inconsequential to the redundancy decision the absence of that element may be.
The principles are clear enough. Redundancy is determined in relation to the position not the incumbent. Whether a position is truly redundant is a matter of business judgment for the employer. The genuineness of any determination of redundancy can be reviewed. If it is not one the employer acting reasonably and in good faith could have reached it may be impeached. In any such review it may be relevant that the employer did not consult with affected employees or consider whether the redundancy might have been avoided by redeployment or otherwise. Absence of such steps might in particular circumstances indicate absence of genuineness in the determination. Where there is a genuine redundancy that will justify termination of the employment of the person in the position. In the course of the employer’s consideration of the position and in carrying out the dismissal the obligation of good faith and fair treatment applies. Any failure to discharge that obligation that itself is unjustifiable may result in remedies appropriate to the breach.
As stated earlier, the Court in the McKechnie case, in the passage relied on by Judge Travis, was not seeking to establish any new principles but was merely applying those established in the Aoraki case. The critical sentence in the McKechnie judgment is “If in fact another position existed within the McKechnie group in New Zealand which was suitable for Mr Clemow it could not be said that he was surplus to requirements, so that there would not be a situation of redundancy”. In that case the Court held that there was no such position. On its face this approach relates redundancy to the person rather than the position and does not reflect the established law as stated in Aoraki. It also recognises “vitiation” of redundancy by failure to offer a different position. The references in the judgments in Aoraki to absence of consultation and failure to consider redeployment possibilities as in some circumstances casting doubt on the genuineness of the alleged redundancy do not go that far. The genuineness of the redundancy of one position once established cannot be negated by a failure to offer a different position. To the extent that the judgment in McKechnie appears to say that it can, it does not reflect the principles established in Aoraki which are to be preferred.

Before leaving the McKechnie case, although it is not material, we record that we do not find in the reasoning in that judgment support for the proposition that the position of financial accountant was suitable for Mr Thwaites because subsequently he was not able to earn as much as the salary for that position.
In a situation of genuine redundancy, where the position truly is surplus to requirements, in the absence of a contractual provision to that effect, it cannot constitute unjustified dismissal not to offer the employee a different position. The relationship between employer and employee applies in respect of the position and work the employee is contracted to provide. That may be varied consensually in the course of the relationship but it does not extend to any other position a court might subsequently determine would be suitable to the employee. Nor does the obligation to deal fairly with an employee extend beyond the job in which he or she is employed. The obligation is implied into the contract for that employment.
We turn to the argument that because the Employment Court found that the new position of financial accountant involved substantially the same responsibilities as those carried by Mr Thwaites at the time of his dismissal, his position could not be said to have been redundant. Even disregarding that the Judge’s finding appears contrary to the position he said was not challenged, we do not accept that this represents the true test for redundancy. While some positions might become surplus to requirements abruptly, as on a restructuring or change in technology, many will diminish over time to a point when it is recognised they should be declared to be redundant. In these latter cases it would be quite unrealistic to regard the position as encompassing only those residual duties remaining at the time the inevitable is recognised. To do that would be to penalise employers for retaining employees longer than is necessary. Bearing in mind it is a business decision to be made as a matter of commercial judgment, it must be open to the employer to assess the requirements of the business with respect to positions as established and as envisaged in the structure of the business operation. Here the fact that both the Tribunal and the Judge found a new position to have been established cannot be departed from because Mr Thwaites’ duties had diminished to resemble those of the new position. That was the very reason for the redundancy. It is not a ground for negating it.
