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trendz - our client newsletterapril 2004has the pendulum swung too far?
The BillThe Employment Relations Law Reform Bill states that there is an "inherent inequality of power in employment relationships" and that it "seeks to balance the interests of employers and employees." In attempting to balance the scales of power, has the proposed legislation gone too far, essentially creating a greater imbalance to the employer’s great disadvantage? "Good Faith"One of the key elements of the Bill, as outlined in the general policy statement, is the promotion of good faith. Section 3 (a) of the principal Act is amended in the Bill by omitting the words "mutual trust and confidence", and substituting the words "good faith". The duty of good faith "applies to individual as well as to collective, bargaining and requires employers to consider and respond to issues raised by employees about proposed individual terms and conditions of employment." The Bill also outlines the penalties and remedies for "serious sustained breaches of good faith. In the context of collective bargaining, this includes the remedy of enabling the Employment Relations Authority to fix specific terms and conditions of agreements where serious and sustained breaches of good faith have significantly undermined collective bargaining." The Court of Appeal recently decided that good faith obligations under the current Act are nothing more than the old implied term under the common law – for example; duty to trust, confidence and fair dealing. But the Employment Relations Law Reform Bill seeks to acknowledge via statute law that the parameters for the definition of "good faith" are much broader than simply trust and confidence: "To clarify and strengthen the duty and application of good faith, the Bill stipulates that good faith is a broader concept than just the common law obligations of mutual trust and confidence. It also recognises that the inherent inequality of power in employment relationships requires a broader focus than on bargaining power alone." The definition of good faith in this context becomes hazy and uncertainty is bound to cause borderline conflicts. It will be interesting to observe how this comes to be interpreted and enforced in the future. The Bill does, however, outline some of the duties of good faith. The duty of good faith: "Requires an employer who is proposing to make a decision that will, or is likely to, have an adverse effect on the employment of his or her employees to provide to the employees affected – In an article in The Dominion Post (19/3/04) Chief Judge Tom Goddard drew attention to the problems surrounding the difference between the pursuit of self interest and acting in bad faith: "Where, as is usually the case, an employer or employees are pursuing their own interests, it is a hard thing to describe that as bad faith even if the pursuit of those concerned behaving in a taciturn, secretive and selfish way…It is, to a legal mind an enormous leap from the pursuit of self interest to the commission or display of an attitude of bad faith." The duty of good faith in the Bill also requires "a union and an employer bargaining for a collective agreement to conclude a collective agreement unless there is a genuine reason not to". This points to a definite "push" towards collective agreements, which seems to be the common tune of the Bill. Backdoor Unionism?It would be an understatement to describe the legislation as union friendly. The explanatory note states that "the Bill also addresses what is known as ‘free-riding’. It will be a breach of good faith to pass on to employees or other unions terms and conditions negotiated collectively." Is it best to label this amendment "promotion of good faith" or would "backdoor unionism" be a more appropriate term? Bill Gallagher, one of Waikato’s biggest exporters and private employers, voiced his concerns in The Dominion Post (19/3/04) on the power given to unions to see individual employment agreements and on non-union members not being allowed to receive the same terms negotiated for union members. Gallagher says: "This is nonsense. Staff on flexible individual agreements are worth more and should be paid more. The legislation does not recognise employers who encourage, train and value their employees." In short, he stated, "The whole process has been conducted in bad faith and the Government has not given due time for consideration of those affected." Under the Bill employers are not allowed to pass on terms and conditions negotiated in collective bargaining to employees who are not part of the collective. The Bill maintains that collective bargaining is undermined "through the practice of employers automatically passing on collectively bargained terms and conditions to other employees or unions either during or after the bargaining process." To many, this appears to be enforced unionism. So why circumvent the issue? Why not just bring back compulsory unionism? Council of Trade Unions President Ross Wilson said in a recent interview with Wellington Today (3/04): "Individual ratification of any agreements and accountability to individual members is a very important part of union membership today. We haven’t argued for compulsory union membership because we actually want the accountability to be direct and people to actually participate actively in unions." In principle the unions and the legislation may want to keep individual ratification intact, but in practice the employer is effectively being asked to discriminate against the "individual". The Bill is a definite return to collectivisation, but can this ever really work in practice again? Under the previous legislation that supported individual negotiations, employees have become educated and interested in their individual rights. Will they now want to forfeit this control of their affairs in favour of collectively negotiated agreements? Many employers, for their own reasons, prefer not to deal with unions as they feel that, if they were to do so, outstanding individual employees could not be properly rewarded. Where is the legislation to support these good employers, who want to reward their staff on the basis of merit? The Bill states that "a union and employer bargaining for a collective agreement are to conclude a collective agreement unless there is a genuine reason not to". Where is the definition of a "genuine reason"? You can be sure that a general preference for