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Cullen - EMA Employment Relations Conference

5 July 2000
Dr Michael Cullen
Speech Notes
EMA Employment Relations Conference
Sheraton Hotel, Auckland

I am sure that everyone here this morning will want to hear from me about the government’s intentions on the Employment Relations Bill. The Bill is in front of a Select Committee, and the select committee will not report back to Parliament until later this month. I cannot give you precise details about the nature of the final changes that will be made because at this stage nobody knows what they will be. I do think, though, that I can usefully talk in terms of general principle, and outline the sorts of measures that government members of the Select Committee are likely to introduce into committee deliberations.

The overarching consideration is that the final Act will reflect the objectives of the original Bill. I want to make it clear that the fundamental philosophy that drives the legislation is what is crucial.

The government anticipates that the Select Committee will amend the legislation to remove any negative side effects. It wants clarity in the intention of the legislation where the existing words are ambiguous, and could lead to uncertainty. The government expectation is that any compliance costs will be reduced to the unavoidable minimum consistent with achieving fairness and balance. The government has an open mind on provisions that go further than was strictly necessary to give effect to the core philosophy that lies behind the Bill.

The core policy objective of the Bill is to produce more productive employment relationships for all the parties involved. The Bill seeks to achieve that by promoting collective bargaining to establish terms of employment while protecting the integrity of individual choice about joining or not joining a union, and about negotiating conditions of employment. It seeks to ensure that collective bargaining is conducted in good faith.

It rejects the highly litigious and contractualist nature of the Employment Contracts Act and instead promotes mediation as the primary problem solving mechanism.

In meeting these basic objectives, the benchmark is observance of core International Labour Organisation conventions on freedom of association and on the rights to organise and bargain collectively.

In operational terms, the principles being followed are good faith, mutual trust and confidence and fair dealing.

These are not radical objectives.

Last week, the Council of Ministers of the OECD met to update OECD Guidelines for Multinational Enterprises. Remember that the basic creed of the OECD is respect for sound money and open markets. It is the mainstream advocate of market economics. Some New Zealand employers and the former government tended to attack the ILO as being out of date and out of touch. No such charge can be levelled against the OECD.

The new guidelines indicate that OECD governments expect multinational enterprises to respect the right of their employees to be represented by trade unions, and to engage in constructive negotiations with a view to reaching agreements on employment conditions.

That is remarkably close to the concept behind the Employment Relations Bill. What is interesting is that the OECD expects multinational corporations to follow the guidelines even when they are operating in non-OECD countries.

The guidelines provide a useful reality check. There is a new set of values out there against which modern business and modern democracies operate. The hallmarks of a civilised society are that it embraces a market system and supports the development of business within a framework that promotes human rights, nurtures the environment and respects core labour standards.

The market, rights, environment and labour benchmarks that guide this government are mainstream and modern.

We may not always get the design detail right, at least at first crack. We do need to talk about that detail and to respond to legitimate concerns about the pragmatics of moving to the new policy balance. My task this morning is to indicate to you the areas in which that fine-tuning of the application of principle is under active deliberation.

Let me start with a basic tension. The aim of the legislation is to change attitudes and behaviour and to create a new industrial relations culture. Legislation cannot create good behaviour. The most it can do is set down guidelines the parties must follow in their interactions with each other. The draft law is therefore permissive rather than prescriptive in many parts. Any permissive legislation is inherently uncertain – but only as to the timing and form of change, not to the general direction of change.

A number of complaints about the ERB are that it creates an uncertain environment for business.

There are also a number of complaints that it is too prescriptive: that too many rules and procedures increase compliance costs and increase the risk of legal redress over defects of process.

This is the basic tension: the law cannot at the same time be more certain and less prescriptive, yet that is precisely the sort of demand that is often raised. There are parts where the process provisions can be relaxed. But, of course, the government cannot then guarantee more certainty about where case law may lead. There are areas where the rules can be made more specific, but remember that this inevitably leads to more prescription.

Moving from the general to the specific, the government has identified a cluster of so-called “lightning rod” issues that have attracted particularly strong employer criticism.

I will now comment in general terms on the main ones.

Contract workers.

A very high profile concern has been the status of the independent contractor.
Will genuinely independent contractors be forced to become “employees” against their will and in a way that is contrary to the organisational needs of the businesses they contract to?

The basic answer is no. The intention of the legislation was only ever meant to deal with the sham. This is where marginalised workers with no negotiating leverage are denied rights of workers by being classified as contractors. Existing case law is unhelpful. It puts too much weight on the label attached to a relationship and not enough to the substance of that relationship.

Over the years, attempts have been made to distinguish between dependent and independent contractors, but a robust definition has been elusive. The government doesn’t want to negate all existing case law, because that will create as many problems as it solves, but will emphasise the reality of a relationship rather than the label attached to it.

We have also received a number of compelling submissions from individuals and social agencies suggesting that the legislation does not include people who are volunteers working for bodies like social agencies. This was never the intention of the bill.

Fixed term contracts.

A related problem is the use of fixed term contracts, and whether Jonah Lomu will still have to be selected for the All Blacks when he is eighty because of the inability to terminate a renewable fixed term contract.