That the redundancy of the position of Financial Manager was not negated does not mean, however, that unjustifiable failure to adequately explain to Mr Thwaites the redundancy and to discuss the possibility of redeployment to the new position may not have breached the obligation upon the employer to act reasonably and fairly for which the employee is entitled to a remedy. Except in cases where failure to consult and consider redeployment, taken in the whole context of circumstances, constitute evidence of lack of genuineness in the decision to declare a position redundant, such failure, where it falls below the conduct of a reasonable employer acting fairly, may entitle the employee to a remedy but not to an order that the dismissal was not for redundancy. It goes to procedural unfairness in the way the dismissal was carried out. That is the position in the present case. There are concurrent findings that the position of Financial Manager was surplus to requirements. The genuineness of the employer’s decision to that effect is not in question. The finding by the Judge of lack of consultation or discussion of possible redeployment is relevant to the employer’s dealings with the employee in carrying out the dismissal for redundancy.
It follows that as a matter of law the finding that the dismissal for redundancy was unjustified cannot stand and must be set aside. So too must the remedies for unjustified dismissal to which Mr Thwaites was held entitled, except for the award made by the Tribunal and upheld by the Judge of compensation for hurt feelings, humiliation and loss of dignity. To the extent that represents compensation for consequences of procedural unfairness in the manner of dismissal, as distinct from compensation for the consequences of loss of employment it should stand.
In the Tribunal decision the award of $10,000 is dealt with very briefly. The sum of $45,000 had been claimed. The decision records acceptance that “Mr Thwaites did suffer some hurt as a result of his dismissal”, but it was not emphasised by him in evidence. The award was fixed accordingly.
In the Employment Court the argument that the amount of $10,000 was inadequate was rejected. The Judge dealt with the matter in these terms:
As a further ground of appeal, Mr Drake submitted that the Tribunal erred in fact by finding that the evidence adduced by Mr Thwaites did not emphasise the hurt feeling he suffered as a direct result of his dismissal and it followed therefore that the amount awarded under this head of $10,000 was inadequate. Mr Thwaites gave evidence that he was “speechless upon being given notice of his termination and was in a state of shock”, that he was completely devastated by the announcement and had some embarrassment in having to face people to advise them of the redundancy. There was evidence of the financial strain suffered as a result of the dismissal, anger, and of injury to feelings when Mr Thwaites discovered that someone new was being appointed to what he considered was his position and of feelings of inadequacy in his role as the major and substantial breadwinner for the family. Supplementary evidence was given by a close acquaintance of Mr Thwaites that he had always been “a cheerful confident sort of person” and that although he attempted to put on a brave face following the dismissal it was obvious that he was much more withdrawn than his usual self and was notably less confident and introspective after that time.
Mr Timmins’ main submissions on this matter were addressed to the effect of Aoraki on awards for humiliation, limiting them to the manner of the dismissal where the redundancy was genuine. In view of the findings I have made these considerations would not apply and Mr Thwaites is entitled to compensation for humiliation, distress and injury to feelings, including those resulting from the loss of his employment with the company.
Mr Timmins also referred to the Tribunal’s use of other awards and contended that this approach was flawed when assessed against the statistical data which showed that many awards were in the $1,000 to $7,000 range. I am not satisfied that the award was so high with regard to other awards as to be unsustainable. There was sufficient evidence to support the Tribunal’s conclusion which is in this area very much a matter of impression formed from seeing and hearing the grievant. The award was reasonable and it will stand.
It is plain that the award was directed to the loss of employment. That followed from the finding that the dismissal was unjustified. The focus of consideration was not on the position we now find it to be. But it would be to disregard the factual findings that Mr Thwaites was not accorded fair and reasonable treatment to merely set aside this award. We could send the case back to the Judge to consider the compensation for distress and humiliation on the basis we have indicated, but that would be to prolong this matter which already is too old. We have therefore considered the matter for ourselves. We are satisfied the assurance given to Mr Thwaites at the time Mr Robson was brought in over him that the consultants’ recommendation would not be adopted and that his position was secure; the written advice just four months before his dismissal that an additional person would be employed to assist him and that his salary would be reviewed for increase; the failure to discuss with him as Financial Manager the proposed restructuring of the accounts section; the abrupt termination of his employment without explanation of the proposal to create a new position and of the reasons he was not considered suitable for it, all justify some compensation for distress and humiliation. In the circumstances of the long history of this case we leave standing the award of $10,000, though the basis for it necessarily is different from that on which it was originally fixed.
