1

Election 2017: Analysis of Labour’s 2017 Workplace Relations Policy July 2017 By Paul MacKay, Manager of employment relations policy at BusinessNZ. Email pmackay@businessnz.org.nz

Introduction Labour’s Workplace Relations policy for the 2017 national elections is virtually identical to its very detailed 2011 manifesto. Partly in response to a clear backlash among voters in 2011, Labour toned down its workplace relations policy for the 2014 election, instead promoting its Future of Work Commission, which reported back in 2016. The Commission’s report essentially endorsed Labour’s earlier approach and has become Labour’s mandate to reintroduce its 2011 proposals for reform of the New Zealand labour market.

Prognosis Taken together, Labour’s policies will not create what they claim is a floor to prevent a “race to the bottom”. Instead, the race will become a sprint to create conditions reminiscent of the “bad old days” of the 1970s and 80s. And creating the floor will be analogous to identifying the roof of the best house in the street then turning the house upside down. Why a sprint? Because the most significant changes are slated to be enacted within the first 100 days of a new Labour Government’s first term. Why so bad? There are multiple reasons. At a global level the negative impacts will be exacerbated by the fact that we don’t live in the protected domestic economic conditions of the 1970s and 80s. Today’s globalised markets, and the continuing expansion of free trade arrangements, significantly increase the risks posed by Labour’s proposals. In the past business could recover from the effects of industrial disruption and loss of productivity by putting up prices, since consumers were constrained in their ability to seek alternative goods and services which were unaffordably hidden behind foreign tariff barriers.

2

Today, in light of rapidly vanishing barriers to trade, and ever increasing labour mobility, businesses that cannot produce will simply see customers (and jobs) go elsewhere, possibly permanently. Looking at the nature of the various proposals it seems there are three separate, yet linked, strategies being pursued. The first is wages, particularly the lifting of the wage floor and closing the gap between the “haves” and “have nots”. The proposals relating to minimum wages, living wage, pay equity, starting out wages and repeal of trial periods are all linked in this respect. However, removal of incentives to hire inexperienced or untested young and other workers (especially 90 day trial periods and youth rates) will promote increased unemployment for young and unskilled workers. Dramatically increasing the minimum wage to 15% below the median wage (66% of the average wage) would distort the wage structure of the entire economy, making many businesses rapidly unsustainable and putting enormous pressure on other wages. The consequences of widespread wage unrest and industrial action would be significant, particularly given the increased availability of the right to strike inherent in Labour’s other proposals. Dramatic increases in paid parental leave may (as European research suggests) reduce the number of employees returning to work at the end of their leave, exacerbating already acute shortages of skilled labour. The second is strengthening the role of unions and enabling them to negotiate on an industry wide basis, even where they have no members. In this regard, easing union access rules, making the conclusion of collective agreements mandatory and the granting of arbitration rights to the courts are the main features (these changes contravene international labour law, which requires collective bargaining and settlement to be voluntary). Creation of industry level employment agreements will advantage “big labour” over small business, leading to the demise of many of the latter. It will also lead to industry level industrial action not seen since the 1970s and 80s. The consequent damage to the economy was huge then and unlikely to be less now given the globalised nature of trade and labour supply. Third is Labour’s apparent desire to “normalise” conditions of employment around the idea of full time, permanent, work. Proposals relating to dependent and independent contractors, labour hire, compulsory redundancy entitlements and the like all contribute to this strategy. Put simply, changes will be forced on the nature of employment relationships. To the greatest extent possible all workers, irrespective of the nature of their employment or contracting relationship, will be treated, remunerated and protected as if they were employees. Quite apart from breaching international labour standards that protect the ability to form different kinds of relationships, this will reduce the flexibility afforded by “on demand labour” and significantly increase costs in industries that rely on such labour, such as construction. Ironically, this will make housing even less affordable than it is now. Creation of a universal minimum entitlement to redundancy compensation will guarantee increases in business insolvency since contingent liabilities created by redundancy entitlements will make the restructuring and sale of businesses prohibitive. This has been the experience of European nations under, inter alia, the European Commission Acquired Rights Directive requiring minimum levels of redundancy compensation. Paradoxically, proposals to increase the number of groups offered protection from restructuring and contracting out will inhibit business sustainability, which will also flow through to increased risk of insolvency. Expansion of the right to strike to cover claims in support for redundancy agreements would simply add jet fuel to the fire when added to a right to strike over industry agreements as well as second tier enterprise level agreements.

3

All three strategies arguably impose heavy costs and, based on history, will cost jobs. Adoption of these strategies will lead to overall control of conditions of work gradually passing to the union movement, which will be empowered to negotiate and settle conditions of work governing whole industries and sectors, irrespective of whether or not the industry or sector is unionised. This prospect is years out of date. Countries that have had centralised bargaining for years are now making strenuous efforts to move away from it. France and Germany in particular have identified restrictive industry and sector-based labour practices as a key inhibitor of growth. However, after many years, both are now are making government level efforts to break down the scope of bargaining to at least industry if not enterprise levels, in an effort to boost labour flexibility, improve competitiveness and revitalise flagging economic growth. Having made huge progress in freeing up labour relations, Germany is reporting significant economic gains - indeed it has become Europe’s “rock star” economy - whereas France arguably remains moribund, shackled by the union minority. All its recent efforts to liberalise labour laws have been met with large scale union-led protests and little progress has been made. It is noteworthy that new President Macron has been elected on a platform of at last making progress in liberalising Frances labour markets.

