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Employment Relations and Labour Party Policy Directions

Conferenz Industrial & Employment Relations Conference 2014
Crowne Plaza Hotel, Albert St, Auckland
11 March 2014, 1.30pm
Andrew Little, Labour Party Spokesperson on Labour Issues

Employment Relations and Labour Party Policy Directions

Thank you for the opportunity to speak today.

Because you are all employment relations professionals and experts, but also because this is an election year, you are right to be interested in what the Labour Party has to say on the very important area of employment law and labour market regulation.

I don’t want to dwell too much on the latest impending changes to the Employment Relations Act. For one thing, they continue the process of dismantling the framework that is meant to protect workers’ rights in New Zealand, so in that regard they represent nothing new for this government. This government has embarked on some of the most radical changes in employment law in a generation. Far from tweaking the law or making modest change, they have radically diminished negotiation rights and protections against unfair dismissal.

But, secondly, suddenly, the government doesn’t seem in much of a hurry to pass the latest changes into law.

The problem for the government is it’s a bit hard when you begin the political year with the prime minister and finance minister telling everybody that inequality in New Zealand isn’t that bad, but that working people deserve a decent pay rise, and then find that you’re on the verge of passing a law that that is designed to defeat workers’ claims for a decent pay rise. With that line up of contradictions, something had to give. Sticking with idle rhetoric about pay rises and doing nothing about it is much easier.

Let’s cut to the chase about employment relations.

The operation of much of our employment law today represents an embarrassing moral failure.

It has led to declining real value of wages for many, growing poverty, increasing inequality and poor productivity performance.

Many workers are routinely denied basic employment rights.

We don’t have a coherent wage-setting system in this country. And as a result, we are now in the midst of a wages crisis.

Our employment law and labour market rules have been based for the last 23 years on similar principles, notwithstanding changes by the fifth Labour government to soften the rougher edges of the “free-for-all” environment of the 1990s.

The law purports to protect freedom of association and to allow collective bargaining, although the emphasis is almost entirely on bargaining at the enterprise level. In reality, it does neither. Freedom of association rights as well as collective bargaining rights are routinely obstructed and undermined. The next round of proposed law changes would make things worse.

The good faith requirements of the present law are meant to ensure some basic fairness. But good faith, or at least those parts that haven’t been further eroded by this government, remains an ill-defined beast. I find it interesting that nearly 14 years after the notion was introduced into our law, there has been very little consideration of it in the courts, and almost none in the senior courts.

I find it concerning that in one of the impending law changes (the right to go to the Employment Relations Authority to have bargaining declared at an end), amongst the criteria the Authority would have to consider, the question of whether the applicant party has fulfilled its good faith obligations is not one of them. The essential principle, in a jurisdiction described in statute as one of “equity and good conscience”, that “who comes to equity comes with clean hands”, wouldn’t apply. This tells me all I need to know about this government’s commitment to good faith.

The due process requirements of dismissal have been steadily eroded by this government and this has had the no doubt intended effect of reducing workers’ expectations of protection against unfair treatment.

Access to enforcement of employment rights is getting harder and harder. The former Department of Labour, now a division of the super-sized Ministry of Business, Innovation and Employment, is not much more than an 0800 number.

And now there is a whole new area of concern opening up, although it’s not even clear whether it’s an issue for our employment law code or some other aspect of our law. It is the growing intrusion into the non-work part of workers’ lives. We see it in the increasingly intrusive measures being used in pre-employment processes, now even including insisting on lie detector tests, according to a recent report, as well as employers’ interest in what workers do in their own time outside of work. The boundary between work and private life is becoming blurred to an unhealthy degree.

Historically, our statutory employment law has played an essential role in ensuring fair treatment for the worker and ensuring the worker’s right of freedom of association is protected. Our statutory employment law long recognised that the common law of master and servant was incapable of just treatment and a relationship based on mutuality.

But the reality of our employment law today; the way it is put into practice in many workplaces, is increasingly taking us back to the days of servile relationships; relationships of master and servant.

It’s time to take stock.

The mere fact we have employment law, no matter how inadequate, presupposes the state has an interest in what happens in the workplace. As a matter of public policy it does. Not only is the employment relationship a special one, because it involves the submission of one party (the worker) to the control of the other (the employer), and this alone is deserving of regulatory attention, but the state has an interest in stable industrial relations and the economic and social gains that derive from it.

I will look at what we should expect of a labour law code that is doing its job in an advanced economy. Then I will look at what is happening now. Finally, I will suggest some areas where the next Labour government will be looking for changes.

What does a well-performing labour market look like?

