Major overhaul of the Employment Relations Act

December 2003

By the Employment Team

The Employment Relations Law Reform Bill was introduced into Parliament on 7 December 2003 and proposes to amend the Employment Relations Act 2000 (the Act).

This newsletter summarises the key amendments contained in the Bill which relate to promoting good faith, collective bargaining and more effective employment relationship problem resolution, and protecting employees' interests in change of employer situations.

We examine below each of these key amendments, together with a host of other changes contained in the Bill.

Promoting good faith

The Bill strengthens the requirement to act in good faith in employment relationships and stipulates that good faith is a broader concept than the common law obligation of "mutual trust and confidence". The Bill specifies that the duty of good faith may require the disclosure to employees of specific information that may affect them; that in bargaining, the parties should bargain over all issues between them rather than allowing specific matters to impede further bargaining; and that 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 duty of good faith is given practical effect by applying the existing financial penalties of the Act (up to $5,000 for an individual and $10,000 for an organisation) to breaches of good faith. Also, the Employment Relations Authority will be empowered to fix the terms and conditions of a collective agreement if there has been a breach of good faith in relation to collective bargaining.

Promoting collective bargaining

While the Bill does not propose to reinstate compulsory unionism, arbitration or national awards, it does provide strong incentives for parties to enter into collective bargaining and to form collective agreements. The Bill makes it clear that the process of collective bargaining should result in a collective agreement unless there is a genuine reason not to. If enacted, this would be a significant change from the present law which, although requiring unions and employers to properly consider and respond to claims from the other side, does not compel them to enter into a collective agreement.

In addition, the Bill contains a provision that requires a union and an employer to "continue to bargain" about unresolved matters even though they have come to a standstill or reached a deadlock about a particular matter.

To overcome impasses in collective bargaining and facilitate settlement, the Bill enables the Employment Relations Authority to provide assistance to the parties in certain circumstances and make non-binding recommendations for the settlement of matters in dispute between them.

The Bill introduces several measures to prevent the undermining of collective bargaining. To this end, several types of behaviour in respect of collective bargaining will be considered a breach of good faith. For instance, an employer will breach its duty of good faith if it advises employees against collective bargaining or joining a collective agreement.

The Bill also addresses the concept of "free riding". Although it is a high standard, it will be a breach of good faith for employers to intentionally seek to undermine a collective agreement by passing on the terms and conditions of a collective agreement to employees on individual agreements. The purpose of such a provision is two-fold - it prevents those on individual agreements from reaping the benefits of negotiation by union members and requires genuine negotiations to take place between employers and employees. This may have the eventual effect of threatening the rights of individually contracted workers to earn more than their collective-based peers.

The Bill also allows subsequent union and employer parties to join existing collective agreements, where the parties to the original agreement have negotiated an enabling provision to allow for this.

Other changes allow for union membership to be more efficient. Such changes include: allowing all union members to have their fees automatically deducted from their wages, and allowing union representatives to seek prior authority to sign a collective agreement without it having to be ratified by members when settlement is reached.

The Bill strengthens the effect of the "30 day rule" in the Act, which provides new, non-union employees with the terms and conditions of any collective agreement that covers their work. The Bill closes any potential loophole of avoiding this rule by defining coverage only by reference to the names or work of specific individuals. The Bill clarifies that "30 day rule" clauses are to be read in light of the type of work performed by those individuals. There is further clarification in that where there is more than one collective agreement covering a new employee's type of work, the applicable agreement is the one that applies to the majority of employees performing that type of work.

Promoting more effective employment relationship problem resolution

Whilst the personal grievance provisions of the Act recognise the need for fairness and justifiability, the Bill seeks to redress the courts' inconsistent interpretation of "justifiability" which in some cases has been based on an employer's perspective of what is fair and reasonable. To remedy this, the Bill sets out an objective test for "justifiability" that makes express reference to the requirement for an employer, in deciding on an action, to consider and balance the legitimate interests of both the employee and employer.

