Simpson Grierson: New Zealand Employment Law

Before looking at the current employment legislation in New Zealand, it is useful to briefly consider the evolution of New Zealand's labour laws through to the Employment Contracts Act, which radically rewrote New Zealand's labour laws for the "free market" 1990's.We then focus on the key aspects of the Employment Relations Act 2000.

New Zealand first attempted to establish an effective legal regime for industrial relations in the 1890's as a response to what the Government of the time considered to be "barbaric" strikes. Legislation was introduced to ban strikes and lock-outs. However, the law also encouraged the formation of unions and introduced a compulsory arbitration system.

This type of model, based on strong unions, centralised bargaining and compulsory arbitration dominated the next 90 years. By the 1970's, New Zealand industrial relations systems were a complex assortment of collective bargaining structures. Union membership was mandatory if an employee was covered by an award or agreement. Those awards or agreements were frequently nation-wide, and were often finalised through compulsory arbitration.

Centralisation reached its peak by the early 1980s when the wages for each job classification were invariably tied to those of every other classification by a rigid system of relativity. The system failed to take into account basic economic factors with hugely damaging effects on New Zealand's economy.

The Labour Party introduced the Labour Relations Act 1987 ("LRA") in recognition of the need to free the economy from such an inflexible system. The key feature of the LRA was that it abolished compulsory arbitration. Other novel concepts included the shedding of restraints on union operation and organisation, a clear definition of when industrial action would be "lawful" and the introduction of open ended bargaining. However the LRA still maintained compulsory unionism and national awards and agreements remained the norm.

By the early 1990s, the new market environment demanded decentralisation and labour market flexibility. The ECA was the National Party's radical response. The centralised model was completely scrapped for a "freedom of contract", "freedom of choice" model for employment relations.

The ECA was introduced amidst a storm of protest lead by the union movement. For the first time in 100 years, unions were given no specific recognition. They were placed in the same position as any other advocate (or "bargaining agent") who wished to convince employees to utilise their services.

In essence, two forms of employment contracts were recognised, individual and collective. Once negotiations were underway, there were some limits on attempts by employers to undermine the bargaining agent (if one had been appointed) and some limited access rights existed for bargaining agents, but only once bargaining was underway. However, in most respects, negotiations for individual or collective contracts were left entirely to the parties. There was no third party involvement to resolve contract deadlocks. "Freedom of contract" prevailed.

Strikes were lawful but not if a collective employment contract was already in place. Strikes for multi-employer contracts were rendered unlawful. Sympathy strikes were also outlawed, as were demarcation disputes. Issues such as redundancy entitlements were also left entirely to the parties.

However, one significant change introduced by the ECA which clearly benefited employees, was the extension of the personal grievance provisions to every employee. Previously, these had only been available to union members, but the ECA recognised the right of any employee to challenge their dismissal (by virtue of a personal grievance claim).

The Employment Relations Act came into force on 2 October 2000 and represented another major re-haul of employment law, not only from the ECA but also from its pre-1991 antecedents.

The Government's rationale was that the ECA did nothing to remedy the inherent inequality of bargaining power in employment relationships. Under the ERA, promoting collective bargaining through unions is considered the best way of redressing that imbalance. The ERA was amended in December 2004 with one of its aims being to promote and strengthen collective bargaining further.

The Employment Relations Amendment Act (No. 2) 2004. The ERAA's key amendments related to the duty of good faith, collective bargaining, the test applied in assessing a claim for unjustified dismissal and protection to employees where business undertakings are sold, transferred or contracted out. These changes are addressed in more detail below.

Not only did unions and collective bargaining return as the centre piece of New Zealand's industrial relations system under the ERA, but a statutory concept of good faith was introduced to apply to all aspects of the employment relationship (including, interestingly enough, to relations between unions). However the ERA is not a return to the centralised system so dominant in New Zealand for so long. There are no provisions for government wage fixing or compulsory arbitration; multi-employer collective agreements are lawful, but the only means to bring these about are by agreement; unions must compete amongst themselves for employees and there is no compulsion on employees to join any union.

The ERA deals with six key areas which are now analysed in more detail. These areas are:

(a) Unions

(b) Collective agreements and good faith

(d) Individual agreements

(e) Dismissals

(f) Mediation and the Employment Relations Authority

A key objective of the ERA is to promote unions and collective bargaining.