The following are measures of a well-performing labour market:
• Labour (by which I mean talent, intelligence, skills, time and effort) is generally available in the quantity and at the time that employers need it (the supply and mobility measure)
• The returns to labour are fair which means they reward for time, skills, talent and effort, and the price of labour is agreed in a genuinely mutual and orderly way. The value rises over time to maintain and improve purchasing power, and to reflect improvements in productivity. Returns to labour are proportionate with returns to other factors such as capital and entrepreneurship (the wages and incomes measure)
• Employers and workers have a reasonable level of certainty about wages and conditions in an enterprise and across an industry. Jobs carrying the same skills, duties and responsibilities should not be subject to inordinate disparities (the certainty and consistency measure)
• Through a combination of on-going skills development, effective application of capital and good quality management, good levels of productivity are achieved and the benefits fairly shared (the productivity measure)
• Workplaces are safe because health and safety regulation, enforcement and management, including employee input, are effective (the health and safety measure)
• Churn and dynamism in the labour market are the result of voluntary decisions, genuine change in labour needs and changing investment rather than arbitrary dismissal decisions (the job security measure)
• Consistent with the job security measure, there is no discrimination, either in practice or in the law, on the generally accepted unlawful grounds of discrimination, as well as on grounds of occupational class such as appears in section 6(1)(d) of the Employment Relations Act (the non-discrimination measure)
• Employment agreements, statutory rights and civil rights such as freedom of association, are readily enforceable and the culture is such that employment rights are routinely willingly observed (the rule of law/integrity measure).

Incomes, poverty and inequality in New Zealand
Against these measures New Zealand’s performance is woeful, at least for working people. Wage growth has been low or non-existent for a large proportion of the workforce. We have seen steadily growing inequality, including in housing with more and more New Zealanders excluded from owning a house. We have struggled to ensure a supply of skilled and educated labour to meet our needs in many sectors.

Consider these facts:
• Over the last 20 years, wages and salaries for the bottom half of earners have in real terms been either static or gone backwards. On the other hand, the incomes of the top 20 per cent of earners increased faster than in any other OECD country
• The share of income generated in the economy that goes to wage and salary earners fell from 60 per cent in 1981 to just below 50 per cent in 2010
• The proportion of the New Zealand workforce paid the minimum wage has risen from around 2 per cent in 1997 to nearly 4 per cent in 2012
• A recent survey as well as regular figures from Statistics New Zealand show that in any one year around half the workforce don’t get a pay rise, and this is against a period of successive years of economic growth
• As at March 2012 nearly 400 000 working people, nearly one fifth of our workforce, were dependent on tax credits to subsidise their earned income in order to make ends meet
• Asset inequality has got worse: the national median house price has increased by 27 per cent since January 2009 while at the same time home ownership has been falling, now at its lowest level since 1951
• Labour productivity in the private sector rose 48 per cent between 1989 and 2011, but the real average hourly wage rose just 14 per cent (if the average hourly rate had kept pace with growth in productivity it would be $7-8 higher than it is now)
• From 2007 to 2012, the number of households below the poverty line of disposable income less than 60 per cent of the median household income rose by 45 000 to 285 000
• As a country we simply have not produced enough skilled and educated workers to meet demand in many sectors, and we are reliant to a disproportionate degree on importing skilled labour. Even putting aside the unusual demand for skilled building labour created by the Christchurch earthquake, the reality is we have not been producing enough builders for many years, and now the problem is much worse.

These are just some of the measured results of what has happened with wages and incomes, productivity and inequality since the last major overhaul of our employment laws.

Then there are the unmeasured results. These are the stories you get just from talking to people or from their emails and letters. They are not the stories you get during photo opportunities at the openings of factories under the watchful eye of the boss.

Here is a fraction of the stories I have come across since starting as a MP at the end of 2011:
• The hated 90-day law is being used capriciously and keeping new workers in fear. Like many MPs receiving these stories I am told, without exception, not to do anything for fear that raising a claim of unfairness will prevent the person from getting another job. No one I’ve dealt with over this issue ever regarded themselves as having a choice about whether they signed up to the 90-day condition. It was a requirement. A fairly typical story is the most recent one I received: a man in his mid-twenties in a skilled hospitality job that he was well-experienced in was called at the end of the 90-day period, on Christmas Eve, and told he wasn’t wanted anymore. When he asked why, he was told “something you said last week really pissed me off”. He was told he was good at his job but the business owner just didn’t want him around anymore. To the employer this is just doing what she’s allowed under the law. But it is a moral failure.

• Obvious breaches of the employment agreement: I’ve recently dealt with a trades- skilled older worker who is employed on a flat hourly rate in a permanent position. His employer is a large corporate outfit and listed on the stock exchange. When he received his first pay slip last year he found his holiday pay was being deducted from his hourly rate. After several approaches to his manager nothing was done to fix the patently unlawful situation. I wrote to the chief executive and the problem was fixed, but the explanation was they thought the worker was casual, and they could do that. But they can’t do that with casual workers, either. They can’t deduct from the agreed hourly rate an amount to pay holiday pay; for workers employed for less than a year they can add an amount to their weekly or fortnightly pay to cover holiday pay. This employer has internal HR advice and can afford top-level legal advice, and yet operates in this way. This is not just a failure of effective legal enforcement. It is a moral failure.