The intention is to stop abuse: to prevent employers holding employees in a holding pattern and lock them out of service related entitlements by cycling permanent employment through a series of fixed term engagements. It is not to inhibit the use of a fixed term contract where the nature of the function (say All Black wing) creates a valid reason for it at the time it is entered into. I would expect the final legislation will make that clear. The government will have to validate the use of fixed term contracts in specific circumstances (such as public service Chief Executives), and make some provision for contracts in place when the new Act comes in.

Communications during negotiations and the supply of information to negotiators.

The issue of the relationship between employer and worker also surfaces over the matter of the extent to which employers can talk to employees directly during the course of collective bargaining. An allied concern is the release of commercially sensitive information to union negotiators as an obligation of good faith.

There is a need to return to first principles here. The issue is developing good faith and a productive employment relationship. There are some practices – like excessive fetters on the capacity of employers to communicate with staff, or the release of commercially sensitive information – that will sour a relationship. Common sense is needed. Practice must be fit for purpose. It must also be realistic and relevant.

This is an area where some of the uncertainty in the Bill can be reduced without recourse to counter-productive prescription. We have received some useful suggestions regarding how this can be achieved in practice, for example by limiting access to information to that which is necessary for the purpose at hand and by giving employers the option of filtering actually sensitive information through safe third hands.

On the matter of communication, the intent is that the employees should not be used as a battering ram against their appointed representatives. As long as the communications do not seek to disrupt the bargaining process by deliberately undermining the relevant union, employers will have nothing to fear.

Transfer of undertakings and contracting out.

An area of confusion, rather than outright opposition, is the status of conditions of employment of existing workers when an undertaking is transferred to a new owner. Both employers and unions have difficulty with the way the continuity of employment rules are drafted, for different reasons.

The policy decision behind the provisions aimed to avoid complex “transfer of undertakings” provisions common in other jurisdictions, notably Europe. Instead, the aim was to give incentives to all parties to negotiate arrangements that would apply. The easiest way to address this is simply to require that collective agreements make a provision to cover the eventuality of employee transfer and contracting out. I hope the Select Committee will amend the Bill to incorporate such a provision.

The content of any such clause would be subject to the general provisions of good faith. Both employers and unions might feel that there is still too much uncertainty, (in opposite directions!), but we must always return to purpose. The purpose is to promote negotiations, not to pre-determine the result of negotiations.

Union access.

Union access is another contentious issue. This is an area where the degree of prescription is central to the policy. The letter of the law will largely define rights of access by union officials to workplaces. There will be some fine-tuning through case law, but in broad terms the law will define the limits.

Using the standard test of purpose, the Select Committee will need to wordsmith a formula that allows access, restricts it to proper purpose and hedges it with respect for safety, security and confidentiality. Both sides will want a different formula: there will need to be a compromise on this issue.

It seems likely that the best solution will be one that combines the elements of access only at reasonable times and with due regard for normal business operations apart from any other criteria.

Replacement of striking workers.

Let me now turn to the vexed issue of replacement of striking workers. This is a perennial and international problem: it was a big issue in the first Clinton presidential campaign.

With many policy issues the task for governments is to resolve conflicting rights. A bit like the right to smoke versus the right to clean air. The one right here is the right of the employer to employ. The other is the right to strike. If an employer can replace striking workers there is a clear negation of the right to strike for all but those with scarce and non-replaceable skills. This falls foul of basic labour standards.

So where is the line drawn? It is fairly easy to draw one line. Employers should not be able to compel other workers to do the work of striking workers. That would be forced labour and utterly contrary to the development of harmonious workplace relationships. Workers who volunteer to do other jobs should not be precluded from doing so. Demarcating work within workplaces is not consistent with the flexibility requirements of modern production practice, yet would be a precondition for any restrictions on voluntary internal work transfer.

The grey area is external recruitment to replace striking workers. As ever, a mix of principle and practicality is needed.
In principle, the right to strike must be a real right. In practice, health and safety and public interest criteria have to modify that right in special, not general circumstances.

Directors’ liability.

The final lightning rod issue is directors’ liability. Funnily enough, the provisions in the ERB were imported from similar provisions in the Health and Safety in Employment Act introduced by the National government without an eyelash, let alone an eyebrow, being raised.

The purpose is not to impose new liabilities on directors or managers. It is to prevent limited liability being used as a device under which the industrial relations equivalent of fraud is perpetrated. There have been instances of unscrupulous employers setting up sweat shops, paying less than the minimum wage, disregarding the Holidays Act and then escaping the clutches of the Labour Inspector via insolvency.

The intention of the legislation was to allow Labour inspectors to enforce the Minimum Wage and Holidays Acts when directors or managers set out to deliberately break the law. The legislation will be amended to make it clear that the target is the extortionist felon. Bone fide directors of companies have nothing to fear and will not be affected.

There are other matters of detail that have been raised about the ERB, and I do not have the time to go into them today.

I would generalise as follows.

Where a particular matter relates to the principles on which the Bill is founded, the principle will continue to be adhered to.

Where the problem lies in the clarity with which the provision is expressed, the complexity surrounding it, or the compliance problems associated with it, attempts will be made to avoid confusion, to simplify and to reduce compliance cost.

Thank you for inviting me to speak to you today. I hope that this presentation has highlighted two things. One, the government has listened to the concerns of the business community over the ERB, and will be responding to them through the Select Committee process. Two, it has been prepared to move within the parameters of the basic policies that had been espoused, but the core policies have been maintained.

At the end of the day, we will have legislation that will give us more comfort within the international community of civilised nations. I am sure that must be good for business!

ENDS

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