Industrial Relations Into The 21st Century

  • Max Bradford
Enterprise and Commerce


Ladies and gentlemen ... thank you for inviting me to speak here this morning.

The world has changed a great deal. Take for example:

A Western Union internal memo in 1876 predicted: "This 'telephone' has too many shortcomings to be seriously considered as a means of communication. The device is inherently of no value to us."

In 1943 IBM's chairman Thomas Watson said: "I think there is a world market for maybe five computers."

And in 1977, Ken Olsen, president, chairman and founder of Digital Equipment Corp, said: "There is no reason for any individuals to have a computer in home."

You can learn a great deal by looking back in history, but past solutions very rarely contain the answers for the future. The same goes for industrial relations policy.

The world is changing - and the pace certainly won't be slowing, in fact quite the reverse. MIT Media Labs, of the United States, states that "80 per cent of the systems, processes, services and products that today's five-year-olds will experience and use as adults have not yet been thought of".

The way we work and how organisations do business has been changing, and will continue to change. We need to be flexible if each of us, as individuals, and together as a country, are to succeed.

The National-led Government's industrial relations policies reflect this. We compete in an international environment, where each business needs to be able to adjust to the circumstances it faces.

Our broad economic framework this decade has allowed innovation and enterprise to flourish. The five fundamental elements are:

- an open, internationally competitive economy;
- low inflation and interest rates;
- low tax rates and fiscal prudence;
- an open, transparent and predictable legal and business system; and
- flexible labour markets which enable business to adjust to their changing markets at home and abroad.

We must build on this framework to ensure we don't get left behind the rest of the world. This is why I recently announced the following five-point plan to further promote innovation and create internationally competitive products and services by:

- lifting New Zealanders' skills and New Zealand's intellectual knowledge base, and championing the success of winners;
- better focusing and direction of the Government's effort in research and development;
- improving access to risk capital (including investor investment capital) by the knowledge based economy;
- ensuring regulations and laws support, and not frustrate, innovation and the knowledge based economy; and
- actively promoting success and help build a culture supportive of innovation and enterprise.

The Employment Contracts Act is a cornerstone of both the economic fundamentals and the five point plan. It is the cornerstone of New Zealand's flexible labour markets both in this decade and into the next.

It gives employees and employers the freedom to negotiate arrangements which suit them, their particular circumstances and the rapidly changing world - while ensuring the outcomes are fair and acceptable to society.

Without the ECA we would not have seen the nearly 270,000 jobs that have been created since 1991.

Without the ECA we would not have seen work stoppages plummet to a low of 38 and high of 77 since the early 1990s compared with around the 200s in the previous decade.

Without the ECA, my Parliamentary colleagues here this morning (Labour's Pete Hodgson and the Alliance's Laila Harre) would take New Zealand a giant leap backwards.

You may have read that the Australian Employment Minister Peter Reith has recently made comments to the effect that if they had New Zealand's more deregulated framework in Australia, they would have half a million more people in jobs.

So while the Labour-Alliance bloc want us to go on a long march backwards, Peter Reith is suggesting a number of changes to Australian's labour laws including:

- temporary exemptions from unfair dismissal laws for mid-to-long term unemployed people, to give them a start into jobs;
- allowing businesses that meet best practice requirements to opt out of the federal award system;
- removing disincentives to the employment of new staff by introducing a six month qualifying period before unfair dismissals apply;
- extending coverage of youth rates; and
- providing new small businesses with an exemption from unfair dismissal laws.

Not all of these proposals would fit our industrial relations environment, but if Australia goes forward, and New Zealand goes backwards, there will be a widening gulf between New Zealand and Australian labour laws. We will rapidly loose our competitive edge. New Zealand simply cannot afford this risk. The casualties will be the people without jobs, without an income, and without a future.

Our present industrial relations system embodies the principles of freedom of choice and of flexibility which were the key points of National's industrial relations policy in 1990.

