HR & Employment Law Summit

We attach a paper we presented at an employment law conference in April 2013……

WHERE TO FROM HERE!

EXAMINING THE PROPOSED CHANGES TO

THE EMPLOYMENT RELATIONS ACT

This brief paper will consider firstly the vexed issues of Part 6A, and secondly the possible/probable changes to bargaining obligations.  The main sources of information are:

• Employment Relations Amendment Bill 2012 : Paper One – Collective Bargaining and Flexible Working Arrangements, Cabinet Paper 03/05/12;
• Review of Part 6A : Continuity of Employment

The legal and practical implications arising out of the Wrigley Decision will be dealt with by Kate Ashcroft in her paper this afternoon.

Part 6A “Vulnerable Workers”

The Government is proposing a number of changes.  This part of the Act is much loved by us lawyers and has led to a plethora of litigation with the promise of much more to come.

For those of you who are not very familiar with Part 6A, it is a discreet part of the Act that provides special protection for specified groups of employees when an employer’s business undergoes restructuring and the work undertaken by an affected employee is to be carried out by the new employer.  When this provision as first introduced in 2004, it was to provide protections for a group of workers who were termed “Pacifica cleaners”. Much of the debate centered around women cleaners in our larger metropolitan areas who were subject to constant changes of employer and whose bargaining position was said to be at a disadvantage.

The Government’s current review of Part 6A dated October 2012 concluded that the retention of Part 6A contributes to “positive social and economic outcomes in New Zealand”.   Any consideration of Part 6A must necessarily take into account the intention and the reality. Despite almost everyone referring to “vulnerable workers” there is in fact no definition in the Act and no pointer as to how to determine whether or not an employee is “vulnerable” and therefore covered by Section 6A.  In practise many employees who are not “vulnerable” may seek protection.  The extent of coverage is uncertain.

The first consideration of this aspect of the legislation was in Hughes v Upper Hutt Cosmopolitan Club 17/9/08 [1].  The Employment Relations Authority found that the manager and owner of the business was covered by Part 6A because of the nature of the work he undertook.  He was, apart from his other roles, the executive chef and his role came within the definition of “food catering services”.  However, Mr & Mrs Hughes were found not to be employees for the purposes of the Act, but nevertheless, the Authority stated : “I do not accept that there is any necessity for employees covered in the schedule to be, vulnerable, employees”.

Matsuoka v LSG Sky Chefs Limited [2] was the first in a series (and continuing) of litigation in the Employment Relations Authority, Employment Court, High Court, and Court of Appeal between two competing food-catering businesses at Auckland International Airport.  Mr Matsuoka had an employment agreement (with “Pacific”) that referred to him as being a “ground steward” but received remuneration (approximately $100,000 p.a.) much more akin to a “manager” and undertook various management functions.  He was also a significant shareholder of his employer and a relative of the principal shareholder.  He had worked in the business for over two decades. The new employer was in reality being asked to employ its direct competitor.

Despite a considerable amount of controversial and disputed evidence, Mr Matsuoka was determined, in the absence of any criteria, to be a “food catering services worker” as he transported food from one location at the airport to the aircraft.  His duties, in part, were akin to being something like a “waiter”.  Mr Matsuoka was subsequently dismissed.  He did not actually start work and his substantive personal grievance is still to be heard in the Employment Court having been removed by the Employment Relations Authority.

In July 2011 the Employment Court heard another personal grievance of Mr Tan v LSG Sky Chefs.  He also purported to be a transferring employee [3] from “Pacific”. His position was quite distinct from his colleague, Mr Matsuoka.   He was an equipment supervisor and also had managerial responsibilities.  LSG contended that he was not a worker who could utilise Part 6A.  That decision is still outstanding but is expected shortly.  The essential argument is that as there is no definition of what a “vulnerable employee” is. Does it follow that any employee in a food catering service business (or by implication a cleaning business or the like), can be a Part 6A worker entitled to transfer? If so, clearly this was not intended.