• I’ve been helping a worker in the forestry sector who signed up as an employee (that’s what his employment agreement said) but who was then paid and treated as an independent contractor. He didn’t take too much notice of his pay slip; the fortnightly pay looked about right. In fact, the employer was deducting resident withholding tax, not PAYE. The worker didn’t realise what was happening until ACC wrote to him telling him he had to pay levies. IRD is also wanting him to pay income tax. I am insisting the state departments chase the employer given the unequivocal nature of the employment agreement. This employer knows he is engaging in sharp practice. But he thinks he can get away with it. It is a moral failure.

• There has been a huge growth in the use of the independent contractor form of employment. In many cases I’ve seen, it is designed to defeat statutory employment rights and is nothing to do with business efficacy. In these cases the worker is paid as if they are an employee. They have no control over their work or when they are at work. It is in all respects a conventional employment relationship. It’s legal on its face. But it’s immoral in substance.

• Triangular employment arrangements are also more common. Again, my experience is they are often used to defeat employment protections. The usual course of events is this. The worker is accused of a transgression. The employer makes a half-hearted effort to investigate but concludes with a message from the principal that the worker is no longer permitted on the premises. What is in reality a dismissal is dressed up as something beyond the control of the employer. The last one of these cases I dealt with a couple of years ago was, in my view, a total travesty of justice. I am happy to say the case resulted in a settlement with the employer of $30 000 for the worker.

• I am struck when I deal with workers by the sense of fear so many express. This is not just confined to young workers. Workers of all ages say the same thing. If they raise an issue with their employer they fear they will lose their job. I am currently helping a farm worker with his employment issues. He is an older worker. The farmer he works for has taken the standard Federated Farmers employment agreement, which is perfectly lawful, and crossed out bits he doesn’t like. Such as the clause on statutory holidays. I have dealt with other farm workers, including farm managers, and I have concluded the farming sector is a swashbuckling wild west when it comes to employment law. Workers are reluctant to challenge their employer for fear of being blacklisted in small rural communities. And so there are farmers who get away with ripping off their farm labour. This is a moral failure.

There has been a culture change in New Zealand when it comes to employment and status as a worker. In a growing number of workplaces workers are seen as being at the disposal of the manager, serving at the pleasure of the employer, not as someone who has value to bring to the enterprise and rewarded for it.

The statutory requirement that a worker have a reasonable amount of time to take advice on their employment agreement is, in reality, seldom observed. Many don’t know where to get advice from. And if they do get advice, what do they do with it? This part of the law ignores the human factor. Most people don’t challenge their employer before they start a new job.

The stark reality is most workers in New Zealand don’t get to negotiate their terms and conditions of employment. There simply is no negotiation. For most workers, negotiation is a risk, not a right. This state of affairs is untenable.

I used to be concerned that employment relationships were being reduced to a technocratic exercise – “what is my right; what is your obligation?” But that’s not my concern anymore. My concern now is that whether a worker in New Zealand enjoys their basic rights is totally random.

It’s not just workers who are hung out to dry in this sort of no-rules environment. Good employers lose as well. They face being undermined by the rogues and bottom-dwellers in the employer community.

The consensus we once had that workers should be treated fairly and with dignity, whatever their age or their position, is busted. It’s fine if you’re in a union or in a senior management role and can afford a lawyer. You’re OK if you have a responsible and conscientious employer, and I know there are plenty of them. Everyone else takes what they get. This is not good socially. It’s not even good economically.

We must have a moral basis to our employment law. It is about people, after all.

Why the right employment law framework is important
Our failing wage-setting system is creating an ever-growing disparity across New Zealand. This inequality is not good on any ground.

Growing inequality has consequences for health and social cohesion, amongst other things. But it’s bad economically. A recent IMF paper on inequality and growth said “lower net inequality is robustly correlated with faster and more durable growth”.

Labour is confronting the major challenge facing the New Zealand economy today: how to shift our economy up the value chain so we can generate the wealth needed to maintain and grow our standard of living.

This will entail not only good investment in new economic activity, but investment in skills and a stable employment environment with a good base of conditions.

We are forever hearing about the problem with productivity in this country. But a study by our Productivity Commission released at the end of last year concluded that two thirds of the productivity gap between New Zealand and Australia can be attributed to poorer quality management on this side of the Tasman.

We should hardly be surprised at this conclusion when every law this government passes in the employment field, encourages low quality performance in management.