These points are:

- voluntary unionism;
- flexible bargaining arrangements negotiated between employers and employees;
- employees choosing their own bargaining representatives;
- industrial agreements with the status of binding contracts;
- workers having the flexibility to decide who will represent them in disputes procedures; and
- a credible minimum code of wages and conditions, especially personal grievances.

Over the past two years we have comprehensively reviewed the ECA. We have found that while there is some fine tuning to be done to clarify the law, increase certainty, and to better balance the rights and responsibilities of employees and employers, there is no need for significant change. The Government's role is not to set up detailed prescriptions, but to provide a framework within which people can operate effectively.

We do not propose that unions should have the exclusive right to represent employees in collective bargaining - thus removing the opportunity for employees to have direct involvement. That distinguishes National from the Labour-Alliance bloc.

It is common sense that employers and employees be directly involved in negotiations, and take responsibility for their own decisions on representation, ratification of an agreement, and whether the contract is individual or collective.

The Labour-Alliance bloc also propose that unions have the right to strike and negotiate for multi-employer agreements. This would create serious risk of industrial disruption, like we saw in the 1970's when unions used coercive strikes against other employers to force a settlement against one company. Individual choice and flexibility would be eroded by several of the proposals currently being aired by the Labour-Alliance bloc:

The CTU's proposed Workplace Relations Bill - which Labour has endorsed as a "good start" - would extend contract coverage to all members of the union, whether or not they agreed with the contract itself.

The Alliance would extend coverage to all workers doing the work covered by the agreement for the employer or employers party to it, which is quite similar to the blanket coverage provision of the old award systems rooted in industrial policies of the 1890's.
While the Workplace Relations Bill would create unnecessary divisions in the workplace, the Alliance proposal would effectively reintroduce compulsory union membership. Under their proposals, union-negotiated conditions would cover all employees under the agreement whether they belonged to the union or not. If you didn't agree to the terms the union negotiated, too bad.
Non-members would have to pay a "representation fee".

This is tantamount to coercion without representation and smacks of the Boston Tea Party.

Part of any Government's role in industrial relations is to provide the means of resolving disputes and grievances. Our policy has been to provide a mechanism for disputes to be resolved quickly, informally and as close to the workplace as possible. Surveys indicate this approach is working well, with 83 per cent of workplace disputes solved between the parties themselves without third party intervention.

The first leg of our policy is a full commitment to universal access to personal grievance and disputes procedures - that is, the procedures are available to all employees, whether they are union members or not, on an individual contract or a collective contract.

Personal grievance procedures are important and need to be fair to both employers and employees. It is also important to say here, that the risk of employees taking personal grievances is seen by many employers as a significant disincentive to taking on new staff.

Last year we sought to address this concern as part of a fine-tuning package. We proposed to establish a fairer balance between the substance of an employee's conduct and the procedures used by the employer - in other words, it is common sense that if an employee steals, for example, it is his or her conduct that is the key element not whether the employer followed the dismissal rules to the letter.

As you are probably aware, the fine-tuning package has been put on hold because at this stage there isn't a Parliamentary majority to secure the package of measures I announced last year. Such is the reality of MMP.

The second leg of a quick, informal and accessible disputes resolution mechanism is the Employment Tribunal. The mediation and, by agreement adjudication functions of the Tribunal have been highly successful in reducing legalism and formality, and encouraging parties to find their own solutions.

Only relatively few cases reach the Employment Court - 185 in the second half of last year (1998 calendar year). Some have commented on the number of Employment Court cases which have been overturned on appeal, implying that the outcomes of judicial action are uncertain.

Many key areas of uncertainty created by Court and Tribunal interpretations have been settled. Recent Court of Appeal decisions have been seen as reflecting a general shift towards a more contractual view of the employment relationship which is the key underlying concept in the ECA. In particular cases the Court of Appeal has said:

- provisions of the ECA and related industrial relations legislation, such as the Holidays Act and fixed term contracts should be interpreted in a manner giving the plain and ordinary meaning of provisions in the context of the Acts as a whole;
- employment contracts should be interpreted using ordinary contractual principles, focusing on the intentions of the parties as express in the provisions of the contract; and
- remedies should only be awarded for loss flowing directly out of the breach of harm done.