The Employment Court in 2012 was faced by another version of this problem in Lendlease Infrastructure v Recreational Services Ltd [4] where groundsmen, maintenance workers, and horticultural workers who undertook cleaning duties that could be described as ancillary cleaning duties, purported to transfer to Recreational Services Ltd, the successful tenderer to a large part of Auckland Council’s Park business.  The implications were significant.  Firstly, the employment of dozen of employees was at stake as well as a second major issue under Part 6A, namely what was to occur with the accrued entitlements.  This did not just include sick leave or holiday pay, but also significant redundancy entitlements.  If Lendlease employees transferred they were then not redundant.  If they could not transfer they were redundant and Lendlease had the liabilities while crystallised on termination.  The Court held the employees involved could not be Part 6A transferees.

It does not appear in any of the reports from Government but it would be a simple exercise to put in a salary bar, say about $45,000.00, to clarify this very contentious issue.

However instead of taking this simple step the Government’s main proposal it is to exempt small and medium businesses with fewer than 20 employees.  In other words, if the incoming contracting business has fewer than 20 employees that business is simply exempt from Part 6A.  The incoming employer:

• would not be required to employee transferring employees;
• would not have to provide transfer information;
• would not have to include ‘employment protection provisions’ in employment agreements.

The effect of this, of course, is quite profound.  Larger businesses may well be disadvantaged by comparison as they will be bound by Part 6A and will be at a disadvantage, vis-à-vis small businesses who will be able to undercut the cost of labour perhaps for instance by moving to a franchise mode (of fewer than 20 employees).  This effect will be exactly what Part 6A was intended to ameliorate.  There is no reason to believe that this Amendment will protect many less well paid employees but at the same time protect some employees who were never intended to be protected.

In LSG Sky Chefs New Zealand Ltd v Pacific [5] the High Court, late last year, held that Pacific must remit to LSG accrued entitlements that it had retained.  This matter is being appealed by Pacific.  In a general sense it would have been preferable if this issue that directly involved a significant number of employees’ entitlements and benefits should have been heard in the Employment Court but it was essentially a dispute between two employers and therefore had to be dealt with in the High Court.  The Government has indicated it will make this aspect, not before time, clearer, and it will be largely giving effect to the High Court Judgment.  There is to be an Amendment allowing the outgoing employer and the new employer to negotiate apportionment of liability, and if no agreement is reached then a default formula applies.

An Amendment is proposed to address concerns about actions by an outgoing employer that might damage the business of the new employer such as increasing employee entitlements before the employees actually transfer.  The new Part 6A will provide for an “implied warranty”, a breach of which will be subject to civil action and may be assessed for damages in the District Court only i.e. and not the Employment Court.  This contentious matter was part of the LSG Sky Chefs’ complaint about Pacific and was part of factual matrix recently before the High Court.  The High Court held (and admitted by Pacific) that it “inflated” the leave balances and wages of transferring employees.

It is surprising that it had taken so many years for this issue to arise and there is certainly no statutory clarity in this area.  There are a number of industry groups that are directly affected on an almost daily basis by Part 6A and for the largest group it was indeed a condition of membership and practise that the outgoing employer at the point of transfer remitted the accrued entitlements.  It took until 2011 for this not to occur.  Some of you may be aware that in the year preceding the High Court Judgment, a number of employers attempted to retain those accrued entitlements.

In summary, as at the time of preparing this paper, the Government’s intentions are a mixture of changes based on ideology, coupled with some considerably overdue, tidying up provisions.  The former is evidenced by the changes to bargaining, which, by any objective measure, will have profound changes in the workplace.  The tidying up provisions of Part 6A by comparison as more technical but long overdue and is at this time the only detailed change of consequence that has been outlined will be a problematic step unless it is coupled with an overhaul of Part 6A.  As yet the Government has only outlined what could be called a “tweaking” of 6A.

