LABOUR - MANAGEMENT - GOVERNMENT RELATIONS SEMINARLabour
`WHAT HAPPENS NOW?'
Plaza International Hotel, Wellington
Six years ago the National Government made ground breaking reforms in New Zealand's labour market.
Through the Employment Contracts Act, the Government explicitly changed the fundamental nature of industrial relations in order to support the competitiveness of New Zealand businesses.
As with any radical reform, many people at the time found the concept of the Employment Contracts Act frightening.
I still have a Tom Scott cartoon depicting the Act as a huge salt water crocodile with me clinging to its back while it rampaged out of control gobbling everything in its path.
But the Act didn't turn out to be a monster with gobbling jaws. More like a key for opening doors, it enabled employers and employees to choose their employment relationships to suit their own circumstances.
Today the Act and its principles of choice and flexibility are still central to Government's policy to sustain economic growth.
As New Zealand's first MMP election loomed last year, I imagine many of you were contemplating the end of the Employment Contracts Act as we knew it at the time... Certainly my parliamentary colleagues in the Labour Party and the Alliance were - with unrestrained relish.
At the very time Australia was reforming its industrial relations framework to introduce greater flexibility, there was a real danger New Zealand would take a massive step back into a discredited labour market regime.
We were facing the resurrected corpse of outdated industrial relations policy which failed so miserably 15 years ago. The proposals put forward by the Alliance and the Labour Party during the 1996 election had enormous implications for the future of the New Zealand economy as a whole, and in particular for the industrial relations framework which is our focus today.
But we survived, and so did the Employment Contracts Act.
Only the Alliance is committed to repeal the Act - they have 13 seats of the 120 in Parliament. National, NZ First, ACT, and United all solidly support the Employment Contracts Act pretty much as it is.
The future of the Act is assured - at least for the next three years. By then - at the turn of the century - the Act will have been in force for nearly a decade.
By then, the practices and habits of a centralised system will be long gone, the industrial practitioners of the 1970s and the 1980s retired, as I daresay will be the Ministers of Labour who are familiar with the old system.
By then, there will only be a few ideologically driven trade union secretaries and university lecturers arguing wistfully for the good old days.
In my view, there is little chance of the Employment Contracts Act being overturned by a future Parliament.
The changes introduced by the Act are firmly embedded and while some may debate the way forward, there is no will on the part of ordinary employers and employees to go back.
The concepts of
contestability of bargaining agents,
choice of employment contract,
comprehensive access to personal grievances,
flexibility of coverage of contracts, and
workplace rather than occupational bargaining
are no longer considered radical or crocodile-like.
Choice and freedom in industrial relations have become integrated in the everyday expectations of employers and employees.
The idea that the people most closely concerned with a particular workplace should be able to agree to the kinds of working arrangements that best suit them is no longer a radical idea.
Employees - quite rightly - now expect to be able to choose their representative in matters to do with their employment.
If they choose to belong to a union they expect to be able to decide which organisation will best represent them.
These are very basic rights and freedoms for which New Zealanders had to wait until the last decade of the twentieth century.
Employers and employees have seized upon the new freedom and choice offered by the Act.
240,000 new jobs have been created since December 1991.
Unemployment has fallen from 10.7 per cent in December 1991 to 5.9 per cent in December 1996.
In volume terms the economy is about a fifth larger.
But it is not time to stand around and congratulate ourselves on the success of the ground-breaking reforms of 1991.
Ground breaking policy does not stay that way for long.
The rest of the world - and our neighbours Australia and Asia in particular - have not stood still in the past six years.
An increasingly competitive world economy has caught up with many of the policy initiatives we took in the early 1990s and in some cases has passed New Zealand.
Against our closest neighbour Australia, our competitiveness has decreased since 1992.
The cost of labour in manufacturing has risen at a faster rate in New Zealand than in Australia.
A symptom of our declining competitiveness is our deteriorating balance of merchandise trade with Australia since 1994.
Meanwhile, Australia is lowering its cost structure rapidly to meet competition from the Asian economic giants.
In part, the steady flow of middle-range companies to Australia in recent months may well be an expression of improving cost profiles for business across the Tasman.
The economies of scale of being 5 times larger than New Zealand are becoming compelling, and unless we can build solid competitive bridges for New Zealand's Australasian businesses we could well see more of this trans-Tasman flight.
In this respect, the very significant progress of far-reaching labour market reform in Australia is a real threat to our relative competitiveness.
The ECA was intended to create greater efficiency, productivity and economic activity by enabling rapid adjustment to changes in the labour and product markets.