Analysis

Labour’s 2017 Policy BusinessNZ comment

Worker Protection

Restore fairness rights for employees by replacing National’s 90-day “fire at will” law with a fast, fair, and simple system. 90-day trial periods have stripped workers of their rights while failing to support job creation or employment as promised. Under the new trial periods people will be given reasons for dismissal and disputes will be heard within 3 weeks of being lodged. Both parties will be allowed representation but no lawyers will be allowed. The referee will seek agreement between the parties but where this is not possible, will make a final and binding decision that cannot be appealed. There will be a cap on the value of penalties that can be awarded.

Trial periods will become meaningless because the legal test for unjustified dismissal will be the same for all employees irrespective of tenure. A cheap, fast (and, at least initially, inexperienced) referee system will still have to apply the same legal test as the courts but without the ability for either party to appeal to a higher jurisdiction as can an employee or employer who do not have a trial period agreement. The chances of referee decisions being wrong and remaining so will be much higher than for decisions that can be appealed through higher jurisdictions. The risks for employers are likely to outweigh their willingness to hire inexperienced workers, particularly young workers. Unless accompanied by a significant investment in lifting the average level of pre-employment skills of New Zealand youth, coupled with the removal of youth rates and a significant increase in the minimum wage, the removal of trial periods will impact most severely on young people looking for their first job thus exacerbating the already high youth unemployment rate. It will also impact relatively more severely on older workers attempting to return to the workforce after an absence, notably parents returning after rearing children. Unemployment, particularly youth unemployment, is likely to rise as a result.

4

Introduce 26 weeks paid parental leave to ensure that families are provided with vital support at a crucial stage in their children’s lives.

New Zealand’s paid parental leave at 18 weeks is already among the highest in the world. By way of comparison, Central Europe has longest periods (up to 3 years). Without Germany and the Baltic states and the UK, the OECD average would be closer to 14 weeks (which is also the level set by international labour conventions). The Americas and Africa average 14 weeks. The Asia Pacific region is highly variable. Some entitlements are expressed in days rather than weeks or months. Australia is the highest at 18 weeks (now matched by NZ). International research suggests that length of leave is an important factor in minimising two key impacts; human capital depreciation (i.e. a person’s skills and knowledge go “stale” away from the workplace) and the costs of reorganising around absence. The same research suggests these costs increase with length of absence, are exacerbated by uncertainty about employee intentions of returning, and that longer periods result in higher number of non-returnees. Costs are also harder on small businesses. Labour needs to show evidence that gives confidence an increased period will not result in new parents abandoning the workforce at a time when skilled labour is in seriously short supply.

Restore reinstatement as the primary remedy when a worker has been unjustifiably dismissed.

This ignores the fact that most dismissals result in a breakdown of trust on both sides. Most dismissed employees would prefer to move on rather than return to a workplace that doesn’t want them.

Restore the right to rest and meal breaks at work. This seems to refer to the reinstatement of specified breaks at specified times since there is generic provision for rest and meal breaks in the law now. When first introduced by the previous Labour Government specified breaks caused chaos, as workers were effectively forced to take breaks together, impacting continuity of work. It came to a head when air traffic controllers at regional airports took simultaneous breaks, effectively leaving planes stranded in the air.

Restore protections for vulnerable workers in cases where the sale or transfer of business is contemplated, or where outsourcing of jobs is proposed.

Part 6A of the Employment Relations Act already provides for such protections for specified groups of workers. These have not been reduced since introduction so what needs to be restored is unclear. It seems possible the list of specified groups may be added to.

Ensure that New Zealand employment law applies to This is apparently a response to the situation of Chinese engineers brought in to rectify faults

5

everyone working in New Zealand, including foreign workers working for foreign companies.

with railway locomotives purchased from China under warranty and is potentially unlawful. Requiring foreign workers to substitute their employment contract with their employer with one imposed by NZ breaches a basic tenet of international contract law, that contracts must be freely entered into between the parties.

Compensation

Increase the minimum wage to $16.50 an hour and base future increases on the real cost of living for people on low incomes. This includes working towards a minimum wage equal to two-thirds of the average wage as economic conditions allow.

This would make NZ’s minimum wage the highest in the world. Currently the minimum wage is 0.52 of the average wage - the highest in the developed world. Some comparisons: NZ 0.52 Australia 0.44 Germany 0.43 UK 0.41 Canada 0.40 US 0.25

A minimum wage at two thirds of the average wage would destroy a huge number of jobs. The minimum wage and wages set as a consequence of movements in the minimum wage are most often associated with hourly paid work. Such jobs also correlate most strongly to the manufacturing, produce, retail, hospitality, services and tourism sectors, the very jobs that will be the backbone of economic growth in the short and medium terms. Coupled with removal of 90 day trial periods and the scrapping of youth rates, predictions of job losses in the many thousands approach certainty. How many jobs get impacted can be assessed by comparing the minimum wage to the median wage. Labour's policy would see the minimum wage at 85% of the median wage. Aside from the effect on employment, increases in the minimum wage create inflationary pressures through a desire to maintain wage relativity among employees who are paid a margin over the minimum rate.