Good Faith and the “30-Day Rule”

The current legislative provisions when considered in totality provide something of a “momentum” to facilitate collective bargaining, conclusion of a collective agreement, and union membership.

The original section 33 did not require the union and employer necessarily to agree or to enter into a collective agreement.  The current version of section 33 (as inserted and substituted by the 2004 Amendment) requires a union and employer, when bargaining, to conclude a collective agreement unless there is a genuine reason based on reasonable grounds not to.  The Amendment specifically declared that it is “not reasonable grounds” for there to be an ideological or philosophical objection to bargaining.

Section 33 : “Duty of good faith does not require concluded collective agreement”

The duty of good faith in s4 does not require a union and an employer bargaining for a collective agreement:-

(a)   To agree on any matter for inclusion in a collective agreement; or

(b)   To enter into a collective agreement.

The current version of section 33, as inserted and substituted by the 2004 Amendment, reads as follows:-

Section 33 : “Duty of good faith requires parties to conclude collective agreement unless genuine reason not to”

(1)   The duty of good faith in s4 requires a union and an employer bargaining for a collective agreement to conclude a collective agreement unless there is a genuine reason, based on reasonable grounds not to.

(2)   For the purposes of subsection (1) genuine reason does not include:-

(a)   Opposition or objection in principle to bargaining for, or being a party to, a collective agreement, or

(b)   Disagreement about including in a collective agreement a bargaining fee clause under Part 6B.

As the recent publicity about this matter has reiterated, all that the Government is doing is returning section 33 to its original form.  Presumably this is intended for political purposes as the original section 33 was introduced by the former Labour Government. The intent however is to reverse the momentum, or reverse the assumption of an outcome.

From a practical point of view there is much in this change of consequence.  Of most significance is the issue of whether bargaining has ceased, either in practise by one or both parties declaring it has, or that an impasse has been reached so that it could be said that bargaining has concluded.  In the most significant Employment Court decision on this matter NZPSA v Secretary of Justice [6], the employer declared a cessation of bargaining unilaterally.  However Chief Judge Colgan held that given the definition of bargaining in section 5, as well as section 33, “Parliament has modified the common law position on contract negotiations to take account of the particular position of collective bargaining in employment relations in New Zealand”.  This decision seems to be that in spite of an impasse in bargaining, bargaining is not actually at an end and can only be at an end when mediators have been engaged and then if the facilitation processes of section 50(A) to (H) have been pursued.  This is an application of the general momentum to conclude a collective agreement and to keep a collective agreement current but with limitations.

If, however, bargaining can be more easily terminated, including unilaterally, the immediate consequences would be that any collective agreement expires and so the “continuation”  as provided by section 53 would itself expire.  The union members covered by the collective agreement would, at a particular arbitrary time, cease to be covered by the collective and the employee’s terms and conditions would be covered by an individual employment agreement (by default) with the same or similar terms and conditions.

The consequences would be, for instance, that the deduction of union fees would, in all likelihood, cease as section 55 imposes the obligation on employers to deduct and to remit union fees only in a collective agreement and would otherwise be barred from making such deductions by the Wages Protection Act.  A strike would become unlawful and the current 30 days rule would cease.  The momentum would be stopped.  (See United Food & Chemical Workers Union of NZ v Talley [7];  United Food & Chemical Workers Union of NZ v Talley [8]).

Currently, a collective agreement continues in force for up to 12 months (S53(3)) after it expires, providing of course that the union initiated bargaining before the collective agreement expired and bargaining is taking place.  The scope of the proposed changes are unclear but presumably there is an intention that collective bargaining should not lead to protracted negotiations.  Perhaps this has something to do with the ongoing Ports of Auckland dispute.

