Employment

02 Aug 2010

Proposed Changes to Employment Relations Act

The Government has announced a number of proposed changes to the Employment Relations Act 2000 (ERA). The Bill outlining the proposed amendments was introduced to Parliament on 16 August 2010 and had its first reading on 19 August. Although the changes may positively impact on employers in a number of ways, for the most part they are not as drastic as some commentators are claiming.

The changes aim to provide some clarity and guidance for employers, particularly in the area of dismissals, while enhancing the processes of attending mediation and investigation meetings before the Employment Relations Authority.

While a large number of proposals have been made, some of the more controversial changes are discussed below.

90-Day Trial Period - "Inhumane" or a Win-Win for Employers and Employees?

Media comment has largely focussed on this proposed change. It has been described as "inhumane" by The Workers Party, a "single finger salute to all New Zealand workers" by the Service and Food Workers Union and "the most severe attack on working people in a generation" by the Unite Union.

While there has been strong opposition to this change by the unions, the Government is promoting the change as being beneficial for both employers and employees as a way of encouraging employers to take on more staff.

It is proposed that the 90-day trial period for new employees will be extended to cover all employers. Currently, it is limited to those employers with fewer than 20 employees. This means that, for all new employees, if they are given notice of dismissal within the first 90 days of employment, they may be barred from raising a personal grievance. However, employees will still be able to bring a claim for sexual or racial harassment, discrimination, an unjustified action causing disadvantage in employment, duress and a failure to comply with business transfer provisions.

A report produced by the Department of Labour has stated that approximately 40 per cent of employers surveyed said they would not have hired workers or were unlikely to have hired workers if the scheme (as currently restricted) had not been available.

It is interesting to note that trial periods or other limitations on the ability to bring a claim are reasonably commonplace overseas. For example, in the United Kingdom all employees are restricted from bringing a claim for unjustified dismissal until they have completed 12 months employment. In Australia, it is 12 months for employees of businesses with fewer than 15 employees or six months for employees in any other business.

Test of Justification for Dismissals - "Would" vs "Could"

By way of background, on 1 December 2004 the ERA was amended to insert a new test of justification for employers to meet when a personal grievance is brought. The test in section 103A is:

For the purposes of section 103(1)(a) and (b) the question of whether a dismissal or an action was justifiable must be determined, on an objective basis, by considering whether the employer's actions, and how the employer acted, were what a fair and reasonable employer would have done in all the circumstances at the time the dismissal or action occurred.

According to the general policy statement in the explanatory note to the Employment Relations Law Reform Bill, the new section 103A was "intended to resolve the uncertainties arising from the decision of the Court of Appeal in W&H Newspapers Limited v Oram [2001] 3 NZLR 29." The Select Committee, when reporting back on the Bill, stated that:

The Court of Appeal's judgment in Oram has been perceived as meaning that a dismissal is justified provided that the employer thought the action was reasonable, or that the action constituted what a fair and reasonable employer could have done. Prior to this, the test for justification of dismissal related to what a fair and reasonable employer would have done.

In one of the first Employment Court decisions under section 103A (in X v Auckland District Health Board [2007] ERNZ 66) the Court held:

What should have been the sanction for or consequence of such behaviour is really at the nub of the case. I have decided that, viewed objectively in the context of all of the relevant evidence, a fair and reasonable employer would not have dismissed the plaintiff...rather it would have applied a variety of sanctions and behavioural correctives and safeguards with a view to ensuring that such misconduct would not recur.

This was notwithstanding that the Court described Dr X's dissemination of "offensive and pornographic material" as "bizarre and reprehensible". The Court's emphasis in that case on ADHB's purported failure to give due consideration to the prospect of reoffending by Dr X added a novel obligation on employers in an already difficult decision making process.

Since the Dr X case, section 103A has been interpreted by many commentators (particularly those representing employer groups) as placing too much emphasis on the employer's process and not focusing enough on the substantive reasons for the employer's action.

In response to these concerns, the Government proposes that section 103A ERA will be amended by replacing the word "would" with the word "could", so that justification will now be determined, on an objective basis, by considering whether the employer's actions, and how the employer acted, were what a fair and reasonable employer could have done in all the circumstances at the time the dismissal or action occurred. This would reflect the fact that there will be a range of reasonable responses in any situation and that it is not for the Authority or the Court to substitute their judgment for that of the employer.

This amendment would also be consistent with the Court's approach prior to Oram and is in line with the remark made by the then Minister of Labour when section 103A was enacted, that it was not intended to be "a radical revamp of the dismissal law".

Process to Follow for Justified Dismissal

The Bill explicitly sets out the minimum requirements of a fair and reasonable process that the Authority and/or Court must consider when interpreting section 103A. In applying the test in section 103A the Authority or Court must consider:

1. Whether, having regard to the resources available to the employer, the employer sufficiently investigated the allegations against the employee before dismissing or taking action against the employee;
2. Whether the employer raised the concerns that the employer had with the employee before dismissing or taking action against the employee;
3. Whether the employer gave the employee a reasonable opportunity to respond to the employer's concerns before dismissing or taking action against the employee; and
4. Whether the employer genuinely considered the employee's explanation (if any) in relation to the allegations against the employee before dismissing or taking action against the employee

However, the Bill also specifies that a dismissal (or other action) should not be found to be unjustifiable solely because of a minor or technical defect in the employer's process, if the defect did not result in the probability that the employee was treated unfairly.

The explanatory note to the Bill states that this part ensures that the employer's processes will not be subject to a level of scrutiny that is so pedantic or technical that it means an otherwise justifiable action is considered unjust. This will be welcomed by most employers, but setting minimum process requirements in legislation could, in fact, be very prescriptive and employers will need to take all four considerations into account when contemplating a dismissal, if this proposal is enacted.

Communication During Bargaining

The Bill proposes to amend the ERA to clarify that an employer may communicate directly with employees during bargaining for a collective agreement (including about any proposals for the collective agreement), provided that such communications are consistent with the duty of good faith.

This proposal largely reflects the current law as confirmed by the Court of Appeal in Christchurch City Council v Southern Local Government Officers Union Inc. However the proposal does provide clarity for employers that they can publish details of an offer made, without a claim that this undermines the bargaining or the union's role.

Union Access to Workplaces

Currently unions have a right to access the workplace for purposes related to the employment of their members and/or for purposes related to the union's business, for example to recruit new members. A representative of a union exercising the right to enter a workplace may do so only at "reasonable times" and in a "reasonable way" having regard to normal business operations in the workplace.

The Bill proposes that any access will now require the consent of the employer. That consent cannot be unreasonably withheld. This change recognises the employer's right to confirm who comes into the workplace at any time. It largely standardises current practice, as most union visits to workplaces are made with notice.

Other Proposed Changes

The Bill also proposes a number of mechanical changes to the operation of the employment institutions, in particular to Mediation Services and the Employment Relations Authority. For example, the Bill proposes promoting mediation as a first problem-solving option (and allowing cases that have been to mediation to be prioritised by the Authority), removing the Authority's powers to issue search and freezing orders, providing a statutory right to cross-examination, allowing the Authority to award penalties for obstructive or delaying behaviour and allowing it to dismiss frivolous and vexatious claims or defences of claims.

Progress of the Bill

The Employment Relations Amendment Bill received its first reading in Parliament on 19 August 2010 and has now been referred to the Transport and Industrial Relations Select Committee with an opportunity for public submissions. The closing date for making submissions is 13 September 2010. We would be happy to provide further information regarding the proposed changes or to assist your organisation to make submissions on the Bill.

Author

Phillipa Muir

Partner - Employment

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