6

In 2016, the average annual wage was around $56,600 ($27.13/hr) and the median wage $48,180 ($23.10)1. The current minimum wage of $15.75 per hour is equivalent to an annual wage of $32,854. Currently the minimum wage is at 67% of the median wage. It has been about this level for many years. In setting the minimum wage so close to the median wage Labour would in fact be arbitrarily, directly and indirectly, setting the wages of nearly half of all wage and salary earners (the most junior unskilled job in New Zealand would only get paid 15% less than the median worker is getting). When added to other imposed costs (e.g. ACC levies) the government’s control becomes very significant and arguably distortionary on true market values for work both in New Zealand and in international labour markets. This also will create an immediate impact on all wages above the new minimum, with potentially devastating effects on business sustainability and, ultimately, employment. This in turn impacts on the ability of employers to provide other enhancements to conditions of employment, as the capacity to accommodate compulsory increases to wages and other enhancements together is diminished.

Paradoxically, the benefits of an increase in lower wages will not be fully realised by employees, since many in this earnings bracket also receive Working for Families and other government assistance which abates as wages rise. Labour’s policy therefore will not deliver the promised increases; instead the major “winner” will be the government. All this of course will be exacerbated by pressures from some quarters to introduce a “living wage.” Research by the NZ Treasury has shown this concept to be poorly targeted as it will not only benefit mainly low paid single people but will also create further irresistible pressure on wage rates generally.

Abolish youth rates. Employers faced with paying the same rate to experienced and inexperienced entry level workers will logically choose those with experience. Youth rates (the “starting out wage”) are a subset of the minimum wage. Together with 90 day trial periods and a balanced approach to setting minimum wages they minimise the economic risks to an employer of hiring untested youth. Removing them will require employers to discriminate between older or experienced people and young unskilled workers when hiring. History suggests they will tend to hire those with experience in the first instance, making it more difficult for youth to get their first job.

1 Source: Statistics NZ. Rounded up figures based on a 40 hour week.

7

Coupled with removal of 90 day trial periods, a significant increase in the minimum wage and moves to introduce a living wage this effect will be massively exacerbated.

Investigate options for ensuring that people who work over 40 hours a week receive adequate remuneration.

This presumably means that salaried workers would receive overtime for hours worked over 40 per week since wage workers typically are already paid by the hour worked. This would effectively render invalid the common provision in contracts for salaried workers that the worker’s salary is deemed to recognise that they are required to work such additional hours as are reasonably necessary for the performance of their duties2. It is also common for employees to offer discretionary labour in the form of “going the extra mile”, for which they may receive later recognition in the form of pay increases, promotions, personal development and so on. The “swings and roundabouts” approach to working hours is a crucial enabler of flexibility in working arrangements. While this may be true of all forms of employment, it is particularly true of salaried arrangements. Labour’s policy would remove the ability to contract for a non-specific but reasonable number of extra hours. Labour’s policy also dismantles the swings and roundabouts principle underpinning the whole idea of annual salaries. One natural response from employers may be to require employees to work set hours and to limit the availability of flexible working hours. These consequences in turn may incentivise employers to turn more to independent contracted labour to get work done. Ironically this would be of little or no value if Labour’s proposals to enable contractors to bargain collectively are also enacted. Inhibition of flexibility also works against Labour’s own proposals for introducing high performance work practices.

Begin consultation on improving minimum redundancy protection for workers affected by restructuring, giving regard to the recommendations of the 2008 Ministerial Advisory Group report on redundancy and restructuring.

The 2008 report recommended a statutory entitlement to at least 4 weeks’ pay for the first years’ service and 2 weeks’ pay for each year of service thereafter, up to a maximum of 20 years. Adoption of the 2008 recommendations would impose commensurate contingent liabilities on every business.

2 For example, “HOURS OF WORK The Employee’s normal hours of work are between 8.00 am and 5.30 pm. The Employee recognises that additional hours of work may be

required according to the needs of the Employer. The Employee’s remuneration has been set with this in mind and is in full compensation for all hours that the Employee may be required to work to fulfil his/her responsibilities.”