One of the ingredients to lifting our comparatively low productivity performance is proper rules for employment, and certain knowledge by employers they will be enforced.

And those rules can’t be about taking the cheap way out through command and control by the employer. The rules must reflect the need for good quality employment relationships.

As a greater proportion of the workforce is enlisted into what might be described as knowledge work, it is often said this new generation of workers doesn’t need the old rules. Putting aside the fact most jobs – and I can think of plenty of engineering trades jobs – have a strong knowledge and digital dimension to them, the truth is all workers are entitled to a voice at the table on matters that affect them.

And that’s what is essential. A voice at the table.

The challenge for 21st century management is making room for that voice without feeling it is subverting the business owners’ interests and the risk they have assumed. I find when I talk to many investors and their representatives they instinctively understand this. They know the value of their business is tied up in high quality relationships and good quality dialogue between management and staff. They want management to operate in a disciplined way and they want to minimise the risk of poor decision-making caused by shutting out an essential source of information – the frontline workforce.

The government has realised the need for workers’ voices to be heard on health and safety with its new law introduced yesterday. But that voice needs to be heard on every issue relevant to workers.

This must be the ambition for a 21st century labour code.

Labour’s directions in employment law policy
Labour takes the wages crisis seriously. We see the workplace as having both a commercial and a social dimension, and regulation of the workplace needs to recognise this.

It is time to forge a new approach. We want fair employment law and a workable framework that achieves the eight objectives for the labour market I spoke about earlier:
• Quality supply and mobility of labour
• Fair and decent wages
• Improving productivity
• Healthy and safe workplaces
• Certainty and consistency of conditions
• Job security consistent with healthy churn and dynamism
• No unlawful or irrational discrimination
• The rule of law and rights integrity

We want a law that takes account of the human factor.

A law that understands how people work in practice, not on paper.

I talked about quality dialogue at the workplace level. It needs to happen at all levels; at the industry and national levels too. So, our preference is to have all stakeholders on board.

But the need for change is pressing. And we can’t surrender to obstructionism and sheer bloody-mindedness. We won’t be diverted from our task.

These are the areas we are considering at the moment:
• There is no place in a decent system of employment rights and obligations for arbitrary dismissal of the most vulnerable. The hated 90-day law will go. We will look at the rules relating to probationary periods, and if they are not as explicit as employers and workers would like, we will make them explicit
• Freedom of association is a fundamental right. In the form of the right to belong to a union, it is explicitly confirmed in the Universal Declaration of Human Rights. It’s actually confirmed in our law but it is not protected. This right is not dependent on business need, and it is not a choice the employer is permitted to make. The right to belong to a union in New Zealand will be properly protected
• We will reinstate collective bargaining rights for workers and will not allow for arbitrary termination of bargaining. Our preference is for pay and conditions to be negotiated so they reflect the reasonable expectations of employers and workers in the business or in an industry
• We want to see greater consistency across industries so there is not a huge disparity in conditions for similar roles applying similar skills and discharging similar responsibilities, and that competition between enterprises is based not on the cheapest labour cost but on quality of product and service. Negotiated minimum standards for industries is common in other small advanced economies. We believe collective bargaining processes need to provide for this
• We want to consider what level of intervention is needed to bring protracted or destructive bargaining to a conclusion. We don’t want compulsory arbitration but the facilitation process under the present law is not effective enough
• As we see it, there are workers employed as independent contractors who are, in reality, employees in all but name. We see no reason not to extend them the right to negotiate collectively and have the protections other workers have
• We are considering how triangular employment relationships can be properly regulated so that workers employed under them are not denied due process rights. An analogy can be drawn with deemed directors under section 126 of the Companies Act. There is no reason why we cannot have deemed employers
• We are considering to what extent employer actions outside the employment relationship, such as pre-employment actions and actions relating to issues outside work, need to be regulated
• Finally, we are committed recognising the right to equal pay; requiring a positive duty to advance equality and providing the mechanism to determine work of equal value.

Let me conclude with this. Last week I was one of several MPs from all sides of the House who met and had discussions with a delegation of Danish MPs who were here to look at our employment law framework. The delegation was led by a social democrat/Labour MP but most of the MPs on the delegation were from parties on the right.

To a one, all the Danish MPs expressed surprise at how far apart employers and their organisations on the one hand and unions and workers on the other were on industrial issues of the day and how to fix them. One MP said to me “it is like everyone here is on different planets”.

Well, we are not on different planets. We are in one small country at the bottom of the world, far distant from its many markets. Our survival is dependent on developing a sensible and robust settlement around key economic elements.

There cannot be a consensus around an employment framework that impoverishes, that disempowers and that shuts the essential voice of workers out of decisions that affect them.

Labour’s new employment law will be a law for the future, for a high value economy, for employers who understand the need for high quality relationships and for workers who want an environment in which they can offer their best.


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