We allow the appeal, set aside the orders in favour of the respondent save for the award of $10,000 made under s40(1)(c)(i) of the Employment Contracts Act and dismiss the cross-appeal.
Mr Thwaites was awarded costs of $6,000 in the Tribunal. Costs in the Employment Court were reserved. In this Court he has lost all of his awards save one and his cross-appeal has been dismissed. Overall he has succeeded only in small part. We leave undisturbed the award of costs of the Tribunal. We leave costs in the Employment Court to be dealt with by that Court in light of this judgment. In this Court the employer is entitled to costs which we fix at $5,000 together with disbursements including the costs of preparing the case and the reasonable travel and accommodation costs of counsel as approved, if necessary, by the Registrar.

THOMAS J

Mr Thwaites was dismissed in an unfair manner. His employer acted in breach of the implied obligation of good faith and fair dealing. Mr Thwaites suffered humiliation and distress as a result. Yet, all that he will receive is $10,000. Furthermore, notwithstanding that Mr Thwaites successfully supported the Employment Court Judge’s finding that he was dismissed in an unfair manner, costs of $5,000 have been awarded against him in this Court.
While I agree with the majority that Mr Thwaites’ dismissal was not substantively wrongful, I would allow his cross-appeal and increase his compensation for non-monetary harm significantly on the basis that his employer, New Zealand Fasteners Stainless Ltd, adopted an unfair procedure in effecting that dismissal.
It is now nine years since Parliament reinforced the common law by providing that employees can recover compensation for humiliation, loss of dignity and injury to their feelings where they have a personal grievance. See s 40(1) of the Employment Contracts Act 1991. Subparagraph (c)(i) of this subsection recognises that harm to employees who are treated unfairly in breach of their contract of employment cannot be remedied solely by compensating them for their monetary loss. Employees are people who can be humiliated, suffer a loss of dignity or endure injured feelings. Parliament therefore contemplated that compensation for non-pecuniary harm should be available to employees who have a legitimate grievance against their employer. Hence, the enactment of s 40(1)(c)(i).
Furthermore, Parliament clearly intended that the remedy would be an effective remedy. Section 26, the objects section for Part III of the Act relating to personal grievances, provides that all employment contracts must contain an effective procedure for the settlement of personal grievances and that the remedy for a proven grievance is to be determined in each case by the circumstances of the case. Section 43, the objects provision in Part IV relating to the enforcement of employment contracts, confirms that such contracts are intended to create enforceable rights and obligations; must contain an effective procedure for the settlement of disputes about their interpretation, application or operation; and that “it is the responsibility of the parties to employment contracts, and of individuals bound by them, to enforce their rights under them.” (Emphasis added).
Yet, compensation for non-monetary injury has been anything but generous. It cannot, in my view, be fairly said that the remedy which Parliament has seen fit to provide is effective. Having regard to the costs and expenses of litigation the right to compensation for humiliation, loss of dignity and injured feelings has become an empty right.
A survey of the cases in this Court where damages under s 40(1)(c)(i) have been in issue reveals that, except where the employee has been a senior executive or senior manager, the award has invariably been $10,000 or less. Presumably, the Court takes the view that the humiliation, loss of dignity and hurt feelings of senior executives or managers is likely to be greater than in the case of less qualified employees. Information available from the Employment Institutions Information Centre discloses that compensation for humiliation etc., pursuant to s 40(1)(c)(i) in the year 1 January 1999 to 1 December 1999 exceeded $10,000 in only 22 out of 217 cases (20 out of 198 decisions by the Employment Tribunal and 2 out of 19 decisions by the Employment Court).