This certainty will be undermined with Labour-Alliance bloc industrial relations policies. Many of the changes they propose open up whole new areas with potential for doubt and dispute, inflexibility, delays in proceedings and a substantially larger workload for the Employment Court.

For example, both Labour and Alliance propose "good faith bargaining" - which North American experience tells us leads to the parties becoming adept at not negotiating to a conclusion. Bargaining will inevitably become more litigious and involve much more expense.

Labour proposes establishing an Employment Relations Commission to provide only mediation, though mediators would be able to make decisions on personal grievances if the parties couldn't agree. That is, compulsory determination.

These decisions could then be appealed de novo to the Employment Court. The Court itself would hear adjudications at first instance. These proposals would make the system more litigious by moving adjudications from the Tribunal and putting them into the Employment Court, and would see the number of judges trebled - at an additional cost of at least $2 million a year. Unions could also make general complaints without naming individual employees, potentially enabling them to run campaigns of decidedly dubious quality against employers.

On the far left, the Alliance proposes retaining the Employment Tribunal and Court, but also setting up a Workplace Commission to oversee and enforce collective bargaining processes and make pay equity determinations. Another march back to the Nanny State days.

But let me turn now to some other issues. The Holidays Act - we haven't heard much about this for a while. Few could argue that some basic technical reforms are needed to abolish antiquated features such as the "one tenth rule" and to clarify entitlements.

But our extensive consultation last year highlighted different views about the merits of various proposals. I have made no secret of the fact that I would like to see greater flexibility to provide for people who want to trade some - but certainly not all - of their annual or statutory holidays for cash.

Again, changes to the Holidays Act are on hold because at this stage there isn't a Parliamentary majority to secure the full package of measures largely negotiated during the term of the Coalition Government.

Let me emphasise that this Government has never had any intention of removing people's entitlements to paid leave. However, it must also be said that the Labour-Alliance bloc's proposals to give employees an extra week of annual leave is little more than cynical vote-catching bribe in an election year.

Of course a minimum of four weeks annual holidays would be wonderful for everyone. But before rushing into populist feel good policies, let's have a close look at what such a change would really mean. Can New Zealand really afford the $320 to $480 million estimated cost - and the impact that would have on job numbers?. Do New Zealanders want an extra week's holiday if it means their neighbour could be out of a job?

An issue of particularly topical note at present is paid parental leave. As you will know, the Alliance has a Private Members Bill currently before a Select Committee. The Bill proposes 12 weeks paid maternity leave at 80 per cent of earnings up to a rate equal to the average male wage, paid for by employers.

The Government agreed to allow the Bill to be considered by a Select Committee because we believe it is important to ensure the issue is fully debated and possible effects are carefully considered. I don't know what the final outcome will be other than to say I totally oppose the cost being paid by employers. This is an employee benefit which should be paid for by employees, or at a long stretch, the taxpayer.

To conclude, I go back to our cornerstone ECA. The past few years have demonstrated that the ECA has fulfilled its major objectives. Some fine tuning in the personal grievance areas is desirable, and is in the pipeline. Nevertheless, the ECA has increased flexibility and allowed enterprises to adjust to changing circumstances. It, and the New Zealand economy, has proved resilient in the face of overseas shocks such as the Asian crisis, as shown by the country's rapid recovery from the 1998 recession in our region.

New Zealand cannot move backwards. We cannot risk losing many of our advances by setting up barriers to prevent employers and employees working together in the way they have become accustomed to doing.

The disasters promised by the union movement and left wing political parties at the time at the time the ECA was introduced have simply not happened.

Indeed, there is more peace and more jobs in New Zealand's labour market now than ever the case under the industrial relations policies the Labour-Alliance bloc would have us return to.

We must move forward towards our vision of New Zealand being the best place in the world to do business, the best place in the world to live and prosper - for all New Zealanders.

That means building on the ECA, not destroying it.