Headline: Speech – Employment Law: The Case for Fairness and Balance
Address to
Swarbrick Beck Mackinnon Solicitors Client Seminar
Tuesday, 13 August 2013, 4pm
Auckland Museum Auditorium
Andrew Little, Labour MP
EMPLOYMENT LAW: THE CASE FOR FAIRNESS AND BALANCE
Thank you for the opportunity to speak today.
I have known the principals who make up Swarbrick Beck Mackinnon for many years – indeed, it’s fair to say I cut my young lawyers’ teeth on appearing with them in court on a fairly regular basis some years ago. They are not only good lawyers, they are good people and I am sure, as their clients, you are in good hands.
You have heard this afternoon about recent developments in employment law, including the latest set of proposed changes to the Employment Relations Act presently before a select committee in Parliament.
I don’t want to comment in any detail about those proposed changes, nor about other changes enacted by this government over the last five years. You will regard my views on that as predictable, and possibly politically motivated.
But the truth is, what happens in the employment law space, how we regulate our labour market, is a deeply political question.
It’s not just a question of economics and where the value is and how it gets extracted and how it is shared. Labour market regulation necessarily entails questions of power and control, of human or individual rights (and where they stop and start) and of corporate or business rights.
Good labour market regulation ought to focus on what is needed to encourage high performance of capital and labour and entrepreneurship and innovation.
Good labour law should provide a balance of rights and must ensure fair treatment and fair reward (both to business owners and employees).
As I will make clear in my contribution tonight, this is not the sort of labour market regulation we currently have.
My intention tonight is to give you a steer on the high level values that inform Labour’s approach to employment law and the labour market. Our Labour spokesperson, Darien Fenton, is continuing to lead the work on our labour policies and specific policy announcements for 2014 are some months away.
Does anything need to change?
To understand the present state of labour market regulation, including recent and impending changes, and whether it is performing satisfactorily for New Zealand, we need to look at the chief elements of present laws, and then look at what has happened over the last 20 years (which is when the last radical change to labour market regulation took place) and measure their effect.
Our employment law and regulation
The starting point for assessing our employment law is not to turn to the Employment Relations Act, our primary piece of legislation covering the topic, but to turn to the common law. The common law is the widely accepted legal principles confirmed by judges over many years. Most of the common law of employment (or “master and servant” as the employment relationship was known by the common law) has not been overridden by statute law in New Zealand and fully applies here.
The common law recognises a number of implied duties and obligations that are enforceable today.
The common law duties on employers are:
- The duty to provide a safe system of work (although this is heavily supplemented by statutes such as the Health and Safety in Employment Act and a number of others)
- They duty to pay wages (how often and at what rate is the subject of either regulation or negotiation).
The common law duties on workers are:
- The duty of personal service (the worker, himself or herself, has to do the work contracted to be done)
- The duty of obedience (a worker must do as their employer tells them providing the instruction is lawful and the task is within the worker’s competence)
- The duty of fidelity (the worker must apply themselves to their job and support the employer’s business)
- The duty of confidentiality (the worker must keep the business’s confidential information confidential, including after their employment has ended).
The reason for pointing all this out is to be clear that even before we get to look at what is in our statutes, the law confers a high degree of control by the employer over the employee.
This, amongst all contracts and agreements and relationships, is the unique feature of the employment relationship – it is one in which one party, the employee, submits to the authority and control of the other, the employer (for the duration of the agreed work hours).
The employment relationship isn’t defined by a finite set of outputs. It is an on-going relationship of service. Its contents and responsibilities are expected to change during the period of service. No other contract for goods or services that any of us might enter into in our lives entails submission to the other party (We might have arrangements in which we are reliant on statements made by another person, but not submission to the direction and control of them).
What defines the employment relationship for the worker is the loss of personal freedom and autonomy at work – yes, the worker is paid and usually has opportunities for development – but the defining feature of the employment relationship is the submission of the employee to the employer.
This is what is often referred to as the imbalance of power in the employment relationship.
None of this is to imply any criticism. It’s the way it is. A business employing workers could not function effectively were it any other way.
Although entering an employment relationship means a significant loss of personal freedom and control for the employee while at work, it does not mean the loss of every freedom.
Obviously, an employer cannot restrict a worker’s freedom of thought. Freedom of expression is restricted – even outside of work an employee cannot say certain things about work because to do so would undermine the duties of confidentiality or fidelity. We can view recent cases concerning comments on Facebook in this light.
And freedom of association cannot legally be restricted or prohibited by the employer, although some do this, and successfully.