I acknowledge, of course, that compensation of this kind is often added to compensation for the monetary loss suffered by the employee. Two comments are called for. First, general damages are not an adjunct to monetary loss. Compensation for humiliation, loss of dignity and injured feelings is a head of damage in its own right. It should not be seen as some sort of solatium to be added to the “real” compensation. Secondly, having regard to the distinction which the Court has drawn between substantive wrongful dismissal and dismissal by an unfair procedure, cases will necessarily arise where the compensation will be limited to non-monetary compensation of this kind. The present case, as it has eventuated, is such a case.
The Court’s traditional providence in regard to non-monetary loss means that such awards tend to become frozen at a level which the passage of time and changes in circumstances or expectations make inadequate. Innate judicial conservatism and the doctrine of precedent combine to preclude any effective review which would increase the awards to a level which would provide fair, reasonable and just compensation. An example is at hand from England. Such was the concern that damages had become inadequate that the Lord Chancellor required the Law Commission for England and Wales to examine the effectiveness of the present remedy for damages. Specific consideration was required in respect of “the award of damages for pain and suffering and other forms of non-pecuniary loss”. In January 1996 the Commission published a Consultation Paper followed by the publication of the Commission’s Report which was duly printed on 19 April 1999. Included among the recommendations was a recommendation that the level of damages for non-pecuniary loss should be increased. A full Court of the Court of Appeal responded in March of this year. See Heil v Rankin & Anor, 23 March 2000. After a thorough review in which it asserted (at pp 6 and 7) that the principle of “full compensation” applies to pecuniary and non-pecuniary damage alike and that the compensation to be fair, reasonable and just must be fair compensation for the injured person; that the level must also not result in an injustice to the defendant; and the level must not be out of accord with what society as a whole would perceive as being reasonable, the Court concluded that an increase in the level of damages was required. A new level was set ranging from an increase in the region of one-third at the highest level tapering down to little or no increase at the lowest level. The essential point is not, of course, the outcome or even the exercise but the fact that the level of damages for non-pecuniary loss had with the passage of time become frozen at an inadequate level. Without the external prompting which occurred, the Courts had failed to make the necessary adjustment.
I am unable to hold the Employment Court responsible for the inadequacy of compensation under s 40(1)(c)(i) or damages for wrongful dismissal claims. That Court has been bound by the awards made or approved by this Court, and this Court has frequently reiterated that such damages are to be restrained. See e.g., Ogilvy & Mather (New Zealand) Ltd v Turner [1996] 1 NZLR 641, at 653-654; Health Waikato Ltd v Van Der Sluis [1997] ERNZ 236, at 243, and Carter Holt Harvey Ltd v Pirie [1997] ER NZ 648, at 652. The dicta of Tipping J in Andrews v Parceline Express Ltd [1994] 2 ER NZ 385, at 398 is indicative of the judicial attitude which has pertained:
Firm restraint must be kept on the quantum of awards in this area. While the type of damage for which the compensation is awarded is real, a sense of proportion must be maintained. That is so both in relation to common law damages of the present kind and in relation to damages awarded under the Employment Contracts Act for such things as humiliation, loss of dignity and injury to feelings.
Of course, a sense of proportion must be maintained. But to consistently strike compensation for non-monetary injury at a level which is inadequate to truly compensate the employee for the humiliation, loss of dignity and injured feelings which he or she has suffered, and which renders the remedy provided in the statute largely ineffective, fails to achieve that objective. The so-called need to maintain a sense of proportion becomes the catch-cry by which compensation is maintained at a disproportionately low level.