Mediation and non-judicial problem resolution services are also promoted. Under the Bill, such services will be available to parties in work relationships that are not employment relationships (for example, contractors and their principals) on a voluntary basis. Mediators will also be able to "fast track" minor or straightforward problems. There are also a host of other changes to the mediation services, including discouraging unnecessary legal action, requiring that monetary settlements be paid directly to the applicant rather than to their representatives (except where legal aid has been granted), discouraging inflated monetary claims and discouraging the use of contingency fees by representatives.

The Bill also adds greater certainty of process by: clarifying that once proceedings are commended pursuant to either the Act or the Human Rights Act 1993, then no aspects of the other procedure (such as mediation) are available; ensuring that mediated settlements that are agreed to be final and binding by the parties cannot be later be cancelled by the Contractual Remedies Act 1979; providing specific penalties for breaches of agreed settlements; and preventing the Employment Court from intervening during Employment Relations Authority investigations.

Protecting employees' interests in change of employer situations

The Bill provides a two-tiered framework of employment protection in restructuring situations.

Default protective provisions will apply to most employees and employers in the event of a sale, transfer of business or initial contracting out of business. (The situation where the employer has been performing work contracted out by another business and the contract for that work ends, is excluded).

The details of the employee protection provision will be subject to negotiation between the employer and the employee but must include: a process the employer will follow in negotiating with a new employer in a restructuring which affects employees; employment matters that the employer will negotiate with the new employer; and, in the event that an employee does not transfer to the new employer, the process that will be followed at the time of restructuring to determine what entitlements, if any, are available. These provisions must be included in all employment agreements by the earliest of: 12 months after the Bill comes into force; or, when the employment agreement is next amended; or, if a restructuring situation arises or is proposed, before the restructuring actually occurs.

There are also specific provisions which provide a higher level of statutory protection to groups of employees that are considered "vulnerable" to, and disadvantaged by, change of employer situations. The "vulnerable" employees are employees who provide services in the cleaning, food and laundry sectors. The "vulnerable" employees will be given the right to transfer to their new employer on the same terms and conditions that they enjoy with their employer.

The right to transfer for the "vulnerable" employees will be triggered in restructuring situations where there is a sale, transfer or contracting out of the employer's business and the new employer undertakes the same or substantially similar work to that performed by the current employer.

Where the "vulnerable" employee's employment agreement already deals with the issue of redundancies in a restructuring situation, this will bind the parties after the transfer. However, if the employment agreement does not deal with the issue, the parties will be able to bargain over the matter. If the parties cannot reach agreement, the Employment Relations Authority can determine the redundancy entitlement.

Equal pay

The Bill seeks to repeal and replace the Equal Pay Act 1972 and the Government Service Equal Pay Act 1960 with new provisions that confirm the right to equal pay. That right is defined as an equal rate of pay for the same or substantially similar work that does not involve discrimination on the basis of gender. The Bill does not, however, address the issue of equal pay for work of equal or comparable value (pay equity).

The new Equal Pay Act will provide many extra protections for employees. It will place a duty on employers to answer questions relating to equal pay, protect employees for dismissal or disadvantage as a result of making an equal pay query or complaint, empower Labour Inspectors to investigate such issues, and allow a number of remedies (back pay, compliance orders and penalties) for any proven breach.

Other matters

There are a host of other changes to the Act which include, but are not limited to, an entitlement for all employees who are union members to employment relations education leave; the provision for the development of codes of practice to promote more productive employment relationships; and, the requirement that fixed terms and probation periods be put in writing otherwise they are not enforceable, if challenged.

Timeline for enactment

It is expected that Bill will come into force on 4 October 2004.

Conclusion

At first glance, the Bill introduces a host of changes, giving practical effect to the intentions of the Act.

The imbalance of power in the employment relationship has, again, been recognised, with the Bill providing significant protections for the employee.

On closer inspection, the Bill seems to use the duty of good faith to oblige (rather than merely promote) the uptake of collective agreements, considerably increasing the likely membership, power and influence of New Zealand's unions.