The 30-Day Rule

A further illustration of the momentum and one of the legislative devices of the Employment Relations Act is to steer new employees into union membership (section 62).  An employer is required to do the following:

• Inform the new employee that he or she may join the union;
• Tell the new employee how to contact the union;
• Inform the new employee that the collective agreement exists and covers the work;
• Tell the new employee that if he or she joins the union, he or she will be bound by the collective agreement;
• Whether he or she joins the union for the first 30 days of employment the terms and conditions of the collective agreement will apply;
• Give the new employee a copy of the collective agreement; and
• If he or she consents, to then inform the union that he or she has become a union member.

The Government’s proposal is to repeal the “30-day rule”.  We presume it is intended simply to repeal parts of section 62.  However this also requires the repeal of section 63.  Presumably the Government wishes to repeal these sections as there is (perhaps) a perception that the current provisions prevent an employer offering terms and conditions inconsistent with, or less than, those in the collective agreement.  Presumably this is to provide more perceived flexibility for employers and presumably the practical intention is that employers should be able to offer different conditions or even lesser conditions to new employees, vis-à-vis current employees who are union members and who have bargained collectively.  The ideological division is clear.  The CTU is bitterly opposed to this.  It claims this will allow for differential pay for equal work (Peter Conway “These changes are designed to reduce the wages and conditions of workers in New Zealand” [9]).  This sort of issue has not been particularly prevalent in our industrial relations in recent years.  An employer who does so risks creating factions within the workforce, i.e. a two tier or multi-tier work force.

This second aspect of halting the momentum in practise will ensure that new employees, by default, will not become members of the union and covered by the collective agreement.  There are not many employees who will, for the first month of employment, whilst many of them may be on a trial or probation periods, be willing to commence negotiations on their own behalf.

Multi-Employer Bargaining

A third plank in the proposed changes is that employers will be able to opt out of multi-employer bargaining.  Presumably the reason for this is that employers who are in a competitive environment should not be compelled to bargain together.

As we understand, the intention is that an employer, within the 10 calendar days of receiving the notice of initiation of bargaining, can serve a written notice that it has “decided not to be a party to the bargaining” and that bargaining for that employer is then “concluded”.  This does not, of course, stop a union initiating bargaining for a single employer collective agreement for that employer.

Strikes and Lockouts

Currently for employees who are involved in partial strike such as work to rule, overtime ban, etc., the employers’ response is founded in Sections 87-89 (suspension) and Section 91 (lockout). This is an all or nothing response. Often employees involved in industrial action will only engage in limited industrial action but do not necessarily intend to cause significant economic loss to the business (and to themselves).  The Government is proposing a further legislative response, which is to create a proportionate pay reduction in response to a partial strike.  How this will work in practise is something of a moot point.  There will be situations where a partial or limited industrial action then escalates into a full strike.  It may have the opposite than intended effect.  The difficulty of course, for employees contemplating strike action is that it may well become “all or nothing”.

There has never been any differential legislation between a complete and partial strike.  Presumably the Amendment will provide some process by which the employer can lawfully make a wage reduction without breaching the Minimum Wage Act and Wages Protection Act.  It is difficult to contemplate how this would be administered in say a broad base membership, i.e. employees undertaking different tasks but all part of the same partial strike in an enterprise.

Written Notice of Strike

For many years our various employment statutes have included provisions relating to Essential Services.  These are currently found in Schedule 1 and recognises, to a degree, the significance to our economy of a number of industries.  Part A includes life preserving services such as utilities, provisions for the dairy industry, fire brigades, police and emergency responses, Part B includes the holding, preparation, and slaughtering process of animals and meat inspection.   There are numerous decisions of the Employment Court and its predecessors as to how Schedule 1 is to apply and be interpreted.

As we understand the Government’s intention is to elevate all employment categories as requiring written notice of intention to strike but with different notice periods.  The extent of these timing issues is somewhat uncertain at this time.  Presumably for every strike there will have to be a written notification and a mediator will be advised and become involved.

Other changes

We understand other statutory changes for 2013 include:-

• “Mondayisation” of Waitangi and Anzac days
• Health and safety changes
• Changes to “flexible” hours of work.