Fair Pay Agreements — Issues and challenges for a new wave of collective bargaining

With Doug Martin

The Government has signaled it wants to boost collective bargaining by introducing new employment laws to facilitate ‘Fair Pay Agreements’. Doug Martin looks both to recent and to more distant labour-relations history for lessons to guide the implementation of these new FPAs.

The Government’s projected changes for the employment landscape include new industry-wide ‘Fair Pay Agreements’, which would set basic standards of pay and conditions within an industry, according to factors such as job type and experience. Negotiations between employers and unions would begin only once a sufficient proportion of employers or workers in the industry support establishing a Fair Pay Agreement. The FPA would then cover all employees and workplaces within that industry. The Government is now consulting with employers and unions on the shape of potential FPA legislation.

Labour’s FPA policy cites the recent historic pay equity settlement for Care and Support Workers in the aged care and disability sectors as an example of how government, employers and unions can come together to establish basic minimum pay and conditions in an industry. On the other hand, some commentators see Fair Pay Agreements as a return to the national award system abolished by the Employment Contracts Act in 1991.

I participated directly as Crown Negotiator in the Care and Support Workers Settlement, which was implemented by legislation in 2016, and I’m also one of the declining number of people who have had direct experience of national awards. I saw the award system up close in the 1980s, both as an advisor to the Fourth Labour Government on the development of the Labour Relations Act 1987 and also, a little earlier, as a practitioner who leveraged the award system to negotiate, on behalf of the new Labour Government, the exit from Robert Muldoon’s wage freeze of the early ’80s.

The frameworks underpinning the 2016 settlement legislation and the old national award system do have some things in common, but they also have significant differences. Analysing those similarities and differences is instructive, as it illustrates some of the issues that will need to be addressed with a shift to FPAs.

Three inter-related issues stand out for me:

  • How will the coverage of Fair Pay Agreements be decided?
  • How will the two sides obtain their negotiating mandates?
  • What processes will exist for resolving disputes — particularly if the parties can’t agree on the terms of an FPA?

Coverage of Fair Pay Agreements

On the face of it, the coverage of an FPA would seem to flow directly from the nature of the negotiating mandate secured. As I’ve noted, an FPA would cover all employees and workplaces within an industry, and negotiations would begin only once enough employers or workers in the industry have demonstrated their support. This leads to two related questions. Should the legislation place any limitations on the coverage of Fair Pay Agreements? And should there be scope for negotiation about coverage?

Labour’s FPA policy uses the term ‘industry’. This could be interpreted broadly to allow a Fair Pay Agreement to be negotiated for an occupational group that spans multiple industries — clerical workers for example. Alternatively, the new FPA legislation could require that each Fair Pay Agreement be confined to a single industry (however the precise boundaries of that particular industry are defined) — and so exclude the possibility of cross-industry, occupation-based agreements.

The relative merits of industry-based and occupation-based awards were debated at the time of the Labour Relations Act 1987. This was the last in a century of employment statutes where union status had legislative backing. Although the 1987 Act marked the end of the compulsory arbitration system established in the 1890s, it continued to enforce compulsory unionism and blanket award coverage. The preference on all sides in the development of the Labour Relations Act was for industry-based awards, because that allowed industry-specific factors to form part of the negotiations — ability to pay, labour supply and demand, technology and so on. For the unions, industry-based awards also better supported their organisational objectives.

In the event, however, the Labour Relations Act allowed the negotiating parties to decide coverage. This avoided some of the definitional complexities that would have been inevitable had the legislation placed limitations on coverage. It also acknowledged that labour markets are structured and operate in a variety of ways, including on an occupational basis. In occupations that span multiple industries, workers are often relatively mobile between those industries, and this in itself pre-disposes pay rates to equalise in those occupations.

In the case of the Care and Support Workers Settlement, the coverage was essentially defined by the claims lodged in the Employment Relations Authority by the respective unions under the Equal Pay Act, but with some negotiation around specific areas of coverage. The initial claim was on behalf of Kristine Bartlett in aged residential care (TerraNova), which led to the Court of Appeal ruling that a claim could be heard under the Equal Pay Act for equal pay for work of equal value. Given the extensive claims, both current and pending, in the aged care (residential and home and community) and disability sectors, the Crown agreed to negotiate a settlement covering all care and support workers in these sectors. Notwithstanding, there were still negotiations and discussions around specific areas of coverage at the start and end of the settlement process, to resolve ‘grey areas’ where it was unclear whether a specific type of worker was in fact a ‘care and support worker’.

The experience with the settlement indicates that those kinds of grey areas will be inevitable, even in relatively clearly defined industries, and that those uncertainties are best resolved by the parties. In practice, the mandating process for negotiating an FPA will be initiated by the relevant unions, and the opportunity therefore exists for some discussion between the parties on coverage even before the negotiations on the terms of the FPA take place.