8

Employers opposed (and still do) such an approach because it was felt that this would inhibit restructuring of, particularly, small to medium size firms, and increase the probability that they would choose insolvency over survival. This has obvious implications for employment. Exactly this scenario has been playing out for many years in Europe where mandatory redundancy compensation and other measures exist within the industry standard agreements in place. The failure rate of businesses in France and Germany for instance, increased markedly after the European Union issued directives on the management of redundancies. It also led to significant capital flight. As far back as 2003, cumbersome national and sector based bargaining practices were attributed by Germany as a key reason in the increasing eastward flight of investment capital to countries such as the Czech Republic and Poland. In that year, Czechoslovakia won 18% of all European investment in auto parts manufacturing. In the same year, 37% of all auto manufacturing projects were awarded to European Union accession countries. These projects traditionally were carried out in Germany3. Adoption of a minimum redundancy entitlement will not only drastically increase the likelihood of businesses choosing insolvency over restructuring, it will also disincentivise the purchase of failing (and otherwise cheap) businesses by other businesses as part of expansion etc. Adding to the potential seriousness of this proposal is the right to strike. While not mentioned specifically in the 2017 proposals, creation of a right to strike in support of claims for a redundancy agreement was a specific part of Labour’s 2011 manifesto. It was also a feature of the 1970s and 80s during which period industrial action and loss of productivity reached astronomical levels (see Appendix 1). He right to strike over redundancy provisions would permit employees to strike even though collective bargaining had been concluded and settled on other matters. The consequences for employees are increased chances of unemployment without redundancy compensation from an insolvent employer.

Increase the number of, and resourcing for, Labour Increasing the number of Labour Inspectors would enable greater oversight of labour regulation.

3 Germany has since reversed this decline in large part due to deregulation of its labour markets and decentralisation of collective bargaining mechanisms.

9

Inspectors who are responsible for enforcing employment law and prosecuting breaches, and double the number of inspectors from 55 to 110 over Labour’s first term.

This is not a bad outcome.

Extend the right for workers to elect a health and safety representative from amongst their own to all workplaces, regardless of size or industry.

Currently businesses with fewer than 20 employees are not compelled to appoint or elect representatives, although they are required to ensure that employees can engage with and participate in the management of health and safety in their workplace. Labour’s policy would open up the requirement to appoint or elect representatives, where workers request this, to all businesses. While ostensibly benign from a health and safety perspective, this proposal is strategically important to the union movement which currently has little penetration of smaller businesses. Employee representatives are entitled to paid time off for training, much of which is delivered by the union movement. Coupled with Labour’s proposals for relaxed conditions of access to workplaces for union officials, union recruitment efforts will be considerably enhanced.

Remove the discrimination that prevents film and television workers bargaining collectively

Part of a wider strategy to allow contractors to initiate and bargain collectively, as if they were employees. The immediate effect of this will be to render workers in the film industry susceptible to being reclassified as employees, with all the rights, costs and obligations pertaining thereto. A predictable consequence will be reluctance on the part of the international film industry to invest in New Zealand production capability in the future, placing the viability of New Zealand’s current capacity (and GDP earnings) in this regard at risk.

Restore unions’ right to initiate collective bargaining in advance of employers.

This is meaningless. It is based on the fallacy, perpetuated by employers as much as unions, that whoever lodges the first claims has an advantage in bargaining. Good faith bargaining requires all claims to be considered and responded to before bargaining can be considered concluded. Any union that pushes the idea that their claims have primacy because of their timing is acting in bad faith. The fact that Labour’s proposals clearly enable unions to do just that is indicative of the influence the union movement has on Labour Party policy making.

Restore the duty on parties who are in collective bargaining, including those in multi-employer collective bargaining, to reach an agreement once bargaining has been initiated unless there is a genuine reason not to.

This essentially means that if union members want a collective agreement they will get one, irrespective of the views of the employer(s). Introducing this requirement will make it very difficult to resist the establishment of Fair Pay Agreements (minimum industry standards). It also exponentially increases the probability and scope of industrial action especially in the context of

10

industry bargaining. That said, this proposal is a direct breach of international labour standards. The policy effectively makes settlement of a collective agreement mandatory. This is contrary to Article 4 of the Right to Organise and Collective Bargaining Convention 1949 (No.98), (ratified in 2003 by the last Labour Government), which requires that national mechanisms for collective bargaining and conciliation be voluntary. The International Labour Organisation’s tripartite Committee on Freedom of Association has the role of investigating complaints of non-compliance by ILO member states with Convention 98. With respect to Convention 98, the CFA has published several definitive statements4 including:

“The voluntary negotiation of collective agreements, and therefore the autonomy of the bargaining partners, is a fundamental aspect of the principle of freedom of association.” “Collective bargaining, if it is to be effective, must assume a voluntary character and not entail recourse to measures of compulsion which would alter the voluntary nature of such bargaining.” “Legislation which lays down mandatory conciliation and prevents the employer from withdrawing, irrespective of circumstances, at the risk of being penalised by payment of wages in respect of strike days, in addition to being disproportionate, runs counter to the principle of voluntary negotiation enshrined in Convention No 98.” “The bodies appointed for the settlement of disputes between the parties to collective bargaining should be independent, and recourse to these bodies should be on a voluntary basis.”

Restore the right for new workers to be employed on the same terms and conditions as provided by an existing collective agreement covering their workplace.

This proposal would reinstate (at least) the earlier requirement that new workers be covered by an applicable collective agreement for the first 30 days of their employment. While bureaucratically cumbersome and somewhat archaic, it is not an issue that caused national level

4 pp185-186, Freedom of Association, Digest of decisions and principles of the Freedom of Association Committee of the Governing Body of the ILO (5th (Revised) edition)

11

concern when it was in place. Its primary purpose would seem to be to enhance the ability of unions to recruit new members.

