When Confidentiality Trumps Consultation

In a recent Employment Relations Authority (ERA) decision, Kono NZ LP successfully defended its decision not to consult with employees before selling its mussel business to Talley’s. The case offers a valuable lesson for employers navigating commercial restructures: consultation obligations are not always black and white.

Kono, a mussel producer owned by Wakatu Incorporation, had been struggling with the financial performance of its mussel business. Volatile pricing, weather disruptions, and COVID-19 impacts had taken their toll.

An independent review recommended divesting the mussel business. Around the same time, Talley’s expressed interest in buying the assets. Kono’s leadership, with Wakatu’s backing, began negotiations.

Kono knew that selling the business would likely result in redundancies. But they also knew that disclosing the potential sale too early could spook staff, suppliers, and even Talley’s. Kono decided the risk of destabilising the business before a deal was done was not worth taking so decided not to consult with staff until the sale was signed.

Over 90 employees were made redundant following the sale. Represented by their union, they claimed unjustified dismissal, arguing that Kono had failed to consult as required under the Employment Relations Act and their Collective Agreement.

But the ERA disagreed.

The Authority found that Kono’s decision not to consult was justified under section 4(1B)(c) of the Act, which allows employers to withhold information if disclosure would cause unreasonable commercial harm. Kono had credible, logical reasons for keeping the deal under wraps — including concerns about staff resignations, supplier reactions, and weakening their negotiating position with Talley’s.

Importantly, Kono had considered alternatives: consulting with union reps under embargo, signing a conditional deal, or structuring the sale differently. But none were viable. The ERA accepted that a fair and reasonable employer could have reached the same conclusion.

The Authority also found that the relevant clause in the collective agreement only required consultation “where practicable.” In this case, it wasn’t.

This case is a reminder that while consultation is a cornerstone of good faith, it’s not an absolute. The law recognises that in some situations — especially those involving commercial sensitivity — consultation may not be practicable or even appropriate.

Here are the key takeaways:

• Know your exceptions: Section 4(1B)(c) of the Act provides a clear exception to consultation where disclosure would cause unreasonable commercial harm. Use it, but with caution and you must be able to justify it.
• Document your thinking: Kono’s win hinged on the credibility of its decision-making. The ERA was persuaded by the evidence from senior leaders and the steps they took to consider alternatives.
• Check your agreements: The collective agreement in this case supported Kono’s position. Make sure your employment agreements don’t inadvertently tie your hands.
• Consult when you can — but don’t risk the business: If consultation would genuinely jeopardise a deal or the viability of your business, you may be justified in delaying it.

Kono’s approach wasn’t without risk — but it was measured, considered, and ultimately lawful. For employers facing similar decisions, this case is a strong precedent: you can protect your business interests without breaching your obligations, as long as you do it right.

Need help navigating a restructure? Get in touch with our team. We’re here to help you make the right call.