I don't think many people in New Zealand realise, or perhaps even accept, that the Australian workplace legislation is almost as good as our ECA.
Nor do they realise that Australian workplaces are rapidly moving to enterprise bargaining with all the productivity increases and improved competitiveness this implies.
Last week in Australia I came across an article which highlighted the extent to which labour market reform is moving ahead over there.
Under Australia's new Workplace Relations Act, one university has called on non-unionised teaching staff to serve as bargaining agents for non-unionist employees in wage negotiations.
That is light years ahead of our education institution bargaining arrangements which still tend to be locked into a centralised, highly unionised system more characteristic of the 1060s and 70s model of industrial relations than the 1990s model now pervading the public and private sectors.
To a significant extent these changes may go to the heart of New Zealand losing some of its relative economic competitiveness with Australia. We will have to address this in policy terms very soon in my view.
The ability to adapt to rapid change in a competitive world is essential to economic growth.
Obviously it is equally essential to apply the same flexibility to the Employment Contracts Act itself.
We must continue to look at ways to help our businesses become ever more competitive.
The industrial relations policy initiatives of the Coalition Agreement are designed to do just that.
The coalition Government is committed to improving several important areas of the present industrial relations framework.
It is no secret that I believe some areas of the Employment Contracts Act need fine-tuning to ensure the original intention of legislation continues to have maximum effect.
There are signs the combined effect of the Employment Tribunal and Employment Court decisions - as well as business practices flowing from these decisions - may be adversely affecting employment prospects and flexibility in our labour market.
Some Employment Court decisions are clearly inconsistent with the principles of the Act and have caused considerable debate over the role of the Court.
On one extreme are those who place all decisions of the Court above criticism.
On the other are those who say the Employment Court should be abolished altogether.
They argue that there is no need for a separate employment court, given that the Court's primary role is to review the legal interpretations of the Employment Tribunal rather than hear cases ab initio.
There is undoubtedly more currency for this view than when the Employment Contracts Act was making its way through Parliament in 1991.
At that time, the then Minister of Labour asked the Labour Select Committee whether or not there should be a separate jurisdiction for employment law.
In the event, given the sweeping changes proposed by the Employment Contracts Act at the time, the Select Committee reported the bill back with the Employment Court/Tribunal option.
The Coalition Agreement is designed to ensure that the underlying principles of the Act continue to make an impact on the competitiveness of New Zealand businesses.
It proposes a study of Employment Court and Court of Appeal decisions to find out whether Parliament's intentions have been clearly expressed in order to minimise judicial activism in employment, while retaining the separate Employment Court jurisdiction in the meantime.
The review should reveal whether the landscape of the labour market has changed in a way that supports another look at the institutional arrangements in force at the moment.
It some areas it may be that the Employment Court's decisions have moved away from the original principles of the Act - choice and flexibility.
I intend to ensure the review of the Employment Court decisions will address this issue of consistency and help ensure that the Employment Contracts Act continues to serve New Zealanders well in the coming decade as we continually adapt to an evermore competitive world..
The issue of employers' and employees rights and obligations, with respect to personal grievances and procedural matters, has been highlighted for immediate attention.
There has been debate about the obligations of employers in relation to procedural fairness.
Critics of the way the Act is being interpreted say dismissals are being overturned which would have been substantially justified had they been done in a procedurally correct manner.
But I am also duty bound to ensure the interests of employees are fully protected as well, against the deprivations of the unscrupulous employer.
At present many of the obligations and rights of employers and employees are unclear, scattered through a range of a legal decisions and subject to continuing legal challenge.
No one wins in a situation like that.
It is important to have fair and effective procedures which are clearly understood by all parties to resolve disputes.
Clarifying those obligations may help to reduce the number of personal grievances - 4160 during 1996 - which proceed to the Court and the Tribunal.
There are some signs that personal grievances are being used as a device to avoid the stand-down period when qualifying for the unemployment benefit. If so, this needs to be fixed.
The Coalition Agreement proposes to review whether and how court decisions on personal grievance applications can be codified into legislation.
You will remember the Employment Contracts Act extended coverage of personal grievance procedures from only union members under the old labour relations legislation, to every member of the New Zealand workforce.
That is from about 400,000 people, to well over 1.7 million now.
Personal grievance applications have consistently made up the bulk - about 78%- of applications to the employment tribunal.
About 90% of personal grievance applications relate to the dismissal of an employee.
Since 1991 considerable additional resources have been allocated to the Employment Tribunal to enable it to help employers and employees resolve their disputes.
