Bargaining Under the Employment Contracts Act 1991
ARTICLE BY Roger Kerr FOR THE
EMPLOYMENT LAW BULLETIN
25 AUGUST 1995
BARGAINING UNDER THE EMPLOYMENT
CONTRACTS ACT 1991
The labour market was one of the first parts of New
Zealand's economy to be strangled by state intervention and one of the last major parts to
be freed, partially, by deregulation a century later. In 1894 the Industrial Conciliation
and Arbitration Act was the Fabian Liberal government's boldest piece of social
engineering. In 1991 the Employment Contracts Act (the ECA) cancelled the system of union
privilege and mandated bargaining rules which had grown in scope and complexity since the
election of the Labour government in 1935. For the first time this century, workers and
firms could deal with each other without state, union or employer institutions impeding
them.
This transformation brought new uncertain opportunities.
Four years later the uncertainty has gone. Those who embraced the changes and some who
resisted them are now their strongest advocates.
What were the characteristics of the system we reformed?
Labour relations was the cultlike practice of specialists. It was political; it sought
favours from governments; and its internal preoccupations were with power. It was
oblivious to the realities of business and efficient production. It invented mechanisms
like 'relativities' and 'demarcation disputes' understood only by those initiated into the
cult. It lived in economic blind alleys: the CPI was a key driver, regardless of
productivity changes, company profitability or the relative abundance or scarcity of
labour in particular parts of the labour market. It kept people out of work, with minimum
wages which priced workers out of jobs and restrictive practices which made enterprises
uncompetitive. It victimised consumers. Unions, which never represented a majority of the
workforce, presumed to speak for all earners. Employers did not meet some of their main
responsibilities, such as including employees in decision making and sharing information
on their companies' fortunes. Rewards for achievement was unusual; workers were paid for
turning up to work, and, in places where monopoly or market share was maintained by
regulation or subsidy, firms paid exorbitantly because they were effectively blackmailed.
Although some members of the Labour government elected
in 1984 understood the necessity of comprehensive labour market reforms to foster
employment and productivity growth, little was achieved in the face of trenchant political
and union opposition. The removal of compulsory arbitration and noninterference by the
government in industrial disputes were exceptions to this generalisation, but the reform
exercise which culminated in the Labour Relations Act 1987 was largely abortive.
Subsequent moves to free up shop trading hours and the waterfront were of greater
consequence but were offset by a legislated form of pay equity which entrenched artificial
relativities.
Widespread change had to await the legislation of 1991.
Compulsory union membership, union registration and wage bargaining rules were rewritten.
Generally speaking, the principles of contract law were applied to employment
relationships. Unfortunately, some provisions from the repealed Labour Relations Act 1987
were retained in the bill, and others were weakened during the Select Committee process.
For example, a clause which would have balanced the personal grievance provision was
dropped, and the provision itself extended from union members to all employees. A
specialist jurisdiction was maintained in the form of the Employment Tribunal and Court.
The period from December 1990 to May 1991 resounded with
dire predictions from the legislation's opponents. The Catholic church said the bill was
"sinful"; the leader of the Council of Trade Unions (CTU) described it as the
"Pol Potisation of labour relations"; an academic predicted the advent of
"gangsterunionism"; and an employer protested that employees would have
"too much freedom".
Since 1984 there had been changes in the labour market
as a result of economic restructuring. By 1991 featherbedding was an issue only where
unions maintained demarcation privileges. After May 1991, people talked of liberation from
the constraints of the past and of being able to deal with practical issues as they arose
rather than having to relegate them to the complex annual negotiation process.
That is the major achievement of the Employment
Contracts Act 1991. Communication, in its fullest and most direct sense, has grown to
enhance everyone's role. Initially only employees and employers benefited; now customers
and suppliers are often involved. Those who continue to criticise the Act are typically
those who have made the least effort to benefit from it.