Mandate to negotiate an FPA

In the current relatively deregulated labour market, the question of how each side will obtain its negotiating mandate, and then ratify the negotiated outcome, presents as a tricky — though not insurmountable — issue for both sides of the bargaining table.

On the union side, the current historically low levels of union density will be an important piece of context. Union density — the percentage of wage/salary earners who are union members — was 17.7% in 2016 (Unions and union membership in New Zealand — report on 2016 survey, Victoria University). Density rates were highest in public and community services (39.5%), followed by transport, postal and warehousing (37%), mining (27%), manufacturing (21%), and utilities services (20%). A number of industry groups had density rates under 5%.

These union density rates are a far cry from what prevailed before the Employment Contracts Act came into force in 1991. Its predecessor, the Labour Relations Act, had required unions to register, and registration in turn conferred exclusive coverage over workers covered by that union’s membership rule. A registered union could also negotiate a union membership clause into its award, requiring a worker covered by the award to become a union member within two weeks. As a result, union density rates were well over 50%, and also relatively consistent between industries.

The pre-1991 legislation also provided for employer organisations to register. Although legally separate, these organisations were invariably related to the wider industry association. For a number of those associations the negotiating of awards was a very substantial function and part of their reason for existing. It is not known how the repeal of the Labour Relations Act affected the industry associations themselves, although there is clearly now considerable variation in their capability, capacity and standing.

In short, before 1991 negotiating mandates were underpinned by legislation. While the Chief Mediator was required to be satisfied that both parties were representative before convening a conciliation council for the negotiation of an award, this was largely a formality. There is clearly no intention to return to that regime and the 2016 Care and Support Workers Settlement is therefore directly relevant for FPAs.

Union density rates were low in parts of the sub-sectors covered by the settlement — less than 30% — and many employers had no union presence at all. At the outset, the unions involved made it clear they wanted any settlement to apply to all workers, not just their own members. Employers were of a similar mind. The Crown, for its part, also saw real benefits in this, as it wouldn’t be exposed to further claims from non-union workers, including claims for back-dating (which were waived in the course of negotiations). The quid pro quo was that the Crown agreed that the union ratification process also covered workers who were not union members. A small number of employers resisted this, but ultimately the ratification process proceeded smoothly.

The Care and Support Workers Settlement was directly between the unions and the Crown (the Ministry of Health, DHBs and ACC). For various reasons, employers from two of the care and support sub-sectors did not wish to be parties, and this effectively excluded the third. It was therefore not necessary for the employers to go through a ratification process — the settlement applied to them through the legislation.

Assuming therefore that FPAs are to apply to all workers and workplaces within an industry, and will be negotiated by unions and employer representatives, experience suggests it would be desirable for the legislation to prescribe the ratification process for both unions and employers, to provide as much clarity and certainty on this issue as possible.

Dispute resolution processes

The key question here is whether Fair Pay Agreements should be voluntary or compulsory, once the mandating threshold has been satisfied. If voluntary, then the workers who would be covered would have the right to strike in support of an FPA. Obviously the parties could agree to submit to an arbitration process if they were unable to settle. If compulsory, then independent arbitration (or some other dispute resolution process) would apply if the parties were unable to reach agreement on the terms of an FPA.

The Labour Relations Act was based on the principle of free collective bargaining, underpinned by the right to strike (or to lock out) if the parties were unable to agree on the terms of an award. On the other hand, the bargaining power of unions was considerably strengthened by the sections of the Act that conferred exclusive coverage and provided access to union membership clauses. This meant that in practice it was very unusual for the terms of an award not to be agreed.

The Care and Support Workers Settlement had its origins in a court case, and the option of defaulting to the Employment Court for a decision was always in the background. However, this was not the preferred option for any of the parties, who thought that a court-determined outcome would not allow other objectives to be achieved in the settlement, and would also involve considerable time and cost.

In the context of Fair Pay Agreements, the issue is a tricky one. On the one hand, the very low rates of union density in many industries call into question whether unions will have sufficient bargaining leverage to secure an FPA. The question therefore arises whether the legislation should provide for compulsory arbitration (or whether alternatively the Crown should have residual powers that it would exercise in particular circumstances). On the other hand, the availability of compulsory arbitration tends to have a chilling effect on negotiations (although this can be mitigated to some extent depending on the form of arbitration provided for). Whichever regime is chosen, it should provide the parties with incentives to find their own solutions as far as possible.

Mining New Zealand’s innovative history in labour relations

New Zealand has a history of innovative approaches to employment relations frameworks. Using some very different approaches and in some very different political climates, we have explored the balance between flexibility and regulation in this area.

Some of those experiences, like the development of the Labour Relations Act 1987, are now receding in the collective memories of employers, unions and policymakers. But, along with more recent 21st century experiences, they still offer lessons and examples that we can usefully mine for guidance in implementing further ambitious initiatives in the employment relations field.

Doug Martin is a co-founder and director of the professional-services firm MartinJenkins. He was Crown Negotiator for the historic pay equity settlement for Care and Support Workers in the aged care and disability sectors in 2016.

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