Remove the ability for employers to deduct pay from workers taking low level protest action during an industrial dispute.

This would restore the all or nothing approach that existed under the previous Labour Government i.e. employers would have to stop all pay for workers irrespective of the level of industrial action, or do nothing. However, much industrial action stops short of a full withdrawal of labour, instead taking the form of “work to rule”, “go slows” etc. These all reduce productivity. Currently employers can respond proportionally to strike action, by reducing the pay of striking employees in proportion to the estimated value of lost productivity. Labour’s proposal leaves only the “nuclear” option on the table. Labour’s intent seems to be to increase the effectiveness of low level industrial action by protecting the pay of employees engaged on low level industrial action, albeit that this is based on an apparent assumption that employers would not lock our or stop the pay of employees where they did not completely withdraw from the workplace. Given that Labour does not propose to change the law that restricts strike action to supporting collective bargaining, the proposal would appear to be aimed at strengthening the ability of workers and unions to conclude collective agreements, particularly new ones at an industry level (e.g. a country-wide work to rule by all supermarkets, or all train drivers or bus drivers).

Protect the human right to belong to a union by restoring the right for people to be visited by union representatives at their workplace to ensure their legal and collective rights are maintained and adhered to.

This is code for removing the requirement for union representatives to seek permission to access workplaces and talk to workers. The change is designed to facilitate the ability of unions to recruit new members. Coupled with expanded requirements for businesses to appoint health and safety representatives, and requirements to conclude collective agreements where these are claimed for, this would significantly enhance the ability of unions to expand their presence.

Ensure elected union workplace representatives are given reasonable time within the workplace or work unit to carry out their representative role.

Reasonable on its face but history and the currently decreasing number of fulltime paid union officials suggests that many such reps would become increasingly full time union workers, paid for by employers.

Increase protection against discrimination based on union membership and strengthen the integrity of collective bargaining by tightening the rules on employers automatically passing on terms and conditions to non-union workers.

Means that increases negotiated for union members cannot be passed to non-union members without either those employees joining the union or payment of fees to the union. However, union members are already protected from discrimination and rules to require payment to the union if workers want to be covered by a collective agreement without joining the negotiating union already exist.

12

Ensure new workers have all necessary information and access to unions at the commencement of their employment.

This is required now, so what would change is unclear.

Implement the changes to the Equal Pay Act as set out in the report from the Joint Working Group on Pay Equity Principles to give all women in female-dominated workforces access to collective bargaining and court processes to settle their claims.

Employers have supported the adoption of the principles recommended by the Joint Working Group. It should be noted though that Labour’s proposed introduction of industry standard agreements (awards) and the compulsion to conclude collective agreements would change the scope and effect of pay equity claims to a very significant extent. For instance, a pay equity claim for checkout operators in one large food retailer would become a claim affecting retailers generally, including the smallest. The consequences for the structure and sustainability of the food retail market would be significant, and may lead to the exclusion of smaller operators altogether.

Collective Bargaining, Industry Standards and Fair Pay Agreements

In conjunction with all relevant stakeholders, develop and introduce a legislative system of industry and sector collective bargaining that allows unions and employers, with the assistance of the Employment Relations Authority, to create Fair Pay Agreements that set minimum conditions, such as wages, allowances, weekend and night rates, hours of work and leave arrangements for workers across an industry based on the employment standards that apply in that industry.

Labour’s 2011 manifesto called for the introduction of collectively bargained industry standards governed by a Workplace Commission. Labour’s 2017 approach replaces the idea of a new Workplace Commission with a revamped version of the existing Employment Relations Authority. Fair Pay Agreements would be based on the best elements of existing agreements in the relevant sector. In 2011, Darien Fenton Labour’s spokesperson for workplace relations explained the approach thus :

“An Industry Standard Agreement [now called Fair Pay Agreements] would build on existing individual, collective and multi-employer collective agreements that the Act currently provides for. An industry union or employer could apply to a new Workplace Commission – set up under the ERA - for an Industry Standard Agreement. The Commission would determine the ‘norm’ of the standards already applying in collective agreements in a particular industry and extend those to all workplaces in the industry where there is no collective agreement”.

Once established, a Fair Pay Agreement would set minimum pay and conditions applicable to the whole of the industry concerned, irrespective of whether or not employees were already covered

13

by a collective agreement or were unionised. Separate enterprise collective agreements or individual agreements would still be possible but these could not be less than FPAs.