Consistent with this objective, the ERA specifically recognises unions as the only lawful representative of employees' collective interests. The ERA entitles unions to represent their members in relation to any matter involving their collective interests, and it also allows unions (and other representatives) to represent employees in relation to their individual rights (for example, unions can represent employees at mediation and in court actions), provided that they have the employee's authorisation.

Consistent with this key role for unions, a collective agreement can only be concluded by a union and an employer. Employees cannot band together to negotiate a collective agreement unless they have formed and registered as a union. Therefore, while union membership is voluntary, if an employee wants to be involved in a collective agreement and to bargain collectively, they must be a member of a union.

Access

In order to facilitate union rights to represent employees, the ERA substantially increased rights of access to workplaces. The purposes for which union representatives can enter workplaces are very broadly defined as purposes relating to:

(a) their "members' employment"; and

(b) "union business".

The right to access for union business is particularly wide. For example, union representatives may access a workplace to provide employees (including non-union employees) with information about the union, to attempt to recruit employees to join a union, and to simply monitor compliance with a collective agreement or with employment legislation.

The ERAA requires a discussion between an employee and his or her union representative to be of a "reasonable duration". A discussion is not a union meeting therefore it does not affect employees' entitlement to attend union meetings.

The only real limit on when a union representative may enter a workplace is the requirement that it is at "reasonable times" during any period when employees are working, and providing reasonable health, safety and security restrictions are not compromised.

Union Meetings

The ERA also requires employers to allow every union member to attend two paid union meetings (of two hours duration) each year provided that the Union follows certain notification and procedural criteria.

As noted earlier, collective bargaining is one of the cornerstones of the ERA. An objective of the legislation is to build "productive employment relationships" through the promotion of collective bargaining. The ERA also introduces the concept of bargaining in good faith, outlines a detailed process for collective bargaining (including multi-party bargaining), and sets out the requirements for collective agreements including their form, duration, context and application.

Good Faith Bargaining in the Collective Context

The ERA specifically provides that the "duty of good faith" applies to collective bargaining. The core requirements of the duty can be summarised as:

(a) Using best endeavours to enter into an agreement about the process for conducting bargaining as soon as possible after the initiation of bargaining;

(b) Meeting each other from time to time;

(d) Continuing to bargain on matters which the parties have not reached agreement, even where they have come to a standstill or reached a deadlock;

(e) Recognising the role and authority of the other party to be a representative, and not bargaining, "directly or indirectly" with employees for whom the union acts, nor doing anything that is likely to undermine the authority of the union in the bargaining process; and

(f) Providing each other on request, information that is "reasonably necessary" to support bargaining claims or responses.

Good faith in collective bargaining means an employer must be prepared to meet with any union that acts for any of its employees where that union initiates collective bargaining, it must be prepared to justify any position it adopts (ultimatum bargaining is ruled out) and it cannot attempt to by-pass a union by communicating directly with its staff about any aspect of negotiations.

The ERAA amended the ERA by requiring a union and an employer, who are bargaining for a collective agreement to conclude that agreement unless there is a genuine reason, based on reasonable grounds, not to. A genuine reason does not include opposition or objection in principle to bargaining for, or being a party to, a collective agreement and disagreement about including a bargaining fee clause in a collective agreement under Part 6B.

There is a duty on bargaining parties to provide "information that is reasonably necessary" to support or substantiate claims or responses means that in some cases, highly sensitive financial information will be called for (invariably by the union). This will be done on the basis that financial data is relevant to support or base a bargaining position. Should a dispute arise as to whether information is confidential an "independent reviewer" must decide whether the information is confidential and if so, to what extent the information supports a bargaining position.

Of concern (at least to employers) is that the only statutory remedy for the disclosure of confidential information is a compliance order. Penalties cannot be sought.

Facilitated Bargaining

The ERAA introduced the concept of facilitated bargaining. One or more matters relating to bargaining for a collective agreement may be referred to the Employment Relations Authority where one or more of the following grounds exist:

in the course of the bargaining, a party has failed to comply with the duty of good faith and the failure was serious and sustained and undermined the bargaining;
the bargaining has been unduly protracted and extensive efforts (including mediation) have failed to resolve the difficulties that have precluded the parties from entering into a collective agreement;
in the course of the bargaining there has been 1 or more strikes or lockouts and the strikes or lockouts have been protracted or acrimonious;
in the course of bargaining, a party has proposed a strike or lockout and the strike or lockout, if it were to occur, would be likely to affect the public interest substantially.