It should be accepted that compensation under this head must be real compensation. Being wrongfully dismissed or dismissed in an unfair manner represents a traumatic experience to the employee concerned, and he or she should be fully compensated for that trauma. Humiliation, loss of dignity and injured feelings may affect the most humble and lowly paid of employees as well as those in a more elevated and lucrative position. The work ethic in New Zealand society is strong and all-pervasive, and the loss of a job can have a shattering and soul-destroying impact upon a worker who is dismissed. Where the worker’s dismissal is justified he or she must bear these consequences with such fortitude as they can muster. Where the dismissal is unjustified, however, the employer is liable to pay for the resulting humiliation and distress to the employee. This suffering is not to be undervalued. It is to be accepted, of course, that damages will ordinarily be less where the dismissal is justified but the employer adopts an unfair procedure in effecting the dismissal. The point should be made, however, that the need to carry out the dismissal in a fair manner is not diminished simply because the dismissal was justified. Indeed, where redundancy is involved and the worker is essentially blameless, the need for the employer to be fair in the procedure which is adopted may be enhanced. In these and other circumstances, failure to adhere to a fair procedure will be likely to lead to suffering which could have been avoided or significantly mitigated. Notwithstanding that the worker would have had to face dismissal, the unfair manner in which that dismissal is carried out can tote its own humiliating shaft and rack the dignity and feelings of the worker.

The present case

The present case provides an example of the injustice resulting from inadequate compensation under this head. Consider the facts. Mr Thwaites commenced employment with New Zealand Fasteners Stainless Ltd in January 1992. He was the company accountant with both managerial and direct accounting functions. In July 1992, due to trading difficulties, the company’s bank requested Price Waterhouse to review the structure of the group of which the company was a part. Price Waterhouse made certain recommendations, including the recommendation that the company “strengthen the finance section of the New Zealand operations by employing a suitably qualified and experienced finance manager, supported by a newly or recently qualified accountant”. (Emphasis added). It is common ground that this did not leave room for Mr Thwaites in the finance section. On 11 September 1992, Mr Thwaites was called into the office of the Group General Manager and told that pursuant to the report a General Manager–Finance had been appointed over Mr Thwaites’ head. Mr Thwaites asked to see, and was given, a copy of Price Waterhouse’s report.

Mr Thwaites attended another meeting with the Group General Manager a few days later. He told the Group General Manager that he was “devastated at the announcement” and that he felt he had been made the scapegoat for the company’s financial troubles. He alleged that the company’s decision to appoint a finance director over him was unfair as there had been no discussion and he had not been given the opportunity to comment upon or refute the conclusions which had been reached. Finally, Mr Thwaites told the Group General Manager that he would accept what was “in effect a demotion”. In his words:
I said that I had no intention of leaving as I was very glad to have a job in today’s market. I said that it was very important to me as at my age getting employment would be near impossible.
The new General Manager–Finance commenced work in either late September or early October 1992. Mr Thwaites reported directly to him. But Mr Thwaites wrote a letter to the Group General Manager on 8 October 1992 seeking confirmation that he would not be replaced by a newly or recently qualified accountant in terms of the recommendation in Price Waterhouse’s report. He expressly asked the company to acknowledge that it was not its intention to follow the recommendation in that respect and to assure him that he would “retain my position as Finance Manager with a reasonable expectation that this position is a permanent and ongoing one”. The Group General Manager replied by letter dated 13 October. He stated: “I can allay your concerns about your continued employment”. He referred to the role which Mr Thwaites was to play and advised that his position is “also forward looking as our New Zealand base will fund any growth in the short-term”. He confirmed that Mr Thwaites’ role was different from that promoted by Price Waterhouse.
There were no further developments of any significance until mid-1994. As the changes to Mr Thwaites’ position were extensive, he advised his superior by letter dated 13 June 1994 that inadequate resources had been made available to do the job expected of him. The General Manager-Finance replied by letter on 20 June advising that he proposed to employ an additional person on a temporary basis to assist Mr Thwaites. In the same letter he advised that he would review Mr Thwaites’ salary level for “upward recommendation” in early September.
Extensive discussions then took place between the Group General Manager and the General Manager–Finance as to Mr Thwaites’ position. They concluded that the accounting needs of the finance section could be met by a recently qualified accountant, much it would seem as had originally been suggested by Price Waterhouse. No discussions of any kind took place with Mr Thwaites.