One effect will be to unionise industries by default; the very few union negotiated collective agreements in any industry (less than 9% of the private sector is collectivised) become the vehicles for imposing union negotiated outcomes far beyond unionised workforces. FPAs are analogous to the national awards of pre ECA days, except that the “floor” will be the best industry standards, not the lowest as in the past. Thus a whole industry may be subject to the costs and practices of the “best” in the industry (usually also the biggest). This is likely to have significant consequences across the economy, e.g. corner dairies being required to match the minimum standards of national food retailers. Another predictable consequence is an increase in days of work lost to industrial action. These reached astronomical levels during the 1970s and 80s when national awards were at their peak. Stoppages then fell to (and have remained at) all-time lows since the introduction of enterprise bargaining in 1990. See Appendix 1

Labour has described its approach as setting a floor to prevent a “race to the bottom”. However, far from setting a floor, taking the “norm” of existing agreements is akin to identifying the roof of the best house in the street then turning the house upside down. Once the norm has been established all businesses including those that do not currently meet the standard will need to comply with it. Despite denials from the Labour Party, there is no difference in the outcome of this industry approach to the previously mentioned disastrous consequences of national occupational awards during the 1970s and 1980s. These consequences will occur for exactly the same reasons as drove the events of the 70s and 80s. Initially, setting a level for Fair Pay Agreements initially will leave businesses below, at or above the industry standard. Those below will need to pay and do more to comply with the standard; many will fail and leave the market. Those at the standard will need do nothing in the short term, while those above will need to ensure that those aspects which exceed the standard are subsequently protected to ensure they stay that way (unless they choose to reduce conditions to the new level, which is highly unlikely). However, to move the industry standard upwards after it has been set for the first time, unions will need to move the underlying conditions that justify the standard in the first place. This will

14

require pressure on all businesses in the industry not just those few with collective agreements as is the case now. History tells us this is certain to increase the incidence of widespread industrial action, as many smaller employers will (as they did in the past) resist moves by those at the bargaining table to increase costs to business.

However, of strategic significance is not the simple introduction of industry standards but the question of to which industries they will be applied. Labour has previously used the example of the food retail industry, whereby collectives for Progressive Enterprises and Foodstuffs may be used to create the standard applicable to food retail generally. The prospects for costs to rise throughout this industry are real, as are the consequential prospects of increases in food and other retail prices. The worst hit in this regard of course will be the lowest paid (not to mention beneficiaries). The construction industry and the transport and distribution sectors are even more significant possibilities.

Road, Rail, Sea and Air are the arterial infrastructure supporting the economy. They are also the realms of New Zealand’s most established and militant unions, FIRST Union, E-Tu, the Maritime Union of NZ, the Rail and Maritime Union and the NZ Merchant Seamen’s Guild in particular. All

15

are members of the even more militant International Transport Federation, which is campaigning internationally for industry standards and union agreements covering these activities. International union weight is almost certain to be applied in support of NZ union efforts to establish industry standards in these areas. Industrial action in these areas on a coordinated and national scale will have severe and immediate consequences for the economy.

Review multi-employer and multi-union collective bargaining arrangements to encourage their use and to support the development of Fair Pay Agreements.

See above

Extend the right to organise and bargain collectively to contractors who primarily sell their labour.

This proposal plays directly to the global union narrative that forms of work other than permanent full-time employment are “precarious”, “vulnerable”, undesirable, and therefore should be discouraged. Essentially the proposal allows Labour to introduce their hitherto unsuccessful Employment Relations (Triangular Relationships) Amendment Bill 5 . “Triangular relationships” describe situations where a worker is hired by one employer but works for another. Labour hire is the classic example of this relationship. Employees employed by one employer, but working under the control and direction of another business or organisation, would have the right to coverage of a collective agreement covering the work being performed for that other business or organisation. In other words, contractors would become employees of their client (or the employment agency’s clients) for the duration of their engagement. This has massive consequences for the labour hire industry as it would force labour hire agencies to raise prices to levels that will ultimately incentivise clients to hire directly. It would also ensure that contractors could take personal grievances by providing that “where an employee is employed by one employer, but working under the control and direction of another business or organisation, that employee may join the other business or organisation to any personal grievance action”.

The use of temporary labour sourced through labour hire agencies is a prevalent practice in such industries as construction, event management, entertainment, tourism, hospitality, restaurants and retail. It is also common in office environments and for hiring nurses in the health sector.

5 https://www.parliament.nz/resource/en-NZ/51HOH_MEMBILL173_1/f1474d439bc2386231ee1f37c50061a7572101b4

16

These industries are all characterised by a need for at least a portion of their workforce to be short term, often also short notice, employees. Seasonal or event based needs dictate the level of workforce needed at any given time. The costs of "in-sourcing" such work are high. Rather than having to set up and maintain the staff and systems necessary to manage the constant "traffic" of temporary staffing requirements, there are major benefits to productivity and long-term sustainability for companies with fluctuating labour needs to manage these centrally through labour hire agencies. This also reduces unfair competition for labour in particular localities by stabilising the cost of given skills. Almost all construction, including vital upgrades to New Zealand’s core infrastructure, is dependent on the timely availability of specific skilled and unskilled workers. In other words, keeping the cost of buildings, roads and other infrastructure down depends on having the required type and quantity of skilled employees available only for as long as they are needed. Today, such employees are provided mainly through labour hire agencies. Construction companies typically have a core of permanent workers (commonly on collective agreements), then hire needed extra labour through agencies for specific projects. Indeed some projects (e.g. roading) are managed entirely through contracted labour. The cost of an, even temporarily, unproductive employee is high, which is the main reason casual, temporary or fixed term employment options exist. An employer who maintains a workforce at peak load levels must bear the cost of underutilised or otherwise non-productive employees when demand is down. The costs of such employees need to be met somehow, usually by being passed on to customers, ratepayers or taxpayers. While this may have been possible in the past, particularly inside the protected domestic economy of the 70s and 80s, it is not a sustainable option for businesses operating in today’s competitive and globalised world. The effect of Labour’s proposal is likely to force labour hire companies to put up prices significantly or even to go out of business, thus forcing businesses to manage their own labour hire with all the attendant inefficiencies that that entails. These additional costs ultimately will have to be passed on to customers, and in many cases the taxpayer. Furthermore, once agency sourced temps are on board with a client, they will have access to grievance rights against the client, making the process of releasing those temps, even once they inevitably are no longer needed, challengeable through the courts. If Labour is as concerned as it says it is about national