The purpose of introducing facilitated bargaining was to provide a process that enables one or more parties to collective bargaining, who are having serious difficulties in concluding a collective agreement, to seek the assistance of the Authority in resolving the difficulties.

Passing On

The ERAA made it clear that it is not a breach of the duty of good faith for an employer to agree that a term or condition of employment of an employee should be the same or substantially the same as a term or condition in a collective agreement that binds the employer. However, it will be a breach of the duty of good faith for an employer to "pass on" those terms or conditions where:

the employer does so with the intention of undermining the collective agreement; and
the effect of the employer doing so is to undermine the collective agreement.

Bargaining Fees

The ERAA also introduced the statutory approach to bargaining fees. A "bargaining fee", also known as an agency fee, is an amount payable by an employee to the union, where he or she is not a member of that union. The fee may be payable periodically or in a lump sum.

A bargaining fee clause applies to “employees who are not members of a union” who perform work which is within the coverage clause of the collective agreement. The clause must specify the amount of the bargaining fee and requires those employees to pay that bargaining fee. In the usual case, the fee will be payable periodically, not as a lump sum, although the method for deduction does not specify whether non-union employees might be subject to a lump sum deduction.

The ERA largely maintains the limits on strikes and lockouts which existed under the ECA but with some very important modifications. The key elements of the new legislation can be summarised as follows:

(a) Participation in a strike or a lockout will be unlawful if it occurs while a collective agreement binding on the employees participating in the strike or lockout, is in force. The strike or lockout must also relate to the bargaining for a new collective agreement.

(b) A strike or lockout cannot occur during bargaining until the parties have been negotiating for a new collective agreement for at least 40 days.

(c) As was the case under the ECA, a strike or lockout cannot relate to a personal grievance, a contractual dispute, a freedom of association issue, or take place in an essential service unless certain notice requirements are met.

(d) The ERA significantly changes the law on essential services. While employees who are striking (or employers who are locking out) must still give 3 or 14 clear days notice of the industrial action (depending on which category of essential service they fall into), that notice has to be given only if the proposed strike or lockout will affect the public interest including public safety or health. Therefore, every time a party wishes to take industrial action in an essential service, it has to make an assessment of whether the public interest will be affected and, if it decides it will not, it will not have to give any notice. This means that strikes or lockouts in essential industries could occur without warning and the onus will then be on the other party to get an urgent injunction from the courts, if it believes the public interest is compromised.

(e) An employer cannot require non‑striking workers to perform the work normally performed by strikers nor employ another party to perform the work of the striking or locked out employees, unless that can be justified on grounds of safety or health.

(f) This stops an employer bringing in casuals or contractors to keep a business running during a strike or lockout and it prevents an employer from requiring other workers to do the work of the strikers. The new legislation significantly increases the impact of a strike by introducing the possibility that the strike could shut down a business completely. It also makes a lockout significantly less attractive for an employer because outside labour cannot be engaged during the lockout.

(g) The employer can, however, use employees who agree to do the work of striking or locked out employees.

(h) The only exception to this provision is that an employer may engage new employees or contractors in the event that there is a threat to health and safety.

Striking employees can be suspended, as can non-striking employees where work is not available for them during the strike or lockout.

The ERA still allows an employee to negotiate an individual employment agreement provided the employer adheres to the procedural criteria set out in the Act. As indicated above, the ERAA extended the duty of good faith to the bargaining of individual employment agreements.

In essence, individual agreements can exist only where:

(a) there is no applicable collective agreement; or

(b) there is an applicable collective agreement but the employee is not a union member, in which case for the first 30 days of employment the individual agreement will comprise:

(i) The terms of the applicable collective agreement; and

(ii) Any other terms which are not inconsistent with the applicable collective agreement; or

(c) the employee resigns from the union which is a party to an applicable collective agreement in which case the individual agreement will comprise:

(i) The terms of the collective agreement; and

(ii) Whatever terms the parties agree (except that the employee cannot join another collective agreement until 60 days before the first collective is to due to expire); or

(d) the applicable collective agreement expires in which case the parties can agree whatever terms of employment they wish.

Individual agreements can contain whatever terms the parties can agree but must include:

(a) the names of employee and employer;

(b) a description of the work to be performed;

(d) an indication of the arrangements about hours and days of work;

(e) the wages or salary payable; and

(f) a plain language explanation of the services available for the resolution of employment relationship problems including telling the employee about the 90 days in which he or she should raise personal grievances.

