Kate Wilkinson MP
National Party Industrial Relations Spokeswoman

7 March 2007

Employment Law, Looking Forward

Presentation to the Industrial Relations Conference

Recently you will have heard much of the “Kiwi way” – and part of that Kiwi Way is a belief in giving people a fair go. And that is giving all people a fair go – we all want to see New Zealanders doing better – higher after tax incomes, better productivity and a growing economy

Countries with good economic growth tend to be those that do well at increasing both employment and productivity: more people working and working in better jobs, and more goods and services being produced from those jobs.

The lift in New Zealand’s recent economic growth can largely be attributed to increased employment growth: we have more people enjoying the benefits of employment. But because of global trends and demographic realities for many, there is a real risk that these benefits may simply be temporary.

Real confidence in the economy comes when people believe higher incomes are sustainable. And higher incomes are sustainable when they are based on improving productivity, sound business investment and higher skills levels.

Negotiation and industrial law cannot guarantee sustained higher incomes. National welcomes the CTU’s focus on productivity because it reflects the reality of a small open economy that must pay its way in the world.

The focus on productivity also reflects changes in the labour market. Young people entering the labour market find they are in demand. New Zealand’s labour market is as tight as it has ever been, and the demand for skills and experience continues unabated. Shortages of both are driving higher levels of business investment as firms decide they need capital investment to lift productivity and they cannot rely on lower wages to become more competitive. This is a good problem to have.

But it is also a problem that we have in common with many other advanced economies. The reality is that the factors that make businesses grow and economies and societies prosper – skills, capital, ideas and technology — are all increasingly mobile and all much in demand. And New Zealand must compete for our share of each in a global market.

We have some advantages. The reforms of the 80’s and 90’s have paid off. The New Zealand economy is more resilient and more flexible. But these gains were hard won, and National does not want to see them thrown away because of complacency or a misunderstanding of why incomes are rising today.

Introducing unnecessary barriers to the flows of skills, capital, ideas and technology, and creating rigidities in our capital and labour markets put the future benefits of these hard won gains at risk.

This is the context in which employers and employees now focus on the benefits of a healthy and fair employment relationship.

It is time the political pendulum of employment law ceased lurching from left to right, from right to left – employment law needs some time to settle, time to give certainty to both businesses (employers) and employees. Uncertainty is not healthy for either. But the dust can settle when current problems are fixed.

We believe the existing framework of industrial law needs to be changed and improved to make sure employers and employees control their destiny as much as possible, to ensure ease of entry to the labour market for those still excluded, ease of mobility for those seeking to move into better jobs and to enhance an economy in need of a new burst of innovation and enterprise.

In an ideal world the law makers of employment related legislation should experience what it is like to be an employee, and what it is like to be an employer. There is also a huge difference between public sector employment and private sector employment – we are not saying one is better than the other, but that they are different and we should recognise those differences.

In private sector employment the business owners take the risk – they have every reason to want their businesses to succeed. Often their family homes have been mortgaged to provide working capital to enable their businesses to operate. And a huge proportion of that capital is human capital. They have every reason to want the employment relationship to be a successful one.

The employment relationship is similar to a partnership - not in the strictly legal sense of joint and several liability - but in the sense of a symbiotic relationship. Employers need employees. Employees need employers. And happy employees make happy employers. Fighting and bickering in any relationship is not healthy – the uncertainty of employment obligations and procedures created by bad law is not healthy.

Relationships are about certainty, trust, good faith, honesty and treating all parties fairly. We believe most employees and employers build trust by dealing with their own issues in ways that suit their objectives. The law cannot create trust where none exists.

However we must have employment laws balancing adequate protections for employees with adequate protections for employers.

The days of the Employment Contracts Act brought in by National are past – just as the days of the Industrial Relations Act 1987 brought in by Labour are past.

National does not intend to repeal the current Employment Relations Act, but we do intend to change the direction away from more and more detailed prescription of the bargaining process and more attempts to legislate against necessary processes of change in the commercial world.

We do not share the current Government’s drive to export to the private sector the kind of large inflexible multi-employer agreements they favour in the public sector.

Our approach will take into account the particular nature of New Zealand’s business environment.
I am sure that most of you will be familiar with the March 2006 report of the Small Business Advisory Group and it is useful to perhaps reiterate the importance of SMEs (businesses with 19 or fewer employees) in New Zealand:

– they make up 96% of all businesses in New Zealand;
– they account for nearly 40% of our total value added output (being “critically important for productivity which is critical to our long term economic well-being”);

– they employ around 29% of all employees;
– they account for around 40% of employment;
– around 60% of all new jobs created in the past five years came from SMEs

Because most SMEs are compact they often have fewer resources, and fewer in- house specialist skills such as human resources/employment specialists and so it is important not only for SMEs, but also for all employees and employers alike that employment law is as certain and as uncomplicated as possible. Our employment law is complex to the extent that some are of the view that a separate employment bar is contemplated. There is certainly an argument for making our employment laws significantly less complicated than they are.