Historically, the role of employment law and labour market regulation has been to, amongst other things, ensure the loss of freedom by workers at work is confined to those things consistent with the common law duties, and to ensure the employer’s power of control and instruction (and its general management prerogative) is not over-reached.
In this regard, we might want to reflect on the Employment Relations Authority decision publicised over the weekend in which an employee has been ordered to surrender, amongst other things, their bank account records in order to deal with an employer’s objection over the use of sick leave.
Good labour law must deal effectively with the power imbalance inherent in the employment relationship.
Performance of New Zealand’s labour market over the last 20 years
Whether or not any change is needed or is desirable should be based on an assessment of what has happened more recently. The most significant change to our labour market regulation was in 1991 when the Employment Contracts Act took effect.
The main objectives of the ECA were to remove statutory protections for unions in terms of membership (membership became purely voluntary thus upholding freedom of association) and in relation to collective bargaining. Collective bargaining was afforded little if any protection. The ECA purported to provide freedom of choice over whether to belong to a union.
Since then, there have been modifications to the provisions of the ECA when the Employment Relations Act came in in 2000. It introduced obligations of good faith; it was more prescriptive about and protective of collective bargaining and introduced a presumption that a collective agreement would be settled (unless there was a good reason not to).
As well as the law, the make-up of the labour market has changed over the last 20 years.
The number of self-employed has increased by 80 000 between 1992 and 2012.
Although the official statistics do not record it, we also know a large number of people are now employed by temporary labour hire agencies, although in some cases their work is not temporary. And equally, we know a lot more workers are part of other three-way employment relationships where the beneficiary of their labour is not actually their employer.
The proportion of part-time workers in the national workforce has grown from about 20% in the late 1980s to just under one third of the workforce now. Today we have record numbers of part-time workers, more than 87 000, wanting more work hours. They are the underemployed.
We have one of the most flexible workforces and labour market regulation in the developed world. In 2005 the World Bank rated New Zealand the highest in labour market flexibility.
One measure that stands out is the growth in labour productivity. It increased 43% from 1992 to 2012. That is, the value per unit of labour input has gone up by nearly a half of what it used to be.
Compare this with capital productivity over the same period. Although it has fluctuated during that time, capital productivity is about the same today as it was 20 years ago. This is a stunning collective failure of business in New Zealand. It suggests a number of things about investment in technology, but it is enough to say we are not generating much extra value from technology presently deployed.
The significant improvement in labour productivity might be good for employers. But what about workers?
The argument most often trotted out is that wage increases should reflect improvement in productivity. But over the period labour productivity rose 43%, the average hourly wage rose in real terms by barely 12%. On average, workers have not shared fairly in the nation’s labour productivity gains.
In two of the past five years the median wage has actually gone down. Even after consistent increases in the statutory minimum wage during the last Labour government and the current government, the median wage, the wage at which 50% of earners get less and 50% get more, went down.
This tells us a number of things, but one of them is that lifting the minimum wage is not enough to lift wages generally. It never was.
Inequality has been growing. Wages have generally been stagnant for the 50 per cent of households with the lowest incomes. Put another way, half of New Zealand’s households are receiving no more income in real terms today than they were a generation ago.
And this has happened during a time, the economy has grown, labour productivity has increased and the number of hours worked has increased.
The gap between rich and poor has been steadily widening in New Zealand.
We see levels of poverty today we haven’t seen before. We have nearly 270 000 children living in poverty.
And if anyone is wondering how families are managing to maintain purchasing power, you only need to look at what has happened to household debt. Since 1992, total household liabilities have gone from $33 billion to more than $191 billion, nearly a six-fold increase.
It is likely that much of that increase in debt is to compensate for the failure of wages to keep pace with not only the value being produced but reasonable expectations of a decent standard of living.
These are all matters of the labour market. When it comes to working people, the labour market in New Zealand simply hasn’t been working effectively enough.
If we want to address poverty in New Zealand and growing inequality, then we will need to address labour market issues.
This deals with the income for workers side of the ledger. But there are other measures of labour market performance that need to be addressed. The supply of labour is one of them.
The combination of our level of unemployment, now 6.4%, and our inability to attract sufficient local labour to the construction sector, especially in Christchurch, and to the farming sector suggest there may be a mismatch in the market. It may indicate what most of us instinctively know, that not everyone is perfectly mobile and cannot just relocate to other parts where the demand for labour is greatest, but it suggests problems with skill formation and deployment.