Opportunity to Seek Advice

The ERA requires an employer to ensure that the employee has had a reasonable opportunity (in most cases likely to be 5 to 7 days) to seek independent advice before the new employee signs an individual employment agreement and any time the employer seeks to vary the individual employment agreement.

Cancellation of Individual Agreements under the ERA for Unfair Bargaining

The ERA also permits the Employment Relations Authority to cancel an individual employment agreement, order compensation be paid or make any other order it thinks fit where the employer knows, ought to have known or could reasonably have inferred that the employee is unable to understand adequately the provisions of an agreement, for a wide range of reasons, including age, sickness, disability or because no chance was given to get independent advice.

Probationary Employment and Fixed Term Agreements

Under the ERA, it is possible to employ a new recruit for a probationary period but it must be set out in writing and even during the probationary period, an employee will still be entitled to all the usual protections of dismissal law.

As for fixed term agreements, any fixed term agreement entered into after 2 October 2000 will only be lawful if the employer has a genuine reason based on reasonable grounds for limiting the period of employment and has told the employee when or how the employment will end and the reasons for it.

Fixed term contracts have become common place in New Zealand but are only used for project type work and not as a means for employers to exit non-performing staff.

The ERAA introduced the requirement of an "employee protection provision" in all employment agreements. An employee protection provision (or EPP) provides further protection to employees in situations where business undertakings are sold, transferred or contracted out. The ERAA separates New Zealand employees into two groups.

For specified categories of employees (such as cleaners, laundry workers and employees in food catering), service will be recognised as continuous with the new employer if the employee elects to transfer.

For all "other employees" (outside the specified categories), the employment agreement must specify the process to be followed for matters such as consultation, offers of employment, redundancies. The ERAA requires that an EPP be included in all new employment agreements from 1 December 2004 and in all existing employments by 1 December 2005 or before the employer transfers the business undertaking, whichever is the earliest.

Although the ERA introduces some radical changes from the ECA, the personal grievance action (ie; the right to challenge the justification for a dismissal) has been retained largely in its previous form. However the right of employees to bring a personal grievance action has been enhanced in various ways.

Information to Employees

Employers must include in all employment agreements, a plain language explanation of the services available for the resolution of employment relationship problems, including a reference to the period of 90 days within which a personal grievance must be raised.

Exceptional Circumstances

A personal grievance must be "raised" within 90 days of the cause of action arising unless there are "exceptional circumstances". The ERA adopts a liberal interpretation of "exceptional circumstances" which include:

(a) where the employee has been so affected or traumatised by the matter that he or she is unable to submit the grievance; or

(b) where the employee reasonably relied on an agent and the agent unreasonably failed to submit the grievance; or

(d) where the employer failed to provide a statement of reasons for dismissal.

It is anticipated that applications by employees claiming to be too "traumatised" by their dismissal to submit their grievance within 90 days will be one of the more common claims. However, the employee must still establish that the exceptional circumstances were causative of the delay and the Authority must consider it just to grant leave.

An overall limitation period of three years will apply to the raising of personal grievances, which is less than the six year period under the Limitation Act.

No Wrongful Dismissal Actions

The ERA stipulates that if an employee who has been dismissed wishes to challenge the dismissal, or any aspect of it, the challenge must be brought in the Employment Relations Authority as a personal grievance. This section effectively removes the common law action of wrongful dismissal.

Reinstatement - The Primary Remedy

Reinstatement has been made the primary remedy, as it was under the Labour Relations Act. Any employee who is found to be unjustifiably dismissed and seeks reinstatement must be reinstated unless there are compelling reasons why it is not possible.

The Authority also has the power to order interim reinstatement at any time where an employee has raised a personal grievance, without the need for the parties to first attend mediation.

As indicated above, the ERAA inserted a test which must be applied by the courts in assessing a claim for unjustified dismissal. This test asks whether the dismissal or action was, on an objective basis, what a fair and reasonable employer would have done in all the circumstances at the time of the dismissal or action occurred. For the avoidance of doubt, this assessment is distinct from what a fair and reasonable employer could have done (as has applied in case law prior to the ERAA).

Two new institutions were created under the ERA, the Mediation Service and the Employment Relations Authority.

The focus of the ERA is on “resolving” employment problems as quickly and as close to the point of origin as possible. The ERA aims to achieve this by promoting mediation in every instance. One of the aims is to reduce the amount and cost of litigation by providing easy access to services to help the parties sort out their differences.