not dealing with unions is unlikely to qualify as a genuine reason. DismissalsChanges to the dismissals clause is an area that will greatly redistribute the balance of power. The explanatory note of the Bill attributes the rewrite of the legislation to the Oram case —the Auckland Herald reporter who was dismissed for serious misconduct after publishing the wrong caption with the wrong photograph, at great detriment to the person shown. Oram’s dismissal muddied the waters when the decision was appealed. "Legitimate Interests"The common "test" currently applied to the dismissal of an employee is that following a fair inquiry the employer has an honest belief on reasonable grounds that an employee’s conduct was unjustifiable in the circumstances. The new test that would be introduced by the Bill is more objective. Asking: "What would a fair and reasonable employer do in the situation?" it enables the Court to revisit the decision and overturn it by substituting one of its own. As part of the new test the employer is also required to consider and balance the legitimate interests of both the employer and the employee before taking any action. The onus is placed firmly on the employer to investigate the employee’s legitimate interests. Where is the corresponding onus on the employee? Although not stated in the Bill, having to balance the legitimate interests of the employee could require the employer to consider such issues as whether the employee was under undue stress, the employee’s previous work history, the number of dependants an employee may have and the effect a dismissal may have on their future employment prospects. Will the boundaries of the personal and employment situations become blurred? With retrospective analyses waiting to catch the employer out (such as this legislation encourages), how can any employer continue to have any certainty underpinning the decisions they make? It is also questionable whether it is appropriate that the personal matters of the employee should be any part of an employment relationship, if indeed that is the intent of the legislation — which we suggest it should not be. When it came to the definition of "legitimate interests", Judge Goddard stated that it was unclear what "legitimate" meant in this context. He said Judges also questioned the meaning of the provision without providing an answer. "If they were to do so, they would draw the attention of Parliament to this question: whether the personal grievance procedure intends that employees should have a right of appeal against dismissal and other detrimental action on the merits or only in relation to procedure." The employer’s obligation to consider the employee’s "legitimate interests" directly undermines the employer’s right to act in their own self interest. At the very least, the legislation will inhibit the employer’s ability to act in the interest of themselves and the good of their business. Is this legislation then, effectively unconstitutional? Has the Employment Relations Law Reform Bill been written and audited in accordance with the Bill of Rights and the Human Rights Act with which every bill is supposed to comply? Business New Zealand Chief Executive Simon Carlaw believes the Bill attacks individual agreements in favour of collective agreements and undermines freedom of choice. The Effect on BusinessWhat will be the trickle-down effect on businesses in this country if these proposed reforms are passed into law? One would assume that the large companies with entire departments of Human Resources staff equipped to deal with such problems, should cope. But what of the small business, already "groaning" under the existing employment compliance regulations? Will we see an increase in arrangements made outside the standards of an employment agreement? The legislation seems to have the potential to eat away at the manager’s prerogative — a common law concept: the employer’s right to organise their own business as they see fit. Alan Wild, a consultant with the International Labour Organisation, warned against the Bill in a recent Dominion Post article (25/3/04). Particularly in opposition to the "transfer of business" provisions, Wild claimed that while in principle the policy was well intended, in practice "it hardened firms, in many cases even resulting in business closures and job losses." "In many cases", Wild stated, "the cure is worse than the disease." In Europe similar restrictions have had negative consequences such as:
According to Wild, such policy has survived in Europe because of the European Union (a large market bound by the same policy). "It will not be as benign for New Zealand, which must compete against Japan, [South] Korea, China and South American nations – none of which have such provisions in their law." Businessman Bill Gallagher also spoke out on the effect he felt the proposed legislation would have on business in this country. Gallagher described the changes as "absolutely bad law written by someone who knows nothing about growing a sustainable business." Gallagher went on to call the legislation "alarming" and maintained that it had been written to appease the union movement and guarantee votes for Labour, that it was a "short term ideological strategy." The FutureExactly what the effects of this legislation are will remain to be seen. At this stage the Bill certainly appears to be an alarming attempt at patching the holes in current law, but surely this stop-gap measure approach is unsustainable. It seems evident that the legislation will adversely affect the employer, placing on them incredibly high burdens and expectations which may prove unattainable. At this stage the pendulum has clearly swung in the employee’s favour. But in swinging so far, the wider ramifications for employer, and ultimately employee, may prove to be equally adverse for both. How will this legislative change affect you? Make sure you have your say.
If you would like to discuss any issues raised in this article or would like further advice please contact us at Barbara Buckett and Associates or visit our discussion group send to a friendKnow someone who might find this article useful? Send this page to a friend. subscribeWant to be kept up with the play on employment law? Subscribe to our newsletter trendz. privacyView our privacy policy. Disclaimer: This article is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication. Please refer to our Legal Notices.
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