On 26 October 1994 Mr Thwaites received a telephone call from the Group General Manager and was asked to come to his office immediately. The first thing which the Group General Manager said to him was: “We will have to let you go.” He then went on to tell Mr Thwaites that his position had been made redundant and that he was “being terminated”. He gave Mr Thwaites a letter explaining the position more fully. The letter stated that, in order to reduce the impact of the dismissal, the company offered him two months’ notice effective immediately and redundancy compensation calculated at six weeks’ pay for the first year of service and two weeks’ pay for each year thereafter. It also indicated that the company had arranged an “outplacement facility” with a human resources firm in an effort to assist Mr Thwaites find alternative employment.
Mr Thwaites was “speechless”. He was in a “state of shock”. There had been no intimation to him that there was any prospect of his position with the company being insecure. He was then 55 years of age and had expected that he would continue with the company until retirement.
Shortly after his dismissal, Mr Thwaites ascertained the details of the job description prepared for the position of Financial Accountant to take his place. He claims that, if he had been offered this job, he would have accepted it. Although Mr Thwaites does not say so in his affidavit, and one would think it might have been a matter which he would have wished to negotiate, it is not improbable that he would have finally accepted the position offered to the new employee. Mr Drake, Mr Thwaites’ counsel, pointed out in argument in this Court that Mr Thwaites’ evidence demonstrated that he was realistic about his chances of getting another job at his age and that, for that reason, salary was of secondary importance.
All in all, the manner in which Mr Thwaites was dismissed was clearly unfair. When the company was restructured, he indicated that he would accept a demotion, and did so. He clearly advised, and the company must have accepted, that he would find it difficult to find other employment. He sought and obtained an assurance that his position with the company was secure. He was assured in writing that the Price Waterhouse recommendation to appoint a recently qualified accountant would not be implemented, and Mr Thwaites was led to believe that he had a real role to play in the company. There was no suggestion that he would be made redundant. There can be no doubt that Mr Thwaites relied upon what he had been told.
In my view, when it became evident that the position was changing and that there was a real prospect that the assurances which he had been given were in jeopardy, the company would, if it had been alert to its obligation of good faith and fair dealing, have conferred with Mr Thwaites. He would have been kept informed and prepared for the change in his superior’s thinking. In the circumstances, there is no reason why the company’s intention and proposed changes, including the new position, could not have been discussed with him. It is not possible to predict what might have happened if this basic level of consultation or discussion had taken place. Instead, his dismissal came “out of the blue”. No discussions took place. Nor, once presented with a fait accompli, was Mr Thwaites given the opportunity to discuss the period of notice or the new position which the company then contemplated.
I believe that this is a case in which, while the employee was clearly upset at his dismissal, he was also distressed at the manner in which it had been implemented. Had a more fair procedure been adopted much of the humiliation, loss of dignity and injured feelings which Mr Thwaites suffered could have been avoided or mitigated.
I appreciate that it can be said that the Employment Court Judge fixed general damages at $10,000 when of the view that Mr Thwaites’ dismissal was substantively unjustified. Now that opinion has been reversed by this Court and compensation is restricted to the humiliation and distress resulting from the unfair procedure adopted by the employer, it is argued that the damages should be reduced or, at least, not increased. But this line of reasoning presupposes that the compensation of $10,000 was appropriate in the first place. To the contrary, I consider that it was inadequate and that it does not provide a sound basis for determining Mr Thwaites’ cross-appeal.
For the above reasons, I would allow the cross-appeal and substantially increase the award to Mr Thwaites under s 40(1)(c)(i). I would also allow him costs on this appeal.

Solicitors
Jackson Russell, Auckland, for Appellant
Buddle Findlay, Auckland for Respondent

[2000] NZCA 52

17 May 2000