Mediation Services

Mediation is the primary tool for resolution of “employment problems”. The Authority and Court are directed to consider the appropriateness of the parties attending mediation at all stages.

With the consent of the parties, a mediator may make a decision on how to resolve a problem. Such a decision is final and binding and enforceable by the parties. There is no power of appeal or review from the mediator's decision. However, in practice, it is rare to give the mediator this type of power.

Employment Relations Authority

The Employment Relations Authority has significantly greater jurisdiction, including jurisdiction which was previously vested in the Employment Court, High Court and District Court.

The Authority is an investigative body that resolves "employment relationship problems" by establishing the facts and making a determination according to the substantial merits of the case, without regard to technicalities. Its aim is to promote good faith behaviour and it is required to act as it thinks fit in equity and good conscience, but may not do anything that is inconsistent with the ERA or with the relevant employment agreement. There is no similar quasi‑judicial body in New Zealand which has the same investigative powers.

Before taking any steps to investigate a matter, the Authority is required to first consider whether the parties have used mediation and if they have, whether their attempt was adequate. The Authority can direct the parties to mediation either before it investigates a matter or during the course of any investigation.

In essence, the procedure in the Authority involves calling the parties together (after an initial telephone conference) and it expects relevant witnesses on each side to make statements on oath. Then the "investigator" questions the witnesses. Cross examination is at the discretion of the Authority. The only role of the lawyer or advocate present is to suggest lines of enquiry to the investigator and to then make any submissions on law at the end of the proceedings.

The Authority does not adopt an adversarial approach but to investigate the substantial merits of the case in a "user friendly" and non-legal style.

Appeals From the Authority

Parties who are dissatisfied with a determination from the Authority may "elect" to have the matter heard by the Employment Court. The party can elect whether or not it wants to have the hearing "de novo" (ie a full hearing of the case again, including calling witnesses).

However, where a de novo hearing is sought, the Authority must submit a report to the Court setting out whether the parties have facilitated/obstructed the Authority's investigation and acted in good faith during the investigation.

The ERA is supported by various statutes which set a "minimum floor of rights". Some of the key statutes are.

Human Rights Act 1993

Under this Act, a number of grounds of discrimination are outlawed. They include sex, martial status, religious belief, race, disability, political opinion, age (over the age of 16), family status, and sexual orientation.

It is unlawful to discriminate in employment, including advertising and recruitment and in the provision of goods and services (amongst other things) on any of these grounds. However in employment, there are certain exceptions such as where being of a particular sex or age is a genuine requirement of the position.

There are also detailed provisions in the Human Rights Act dealing with sexual and racial harassment.

Holidays Act 2003

The Holidays Act 2003 came into force on 1 April 2004. In this Act, workers are guaranteed not less than three weeks annual leave per year, but this will increase to four weeks from 1 April 2007. Annual holidays must be paid for at the higher of an employee's average weekly earnings or their ordinary weekly pay at the time they go on leave. "Ordinary weekly pay" now includes all regular productivity or incentive based payments as well as overtime and/or allowances if they are a regular part of pay.

The pay rate for public holidays must now be the employee's "relevant daily rate". In addition, all employees (including salaried and casual) must be paid time and a half of their relevant daily rate for all hours they are required to work on a public holiday, and a whole paid day off in lieu.

Special leave has changed from five days per annum to five days' sick leave, three days' bereavement leave per death of an "immediate" family member, plus one day's leave for certain other bereavements.

Privacy Act 1993

The Privacy Act 1993 (the "PA") came into force after the ECA and has proved to be a significant piece of legislation in New Zealand. The PA establishes 12 Information Privacy Principles which set out broad rules that deal with personal information.

The PA grants employee's access to their personnel files and impacts on prospective employers seeking information about a job applicant. In terms of providing confidential information when bargaining for collective agreements under the ERA, parties need to be aware of the provisions of the Privacy Act.

Parental Leave and Employment Protection Act 1987

The passing of the Parental Leave and Employment Protection Act 1987 was largely an attempt to meet international legal requirements arising from various conventions.

The Act guarantees employees with more than one years service the protection of their position (in most cases) for up to 52 weeks, when on parental leave. This 52 weeks can be shared between father and mother.

Paid parental leave. To be provided by IRD (not employers) to all employees working over 10 hours per week over 1 year for the same employer. Presently at $334.75 per week (before tax) for 12 weeks.


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