17

productivity these proposals are inconsistent at best. For instance construction, which is an industry with already high marginal risk, will become an increasingly, and potentially excessively, risky business. This can only have significant negative consequences for the industry and the economy as a whole. One project at risk of such consequences may be the Governments “affordable housing” initiative. Nurses too are often sourced through agencies to cover shortfalls. Paradoxically, agency nurses usually command higher wages than “normal ones”. Labour’s proposals may price these essential skills off the market.

This issue has been confronted before. In 2002, the European Parliament introduced an almost identical piece of legislation (the “Agency Workers Directive”). However, this has been stalled in the European Parliament ever since as legislators try to unravel the complexities raised by the same issues we have identified above. In Britain alone estimated losses of around 250,000 casual work opportunities were identified as possible consequences of introducing such legislation. This alone should be cause for caution. Lastly, this policy ignores international agreement between unions, governments and employers that all forms of work have value provided they are used appropriately6.

Introduce statutory support and legal rights for “dependent contractors” who are effectively workers under the control of an employer, but who do not receive the legal protections currently provided to employees under the law.

Section 6 of the Employment Relations Act 2000 already provides means for ascertaining the correct status of a worker relative to the employer or client. Labour’s proposal is not clear, but has the apparent effect of deeming contractors with only one client to be an employee of that client. Giving effect to a regime of minimum entitlements for people such as contractors will require them to become employees or at least “employee like”. Otherwise there will be no mechanism to enforce entitlements. For example, a requirement that an independent truck owner/driver receive at least the minimum wage requires that the agreement they have with a client covers operating and capital costs and leaves enough for an income at or above the minimum wage. However any agreement will be rendered useless by any change in the non-wage elements of the contract, e.g. if the price of fuel goes up. These are elements over which the owner/driver has no control. However, under an employment agreement the “client” (employer) will bear the increased cost. Inevitably this will be reflected in increased transport

6 http://www.ilo.org/wcmsp5/groups/public/---ed_norm/---relconf/documents/meetingdocument/wcms_354090.pdf

18

charges or their equivalent for other forms of contracting.

Review bargaining fee arrangements to ensure they are fair to workers, the union, and employers for the extension of collective bargaining outcomes to non-unionised workers.

This will also force everyone in an industry where there is a collective agreement (or agreements) to fund the union, so it brings back de facto compulsory union membership or funding.

State Sector

Ensure all workers in the core public service are paid at least the Living Wage and begin work with organisations that have regular and ongoing service contracts with the core public service to ensure they are Living Wage employers. We envisage the lowest-paid workers such as cleaners, catering staff and security guards will make significant moves towards the Living Wage during the Labour Government’s first term.

The living wage is a generally misunderstood concept. It is predicated on the economic needs of a domestic household of four rather than on the value of work produced by each worker. Applied generally in the state, the concept essentially subsidises the living costs of all public sector recipients, irrespective of the economic value of production generated by those workers. Since the public sector subsidy is largely funded by taxation, the subsidies inherent in public sector wages are ultimately borne by taxpayers in general, but especially by private sector taxpayers7. Looked at this way, and taking account of the fact that Labour does not propose to require payment of the living wage in the private sector, the living wage in the state becomes a form of wealth distribution rather than a “fair wage”. In any event, introducing the living wage in the state sector is likely to produce severe wage distortions in some areas (especially those with higher ratios of lower paid workers) leading to internal relativity pressures which will inevitably flow through to the private sector, increasing industrial tension across the economy. NZ’s minimum wage is $14.25 an hour (roughly $29,700 gross per year). Social campaigners propose its (voluntary) replacement with a ‘living wage’ $18.40 an hour ($38,419 gross) per year based on the needs of an ‘average’ family with 2 children and 2 adults, with one adult working full-time and the other half-time

The “Living Wage” has nothing to do with work because wages would be paid according to employees’ circumstances, rather than their work. However, personal circumstances differ. If $18.40 per hour is suitable for a family of 4 with 1½ pay packets, then a different rate would be needed for e.g. a family of 6 with 1 pay packet, or a 2-person-2-income household.

7 Public sector employees pay taxes on incomes that are funded by private sector taxes.

19

The proposal would require a centralised bureaucracy to rule on how much each different family should get, and on proposed annual increases. It is also inconsistent with the concept of paying for work (outputs, skills, productivity)

Treasury has pointed out that the living wage is poorly targeted.