A huge part of our future growth will be driven by small businesses who have a responsible attitude to their staff and who are quite capable of conducting a professional relationship with them without micro-management and interference from government and others

National believes that flexible employment law is crucial. The OECD in its 2006 Going for Growth report noted the widening of the gap between New Zealand and the OCED in labour productivity and expressed concerns that “the legislative changes in late 2004 [had] further raised labour costs and reduced labour market flexibility”. Treasury’s own 2005 report to the incoming Minister cited productivity as a major concern. We should therefore be mindful that our employment and industrial relations laws are conducive to that aim – that they are flexible, competitive, reward excellence, and are good for job security and business growth.

We want to give job seekers a better chance at getting a job. Many employers will simply not take the risk of employing particularly young or inexperienced people or migrants because if the employment relationship for whatever reason does not work then it is a time consuming, energy consuming and expensive process to bring that employment relationship to an end.

New Zealand is the only developed country that does not have a probationary period for new employees. We are out of step with other OECD countries which have trial periods ranging from one month to twelve months (three months is about the most common). There are still good reasons to bring in such a probationary or trial period – with adequate protections to prevent any exploitation. We want to enable employers to take a chance on workers and this is particularly important for groups such as young workers, new workers, inexperienced workers, workers re-entering the work force – so they can be given the opportunity to enter the workforce. So they can be given a fair go.

National’s policy in the past has been to introduce an optional probationary period and we are not persuaded to change this. It can be voluntary – the employee can be free to agree the terms of any probationary period – agreeing to terms more favourable, or particular to the job itself – or free to agree that a probationary period is not needed. There may be situations where a probationary period is not necessary or not suitable, and I am thinking of say, the teaching profession. That is recognised and that can be provided for. We would not be intending taking away employees’ rights – but merely giving them the opportunity for employment, giving them a fair go.

Both parties to an employment relationship should have the opportunity to determine whether a job and the conditions of that job are satisfactory when that relationship commences.

National is also concerned at a possible blurring of the difference between an employment relationship and a business contractual relationship. They are separate and they are different. For example there is currently a Labour Members Bill before select committee which seeks to apply the minimum wage regime to contracts for service by amending the Minimum Wage Act to the effect that independent contractors be paid not less than a minimum rate equivalent to the minimum wage.

In our view that is interference in a commercial relationship – and such a commercial relationship should not be blurred into an employment relationship. It is also difficult to envisage how such a regime would work in practice when you consider the very nature of independent contractors. Do we really want to put someone building a new home in the position of policing the pay rates of his or her contractor – even on a fixed price job? What happens if the weather is bad? The homeowner would have to pick up the cost of the downtime. To National that just doesn’t seem fair.

Needless to say National is opposing this Bill.
Similarly we believe that the right of small business owners to buy and sell their businesses should be protected. Business owners definitely do have employment obligations to their existing employees which should be honoured to ensure that their employees are treated fairly and properly – but those obligations should not have to be automatically transferred to the new owner of that business whether they like it or not. Again that is a blurring of a commercial (sale and purchase) relationship into an employment relationship. We are not persuaded that the 2006 amendment should stay. Its intention might be to look after “vulnerable workers” who are unable to look after themselves – and National wants to ensure there are adequate protections for any such “vulnerable workers” in the event of a business sale - but the 2006 goes a lot further than that, and further blurs the distinction between an employment relationship and a commercial relationship.

For the record, National does believe that unions have a role in representing the views of employees in the workplace should the employee choose to be so represented. Workers should be able to offer their services to an employer on terms and conditions that they want. Unions are an option available as bargaining agents. They can be an important “information conduit” between employer and employee when needed. They can play an important collaborative role and they can be influential in working towards better productivity. They can balance any perceived imbalance in bargaining power as long as proper balance is maintained ensuring equal bargaining power for both employees and employers. Unions do have a role to play and National recognises that.

Over the past few weeks we have sought meetings with a number of union leaders. Obviously their top priority is to raise after-tax incomes and improve conditions. That’s no surprise and it shouldn’t surprise anyone here to learn that National wants to do precisely the same thing. We look forward to further discussions with worker representatives.

Reducing compliance costs is easy to say – harder to do, but do it we must. The Holidays Act is often cited as an example of increased compliance costs. National accepts the fourth week is obviously here to stay but there are still issues around the calculation of “relevant daily pay’ which need to be sorted out. It has been said that “relevant daily pay” is the most costly and difficult to manage aspect of the Act. It cannot be healthy (so to speak) to be paid more to be sick than to work.

We want to give employers and employees a fair go. But we do have to have regimes in place so that we can compete with other OECD countries – so that we as a country are not at an economic disadvantage with other countries. Our employment laws must be flexible enough so that we can be competitive, and must allow nimbleness to be able to respond to changing demands of domestic and international markets - and at the same time be fair to all parties.

Good employment law requires good faith on all sides and fairness.

ENDS

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