The fact that hundreds of thousands of kiwi workers work in Australia tells us that those who are mobile and prepared to travel to find work are going out of New Zealand to find it. Some of that will be for better working conditions than they could enjoy here. We should be concerned that 40% of the 200 000 workers who have left New Zealand for Australia in the last five years are between the ages of 18 and 30 years.
It’s time to accept that our labour market simply is not working effectively. The present law allows employers to dominate or control labour market decisions, but working New Zealanders are on average poorer, or simply no longer in New Zealand.
What is holding back an effective labour market?
When we see such a dramatic failure of wages generally to keep pace with the improvements in value being generated as well as a failure of labour supply, then something has to change in the labour market.
For one thing, it is likely the law is failing to provide an adequate counter to the inherent imbalance of power in the employment relationship.
Although the law has provided for freedom of choice of workers to belong to a union, something not previously provided for, it has afforded precious little protection to that freedom. It is easy for an employer to obstruct or defeat that choice, and employers routinely do.
More recent changes to our statutory employment law have given a clear signal that there are few limits on the employer. Whether it’s the 90-day law that removes any incentive to get recruitment decisions right and provides for a period of no accountability for management conduct in the early days of a new employee’s job, or the power to deny or obstruct access to the workplace for a union representative, or the current changes going through Parliament to constrict collective bargaining, all these are designed to assert the employer’s dominance in the employment relationship.
Let’s be clear about the 90-day law. Contrary to claims by the government, it hasn’t created a single extra job. It has eliminated risk for the employer, but it hasn’t created work. The only attempt at an intellectual piece of work to suggest the opposite, from the NZIER, has been widely discredited for failing to take account of other factors that led to a temporary increase in employment.
The challenge for modern management is not to maximise control and dominance. It is to create a workplace and foster a culture in which employees feel confident they have a stake and are motivated to do their best. That means having a say over things that affect them. It means being able to disagree with management without the threat of losing their job. It means being able to exercise those residual freedoms without thinking they are doing something wrong.
What needs to change?
So what needs to change?
The starting point is to challenge some long-held assumptions and mistaken concepts.
The first is that freedom of choice (in this case, to form or belong to a union) does not happen just because a clause in the statute says it does. It is not a free choice if a person with whom you have just entered a contract allowing them to instruct you and insist you obey them tells you they don’t want unions in the workplace.
It is not a free choice if an employer offers you a $30 000 pay rise on the condition you leave the union.
In all the discussion about freedom of choice in this country, we never talk about meaningful choice. The only choice that is genuinely free is meaningful choice. That is a choice where the options are free of undue negative consequences.
So, one thing we must do is to properly protect the freedom of choice provided for in the Employment Relations Act.
This might mean restricting some conduct by some employers.
So, the next assumption to challenge is that employers’ rights are the same as workers’ rights. They are not. Corporate entities are not human beings and do not have human rights. A person acting in the name of a corporate, especially when they are exercising a power over another individual, is not exercising a human freedom. Corporates, in the form of limited liability companies, are a privileged entity; their owners are protected from facing up to the full liability of the corporate’s actions. So, there is no moral case against restricting corporate conduct in relation to individuals.
In this regard, the next assumption to challenge is that the workplace is a private space like a home. It is not. The workplace, unless it is a home, is a place of commerce. All sorts of competing rights come into play over it. There is no case for restricting the rights of workers in the workplace, such as the right of access of their freely chosen union representative.
So, a further assumption to challenge is that the rights and power of a union are somehow separate from a union’s members. But a union’s authority comes from its members. Its rights are its members’ rights.
Yet another assumption that must be addressed is the idea that flexibility and excellent work practice cannot be negotiated on a collective basis or that engagement with a workforce represented by a union is somehow not possible.
The management challenge is, and must remain, the effective engagement of the workforce to achieve the best performance possible with the resources available, and to ensure each party to the employment relationship is fairly and proportionately rewarded.
And finally, we might want to question whether so-called independent contractors who have only one source of income, or a single predominant source of income, and who is to all intents and purposes treated as an employee should not have the same protections as conventional employees.
The test for coverage of legal protection should not be dependent on a worker’s legal status, or the legal fiction that surrounds it, but on the nature of the relationship with end user of labour.
Conclusion
It’s time to go back to first principles. We need to balance the employer’s power of instruction and the employee’s duty of obedience with measures that protect the employee’s remaining freedoms in the workplace, and protect against vulnerability.
This will be the foundation upon which an employment code that respects both parties to the employment relationship and seeks to deliver the best value for both will be built.
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