31% have other sources of income (are secondary earners or are dependents living with another earner)

20% also receive a core benefit (Jobseeker, Sole Parent or Supported Living payments)

29% live in families where the family income is over $60,000

18% live in families where the family income is over $80,000

3% are over 65 and receiving National Super

Treasury also believes the living wage won’t address child poverty because around ¾ of families earning less than $18.40 have no children. Moreover, because transfer payments reduce and income taxes rise as incomes increase, not all of the extra income provided by lifting wage rates to $18.40 would end up in earners’ take home pay. People who get transfer payments (Working for Families etc) would find those payments reduced once they got $18.40 an hour.

The biggest winner from moving to a living wage would be government – because it would pay out less in Working for Families and gain more in tax revenues. The biggest losers from moving to a living wage would be children, because less Working for Families would be paid to households with children.

A minimum wage of $18.40 would be inflationary, would make NZ less competitive than our trading partners and would make it harder for NZers to get jobs

A living wage may also be a disincentive for education as lifting low wages without adjusting top wages risks reducing the premium for skills, thus reducing the incentive on young people to stay at school and progress to tertiary education.

20

The living wage concept is based on social factors rather than labour market criteria. Most economic commentators would agree that disassociating wages from the labour market is likely to severely damage labour markets and the general economy. Failed economies such as Venezuela and Cuba are testimony to this view.

Require all state agencies to only contract with organisations that comply with good employer practices, have a history of adhering to employment legislation, and respect the right of their workers to join a union and bargain collectively.

This proposal revisits work on “responsible contracting” work done by the last Labour Government in 2007. At that time Business NZ noted that none of the countries identified then as having developed some form of responsible contracting policy had adopted highly specific requirements, and that most have in fact concentrated on the environmental sustainability of purchasing policies. Attention was drawn to Victoria (Australia), which requires compliance with law and existing contractual arrangements, and the EU, which requires that “ ‘responsible’ requirements in public purchasing must demonstrate a credible link to the subject matter of the contract….”. BusinessNZ said then that “we would seem to be somewhat on our own in developing a responsible contracting policy along the lines suggested in the Department’s paper. That in itself suggests we should develop our approach with care.” With that in mind, the main effect of the proposed approach would seem to be an increase in pressure to unionise on businesses that seek to contract with government. Based on work done by the previous Labour government on “responsible contracting”, this is likely to take the form of extending the “good employer” requirements of the State Sector Act 1988 (SSA) to businesses that supply the government. Under the SSA, employers are required to provide:

good and safe working conditions;

an equal employment opportunities programme

the impartial selection of suitably qualified persons for appointment

recognition of

the aims and aspirations of the Maori people

the employment requirements of the Maori people

the need for greater involvement of the Maori people in the Public Service

opportunities for the enhancement of the abilities of individual employees

recognition of the aims and aspirations and employment requirements, and the cultural differences, of ethnic or minority groups

recognition of the employment requirements of women

recognition of the employment requirements of persons with disabilities.

21

These requirements are likely to be extended to include a requirement that preference be given to employers with unionised workforces.

Reform the current Productivity Commission so that it has a focus on wage growth and addresses explicitly the development of appropriate high engagement-high performance measures and behaviours in New Zealand workplaces and industries.

The Productivity Commission’s current brief is to examine the entire economy and make recommendations for improving national productivity. Restricting its focus to improving wages (which can only sustainably occur if national income (productivity) also increases, leaves an impression that the real intention behind the change is to seek out more and varied means of wealth distribution aimed at delivering a “fairer slice of the pie” to lower paid and less skilled workers, potentially at the expense of higher paid/more skilled/more productive individuals.

Commence the establishment of appropriate governmental assistance to provide support to employers and unions that wish to work together to implement high performance engagement systems designed to lift productivity through worker participation in decision-making.

This proposal builds directly upon an initiative of the union movement (primarily E-Tu and the Dairy Workers Union) to introduce High Performance Work Systems. The work has been piloted in a range of small and medium sized businesses with varying results. The concept is predicated on unionised and collectivised workplaces and relies on the willing employers, workers and unions working together. To the extent the proposal recognises the voluntary nature of participation, it has potential value. However, if the scheme became become mandatory, whether in connection with suggestions from the Productivity Commission or otherwise, it could quickly be seen as intended to unionise workplaces rather than improve productivity.

Begin expanding and enhancing skill development and industry training programmes to support the growth of high performance workplaces, higher wages and a Just Transition for workers who need new skills to adapt to the changing nature of work.

Expanding skill development and industry training programmes is laudable. The concept of “Just Transition” however is less well understood. It is based on “flexicurity” concepts found in the Nordic countries. These are extensive social security nets that effectively provide state subsidised transitions between one job and the next. Implementation would require extensive changes to taxation regimens and related security programmes such as unemployment benefits, Working for Families and so on. Full implementation would radically change the New Zealand approach to employment/unemployment and education. This is not to say the idea has no merit. However, it is a decades long project and, absent the centuries old maturity of European labour markets the concept is unlikely to be fully realised by any given government in this country. The end result therefore is unlikely to be beneficial.

22

23

Appendix 1