A host of significant changes have occurred:
• distinctions between 'staff' and 'workers' are
being scrapped. At Comalco's Tiwai Point plant, for example, almost the entire workforce
is now salaried and benefits are enjoyed in common. Those on collective contracts have
dropped from over 1000 in 1991 to just two today;
• remuneration has changed from pay for attendance
to pay for achievement. The focus is on productivity and profit. Performance is the
criterion for reward;
• workplaces are driven by the needs of business;
extraneous influences are irrelevant;
• the 'management' of labour relations belongs with
general managers, but in fact is diffused as a function of organisation structure and
values. When everyone understands and subscribes to those, labour relations management is
self-management. Consequently whole layers have been removed from organisations; direct
communication is enhanced; beneficial relationships develop in an atmosphere freed from
institutional suspicion; and 'authority' as a basis for action is replaced by functional
need, which elevates the best person for the task regardless of status;
• we have more jobs. An unemployment rate of nearly
11 percent in 1991 has become 6.3 percent in mid-1995;
• industrial disruption has fallen sharply,
particularly in the private sector;
• negotiations, no longer funded by taxpayers, are
more straightforward and produce results more readily. Contracts are likely to be clearer,
briefer, and more accessible (the Comalco contracts are 4 pages long, replacing a
collective agreement of 75 pages). Unfortunately, that tendency is being vitiated by the
willingness of the courts to fill what they perceive to be gaps with what they perceive to
be 'reasonable';
• employers are planning communication.
Communication occurs in all directions: from managers to employees, from employees to
managers, and between employees. What once was suspected as manipulative is now seen to be
essential; and
• there is no longer a 'labour market'. There are
dozens. The ECA enhances differentiation, shifting the emphasis from collective anonymity
to individual recognition. 'Relativities' in the old sense are dead.
There is a theme in these changes which emphasises the
common interests of the enterprise and the people who work in it. Their lifeblood is
improved communication. The workplace has been depoliticised; customers are the key
drivers. These changes are welcomed by those experiencing them. They are not welcomed by
those whose allegiances are to the collectivism of the past.
Trade unions, having enjoyed monopoly rights for more
than 50 years, were typically in poor shape to meet the ECA's challenges. They were
understaffed and often illequipped for commercial negotiations. Their focus had
previously been on politicallymotivated intervention. Some union officials acting as
bargaining agents in workplace negotiations have turned out to be ineffectual. While
unions continue to represent workers in the majority of collective contracts, there has
been a significant shift to the employment of nonunion agents and to employees
representing themselves. In the largest, traditionally unionised sites, the inertia is
greatest. There are geographical variations; the north of the country, where marxist
influences were previously strongest, is the most reactionary, while the south is often
the most innovative.
Unions are, however, adjusting; slowly. As an example,
the Engineers' Union sent one of its senior officials on a Workplace New Zealand Best
Practices Study Tour, and his report in early 1995 makes instructive reading. The dominant
theme is that smart companies have replaced 'industrial relations' with 'human resources
management', which is inclusive and nonconfrontational. It encourages identification
with the enterprise and is therefore antithetical to the interests of broader unions. In
discussing Hewlett Packard in the United States, the report states:
Providing excellent conditions of employment, the
company is completely neutral on the issue of unionism, in line with the company
philosophy of allowing "the employees to make decisions over their working
environment". This philosophy coupled with effective internal grievance procedures
has removed much of the scope for unionisation. The philosophy and action it inspires has
made Hewlett Packard the only computer company in the USA that is not declining in
profitability.
Then, despite the significance of this conclusion, the
report later asserts:
Regardless of how constructive we see our union role,
our real purpose is to intervene and impose ourselves on management ... .
The Engineers' Union is sometimes depicted as one of the
more enlightened. That may be so. However, as unions adjust to reduced cashflow they
appear to be under siege, with diehard adherents seeking ways to reassert collectivism.
Their activities in the industrial training bureaucracy are an example. If they and
other institutions are to have roles in the future, they will need to respond more to
the imperatives of the marketplace and less to the seductions of doctrinaire retreat.
Even more anachronistic is the stance of the Employment
Court.
This court has for some time been controversial. Its
existence and actions highlight the reservations many have about specialist courts.
Arguments in their favour are generally specious. For example, a CTU vicepresident has
claimed that "civil action through the ordinary courts would cost workers
significantly more". That is not credible. The Employment Court is notorious for its
delays, for the length of its hearings and for the time its customers wait for prolix
decisions. In NZALPA v Air New Zealand Limited (1992) 1 ERNZ 80, for example, the
court took 44 pages to decide that an airline could require its employees to shave. It
also took 13 months to say so. In United Food etc Union v Talley's Fisheries Ltd (1992)
1 ERNZ 756, the applicant union waited 9 months for a compliance order. The CTU view
is based on experience with the court's predecessor institutions; the Arbitration Court
was a 'lay' court, and nonlegal advocates appeared before it. Employment Court hearings,
on the contrary, attract the services of counsel and there is no evidence that they charge
less than they would for appearing elsewhere. There is sometimes said to be advantages in
a specialist court's knowledge of its subject. Yet there is no special legal expertise
called for in administering legislation based on contract law principles. The Court of
Appeal is often enough called on to amend Employment Court decisions; none of its judges
is an employment law specialist.
