Writing in the New Zealand Herald on 23 January 2004 , labour minister Margaret Wilson made a plea for engagement with the bill amending the Employment Relations Act as it is considered by a select committee: “I am genuinely interested in the submissions”.

Well, engagement is obviously a two-way process. So let the engagement start.

Ms Wilson will have to work hard to demonstrate her genuineness. Her track record for listening to business and other opposing views is not good.

Discussing the proposed abolition of appeals to the Privy Council, Ms Wilson told The Independent ( 10 October 2001 ): “The business community must be confident with the outcome … We need maximum agreement if there is to be any changes”. Yet the overwhelming weight of submissions from the business community was against the Supreme Court Bill, there was no engagement, and Ms Wilson steamrollered it through.

Similarly, Ms Wilson introduced the Corrections Bill ending private management of prisons in New Zealand . The decision is ideological and union-driven. Ms Wilson's argument that prisons are a core public service and must be administered by the state doesn't hold water. Constitutionally, it is perfectly appropriate for prison operations to be contracted out on terms set by the government, as many countries do. Thirty out of 41 submissions on the bill – many from Maori and Pacific groups – opposed the proposal, yet there is no sign that the government is listening.

In the case of the amendments to the Employment Relations Act, the government has had extensive discussions with unions but no comparable consultations with the business community.

Against this background, many in business are likely to question Ms Wilson's open-mindedness. Never mind: we should hope a minister of the crown can be taken at her word.

The starting point for engagement should be the fundamental idea running through the bill and the Employment Relations Act. This is that labour markets are special; are characterised by unequal bargaining power between employers and employees; and require special regulation to promote unionisation and collective bargaining to offset this inequality.

The idea of unequal bargaining power has been asserted but never explained by Ms Wilson. As a former law professor, she must know it has been refuted by a vast body of law and economics scholarship.

The idea owes its origins to Marxist economics. Marx saw the world in terms of a class struggle between workers and owners of capital. Employers had the upper hand and would ‘exploit' workers. The wages of workers would be driven down to subsistence levels, and they would become “wage slaves”.

Facts soon demonstrated that Marx was wrong. Wages rose strongly even in his lifetime. In the modern era, Hong Kong is a country where unions hardly exist but wage levels are among the highest in the world.

The fallacy in the notion of unequal bargaining power is obvious. As University of Chicago legal scholar Richard Epstein has put it:

If such an inequality did govern the employment relationship, we should expect to see conditions that exist in no labour market. Wages would be driven to zero, for no matter what their previous level, the employer could use his (inexhaustible) bargaining power to reduce them further, until the zero level was reached. Similarly, inequality of bargaining power implies that the employee will be bound for a term while the employer … retains the power to terminate at will. Yet in practice we observe both positive wages and employees with the right to quit at will.

In competitive labour markets, the reality is that employers compete with one another for workers, and workers compete with one another for jobs. Wages are driven up by productivity increases and competition for scarce labour. At times there may be a buyer's market or a seller's market for particular skills in particular locations. But there is no systematic advantage for one side over another, otherwise wages would never rise, and there is nothing special in any relevant economic sense about employment contracts.

So in the interests of engagement, my first question to Ms Wilson is:

Question 1 : What is the theory and evidence behind your view of unequal bargaining power?

Marx's fallacy led him to propose collectivist responses, of which unionisation is one. There can be no objection to voluntary unionism, but unions are becoming less and less relevant in the modern economy, and rates of unionisation are dropping worldwide. Often unions hinder rather than help the productivity growth on which increases in wages depend. Unions no longer represent workers at large: only 1 in 5 New Zealand workers now belongs to a union, and unions are disgruntled that this ratio has not increased despite the privileges granted to them in the ERA. The law firm Simpson Grierson notes, “Unquestionably, the Bill provides a significant boost to the union movement”, and Ms Wilson is on record as saying she would like to see 30% of workers in unions. But why?

Question 2 : Why do you want to push some 200,000 more New Zealand workers into unions?

The bill also aims to boost collective bargaining; Simpson Grierson says “The right of employers to say “no” to a collective agreement is also significantly curtailed.” Employees' freedom to choose between individual and collective agreements is equally affected. The government has said it wants to double the number of workers on collective agreements but most workers prefer individual contracts which recognise their diverse needs, interests and performance. There are no sound public policy grounds for trying to tilt the playing field towards collective bargaining. So my next question is:

Question 3 : Why are you against allowing an unbiased choice between individual and collective agreements?

Not only does the bill aim to foist collective bargaining on individual employers, it also seeks to push firms into multi-employer agreements. Any employer who is asked must attend at least one meeting and demonstrate good faith. If no agreement is reached, and the Employment Relations Authority decides there is a breach of good faith, such an agreement may be imposed.