The proposal in the Coalition Agreement is intended to investigate whether the obligations of employers and employees towards each other in the event of a grievance can be made more explicit within the legislation itself.
This will include issues relating to fixed term contracts and recent court decisions which have fundamentally undermined the ability of willing parties to conclude fixed term contracts.
Our aim is to seek to further encourage employers and employees to resolve disagreements themselves.
I am aware that concerns about the obligations of employers' in particular when dismissing an employee have been the subject of much debate
If employers and employees had a better understanding of what was required when dismissal became a possibility, they would be better equipped to handle the situation.
Parties would then be better able to resolve disputes between themselves rather than having to take them to the Employment Tribunal.
The coalition Government has agreed, for example, to clarify the provisions relating to employer recognition of the employee's authorised representative.
The Court of Appeal has examined what the components of recognition are, in practical terms. As a result certain central principles have been clarified. The Government will be investigating ways to make those principles clearer in the Act to negotiating parties.
There is a continuing need to provide more information to the parties to enable them to understand how the law applies in practice.
At the same time, defining complex rules in legislation can be difficult and has the potential to raise further ambiguities that have to be clarified in the courts in the future.
We need to balance the need for clarity and precision in the legislation against the need to avoid a degree of prescription which can unduly restrict freedom of the parties to agree an employment contract.
The Coalition Agreement also proposes to bring other employment legislation such as the Holidays Act and Wages Protection Act together under the umbrella of the Employment Contracts Act
Reform is needed in the Holidays Act. Many employers and employees experience difficulties applying its provisions to modern day work practices.
It is not sensible to have to take every slightly different situation through the whole court system before getting a definitive answer on holiday entitlements.
The current legislation is too inflexible for the needs of modern industry.
There is absolutely no intention of reducing present statutory entitlements to holidays. But how those holiday entitlements are enjoyed by employees seems to me to be a matter for reasonable negotiation.
That is the type of flexibility lots of people are looking for. I intend to open up that debate and let those with an interest argue the case for more flexibility.
I believe we now have the parliamentary support to make progress in this area.
In other areas progress has already been made with the increased - and controversial - minimum wage.
On 1 March the minimum wage for adult employees increased to $7.00 an hour.
At the same time the youth minimum wage increased to $4.20 an hour to maintain the 60 percent relationship with the adult rate that has been in place since the introduction of the youth rate.
The new rates represent a significant increase in the minimum wage and it will be important to have sound research on the impact.
I have asked the Department of Labour to commission that research, and perhaps we can find some conclusive evidence of the employment impact of a significant rise in the minimum wage.
As I clearly explained when announcing the minimum wage increase, the review of youth rates outlined in the Coalition Agreement will proceed in the course of this year. The increase to $4.20 an hour reflects the change to the adult rate and in no way prejudges the outcome of the review of youth rates.
The Coalition Agreement proposes to introduce `fair bargaining' to promote compliance with the underlying principles of the Act.
This includes describing the obligations to respect the choice of bargaining agent and not undermine the bargaining process by bypassing the agent, which have been underlined by various court decisions since the Employment Contracts Act was passed.
`Fair' bargaining will reflect the New Zealand experience and will not be modelled on United States or Canadian concepts of `Good Faith Bargaining'.
The Coalition Agreement also proposes looking at other, non-legislative, ways and means of proactively promoting the rights and responsibilities of employers and employees.
To this end, I have asked the Department of Labour to look at ways to prepare young people for the world of work, and ensure they have a good understanding of the Employment Contracts Act.
It is crucial that the underlying principles and original intentions of the Employment Contracts Act are not undermined over time.
Taking the Coalition Agreement as a whole I am confident these initiatives will help many New Zealand workplaces focus on becoming more productive and more competitive.
We have been world leaders in our economic reforms and our industrial relations system has been an important, if not crucial, component of making them work.
The proof is in the results, not the rhetoric.
Unemployment is down.
Employment is up by hundreds of thousands.
Sustainable growth for 6 years is unparalleled in our recent economic history.
Real incomes are rising in conditions of low inflation.
This advantage will not be maintained unless we continue to make the most of our strengths.
Nor will it be maintained if we ignore the need to undertake another round of change, of reform, and of re-engineering our businesses, our farms, and our attitudes.
The Employment Contracts Act is part of that round of change too.
If we can continue to introduce freedom and flexibility into industrial relations, and if we can make the labour market perform even better than it has in the last 6 years, Then we can look forward to more jobs and higher real incomes for everyone, and New Zealand will retain a top position in a competitive world.