The Employment Court has also been criticised for its
habit of making personal and political comments. In Service Workers Union v Southern
Pacific Hotel Corporation (NZ) Limited (WEC 27/93) it referred sarcastically to the
employer's counsel's " ... somewhat breathless plea". The Court of Appeal,
reviewing the Talley case, commented on the Chief Judge's "... colourful, if
not rather extravagant" language. In S Denley v Service Workers Union (CEC 17/94,
C3/94), referring to another statute, the judgment made the political aside "...
the Act confers fairly minimal rights compared to those which exist in some other
countries". In Michael Peter Cecil Gibson v Department of Justice (WEC 59/94,
W37/94), the court described the length of time allowed for instituting a personal
grievance as a " ... meagre 90 days". No one with the slightest understanding of
business could make such a comment. Other extraordinary behaviour has been highlighted.
Early in its life the Employment Court listened to a full day's presentation by union
counsel. At the end the judge offered counsel some advice and the opportunity to start
again the next day! The Chief Judge was on one occasion personally criticised by a
Tribunal chairman because of the extreme language used in a judgment on appeal. Last year
a senior barrister admonished the court for a gross inaccuracy in a judgment
subsequently amended saying of the first version, "This is a direct and adverse
reflection on me as counsel ... which I believe to be unwarranted". Such incidents
are sources of widespread disquiet.
The court has stated that it is not bound by its own
decisions. Consequently employers and other parties appearing before it have no way of
knowing if their reliance on previous cases is justified. It is also hazardous to rely on
law that is 50 years old, even when nothing has changed to make such reliance
questionable.
As an example of the latter, the judgment in J Winstanley
S Ors v New Zealand Rail Limited (WEC 12/94, W 14/93) purports to establish
that unless a contract, even one still based on an award, stipulates that an employer may
require overtime to be worked, there is no such legal ability and employer and employee
have to reach an 'agreement' in each case. Szakats was quoted in support. Szakats appears
to have been unaware of the decision in Inspector of Factories v Allen 1323 BA 44; more
surprisingly, so does the judge in Winstanley which, if it were taken seriously,
could stand a half century of sensible practice on its head. Significantly, in the
workplace the decision is ignored.
The case of Brighouse Limited v Bilderbeck S Ors
(CA 143/93; 10 October 1994) saw the Employment Court, and then the Court of Appeal by
a narrow majority, knowingly making 'a radical departure' from previous law and from the
clear intentions of the government in framing the ECA. Fabiola, 1981, established
that a refusal to make redundancy payments would not render a dismissal unjustified if
there was no written agreement to pay them. That view was affirmed by the Court of Appeal
in Hale, 1991. It was acknowledged by the Employment Court in Cain, 1992. In
Brighouse, however, the courts resiled from the views they had previously
established, and new, unforeseen, and onerous obligations were placed on employers.
Equally disturbing, in the light of the objectives of
the ECA and the workplace practices growing as a result of it, is the recent decision of
Chief Judge Goddard in Ivamy v NZ Fire Service Commission (14/7/95, WEC 44/95). The
definition of 'negotiate' has been expanded to prohibit employers from communicating in
any way "on the subject of the negotiations" with employees who have selected a
bargaining agent to act for them, while negotiations are occurring. The employees' agent
may make any sort of public statement; the employer may not respond. This decision is a
conscious departure from previous law.
The view that enhanced communication is at the heart of
the changes wrought by the ECA is now widely held. Unions are defensively aware of it. It
is impossible to avoid the conclusion that the policy decision in the Fire Service case
is also a recognition of its importance.
The ECA, imperfect though it is, has promoted major
beneficial changes in New Zealand labour relations. The policy thinking that gave rise to
the Act was clearly set out by the government prior to the 1990 election. Its passage was
by due constitutional process. It is not acceptable that the objectives of the legislation
should be ignored by courts determined to assume law making roles.