This carries collectivism to new heights of absurdity. There is nothing wrong with firms in an industry coming together to negotiate a broad agreement, but most don't want to. Most want to deal directly with their own employees, and vice versa. The basis of this provision is transparent. The Council of Trade Unions (CTU) in its submission on the ERA review made it clear that its ultimate agenda is “a return of the [national] award system.” So much for the protestations of ‘new breed' unionists that they don't want to return to the old days.

Question 4 : Why does employment law need to say anything about multi-employer agreements, let alone promote them?

Clause 6 of the bill creates a new duty of ‘good faith' which “requires the parties to an employment relationship to be active and constructive in establishing and maintaining a productive employment relationship in which the parties are, among other things, responsive, communicative and supportive.”

As US labour expert Charles Baird has written, “Wow! That is sufficiently mushy to sustain just about any allegation of breach by any employer who does not want to cave in to union demands.” The provision arises because the CTU did not like a Court of Appeal decision that ‘good faith' was no different from the implied common law term of mutual trust and confidence in other economic relationships. And why should it be different? We expect ‘good faith' when we are buying a house, selling a business or conducting any number of transactions that may be more significant than making or changing an employment agreement.

Question 5 : Why do you wish to overrule the Court of Appeal and apply a different standard of trust and confidence in the employment context?

The bill provides that all employment contracts must include provisions that ‘protect' workers when their existing employer sells or transfers ownership of a business or contracts out any jobs. In some cases it requires employment conditions to be maintained or redundancy to be negotiated or imposed. Workers are not protected by measures that make it more likely that a firm will fail rather than be taken over or reorganised. As Professor Baird notes, “This will do wonders for flexibility of organizational architecture in response to frequently changing market conditions in the global economy.”

Question 6 : How does this provision – and indeed the bill as a whole – square with the government's “top priority” goal of getting New Zealand back into the top half of the OECD income rankings?

A specific objective of the review of the ERA was to reduce compliance costs. The ERA has already been a source of increased compliance costs for business. Far from reducing them, another 59 pages of amendments, such as those relating to ‘good faith' bargaining, multi-employer agreements, contracting out and the sale of a business, will clearly increase compliance costs, as other ministers have acknowledged.

Question 7 : What happened to the aim of reducing compliance costs in the ERA review?

The review of the ERA was not supposed to be about delivering a union wish-list. The government said it wanted views on its operation from employers as well. There is little, if any, sign in the bill that their views have been listened to.

Given that the review was not a back-to-basics exercise, submissions from business were limited in scope. One straightforward one is that unions should not have a monopoly on collective bargaining. Under the ECA, human resources firms, lawyers and others could also act as bargaining agents. The government has never even tried to justify what appears to be a blatant privilege to unions.

Question 8 : Why should other agents not be allowed to negotiate collective agreements?

Another submission from business quarters is that there should be a probationary period of, say, 3 months before personal grievance provisions apply. The reason for this is to give marginal workers – people whom employers might otherwise regard as too risky to take on – a chance at a job. This is another case of union interests – which are to restrict entry and cartelise the labour market – diverging from those of workers and the broad social interest. Probationary periods are commonplace in other jurisdictions.

Question 9 : Will you listen to the case for a personal grievance-free period of employment?

Short of allowing personal grievance provisions to be a matter of voluntary negotiation, business groups have argued that there should be a salary bar of, say, $50,000 to their application. It can hardly be argued that skilled and well-qualified people are unable to look after their own interests and negotiate such provisions in their contracts if they so wish. The public has been rightly outraged by enormous payouts which firms have had to make to failed chief executives and senior managers when they fired them.

Question 10 : Will you agree to a salary bar on personal grievance claims?

The government has also justified the bill by appealing to the need to conform with international thinking or labour issues as reflected by the International Labour Organisation. But the OECD, representing the balance of opinion of the world's most advanced countries, had no problem with the ECA: it reiterated in 1999 that “the framework of labour market regulations in New Zealand is sound” and it has criticised the government's subsequent moves and present plans. Too much of the ILO's thinking still inclines towards European-style labour law which contributes to the rigid, sluggish economies and high unemployment rates of Europe.

Question 11: Why do you favour the views of the ILO, which represents many of the world's least successful countries, over those of the OECD on what constitutes sound labour law?

In the interests of promoting public understanding and debate on employment law and other public policy issues, the Business Roundtable is bringing Professor Richard Epstein to New Zealand this year. He is an eminent authority on labour issues, and knows the New Zealand context well.

Question 12 : As a form of engagement, we would like to invite you, as a fellow (former) law professor, to take part in a public debate on the ERA in a university or similar setting. Will you agree?

Answers to those questions should provide a good platform for pursuing the ‘constructive engagement' which the minister has called for. She has made much of dealing in good faith. I look forward to her response.

For more information, contact:

Roger Kerr
Executive Director
Ph: 04 499 0790
Email: rkerr@nzbr.org.nz

David Young
Communications Manager
Ph: 04 499 0790
Email: dyoung@nzbr.org.nz

Web: www.nzbr.org.nz