Transcript The employment relations system in New Zealand

Why trust and good faith
in the employment
relationship? The case of
New Zealand
Presentation to:
Shanghai Institute of Foreign Trade
By:
Jamie Latornell,
Academic Director (Management &
Economics)
Introduction
 The primary piece of legislation regulating
employment relations in New Zealand is
the Employment Relations Act 2000 (the
Act)
 Passed into law on 2 October 2000
 Amended in December 2004
 Significantly different from its predecessors,
the Employment Contracts Act 1991, and the
Industrial Conciliation and Arbitration Act 1894
in that it explicitly incorporated the concepts of
trust and good faith into the legislation
2
Structure of this
presentation




New Zealand – facts and figures
Key provisions of the ERA
Definitions of ‘trust’ and ‘good faith’
Review of the different legislated approaches to
employment relations over the years in New
Zealand
 Key features
 Outcomes
 Underpinning socio-economic/political ideologies
 Conclusion – why trust and good faith in
employment relations?
3
New Zealand
population
 Population: 4.1 million
 80% of population lives in
cities
– 1.2 million in Auckland
– 370,000 in Wellington
– 367,700 in Christchurch
 Median age: 33.9 years
 European 69.8%, Maori 7.9%,
Asian 5.7%, Pacific Islander
4.4%, other 12.2%
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New Zealand labour
force
 2.13 million
 10% in agriculture
 27.3% in manufacturing
 65% in services
 Unemployment = 3.7%
 Labour force participation
rate
 Male 74.8%
 Female 60.2%
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New Zealand
government
 Parliamentary democracy
 General election held every 3
years – next one in 2008
 Major political parties are:
 Labour party (centre-left)
 National party (centre-right)
 Minor political parties are:
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New Zealand First (centre-left)
United Future (centre-right)
ACT
Maori Party
Green Party
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New Zealand legal
system
 Based on English law,
including traditions of the
‘common law’
 Special recognition to Maori
provided through the Treaty
of Waitangi
 Special land legislation and
land courts exist for Maori
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New Zealand economy
 Gross Domestic Product
(GDP) = US$94.6 billion
(2005 estimate)
 4.3% from agriculture
 27.3% from manufacturing
 68.4% from services
 GDP per capita =
US$25,200
 GDP real growth rate = 2.2%
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New Zealand foreign
trade (1)
 Major trading partners
(exports/imports):
 Australia (19.95% / 19.56%)
 United States of America
(13.73% / 12.17%)
 Japan (10.67% / 10.22%)
 People’s Republic of China
(5.62% / 11.37%)
 United Kingdom (4.53% /
2.98%)
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New Zealand foreign
trade (2)
 Major goods exports:



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Dairy (18.87%)
Meat (14.61%)
Wood (6.35%)
Machinery (4.93%)
Aluminum (4.08%)
Fruit (3.76%)
Fish (3.72%)
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Key provisions of the
ERA (1)
 Section 3
 The object of this Act is to build
productive employment relationships
through the promotion of good faith in
all aspects of the employment
environment and of the employment
relationship
11
Key provisions of the
ERA (2)
 Section 3 (continued)
 By recognising that employment
relationships must be built not only on
the implied mutual obligations of trust
and confidence, but also on a legislated
requirement for good faith behaviour
 By acknowledging and addressing the
inherent inequality of power in
employment relationships
 By promoting collective bargaining
12
Key provisions of the
ERA (3)
 Section 3 (continued)
 To promote observance in New
Zealand of the principles underlying
International Labour Organisation
Convention 87 on Freedom of
Association, and Convention 98 on the
Right to Organise and Bargain
Collectively
13
Definition of ‘mutual
trust’ (1)
 Interestingly, the ERA does not contain a
definition of the term ‘mutual trust’
 At least since 1985, New Zealand courts
have begun to develop the concept of trust
as a mutual obligation between the parties
to an employment contract and have
applied it as an implied term of all
employment contracts
 Even so, the courts have not provided an
explicit definition of ‘mutual trust’
14
Definition of ‘mutual
trust’ (2)
 In the absence of an express definition within the
legislation or within court decisions, we must look
to the plain and ordinary meaning of the words
 Therefore, a situation involving trust relations is
one where:
 Both parties to the relationship are dependent on the
other for the achievement of some result; and
 Both parties are at risk of loss if the result is not
achieved
 An employment relationship clearly meets this
definition of a situation involving trust relations
15
Definition of ‘good
faith’
 Section 4
 The parties must deal with each other in good
faith, which means:
– Not directly or indirectly doing anything which will
mislead or deceive the other party or is likely to
mislead or deceive the other party
 Requires to be active and constructive in
establishing and maintaining a productive
employment relationship in which the parties
are, among other things, responsive and
communicative
16
When does the duty of
good faith apply?
 Includes situations such as:
 Bargaining for a collective or individual
employment agreement
 Any matter arising out of or in relation to a
collective or individual employment agreement
 Consultation regarding the effect on
employees of changes to the employer’s
business
 Proposals by an employer which might impact
on the employees
17
Why trust and good
faith?
 Why has the New Zealand government
chosen to:
 Mandate trust and good faith as integral parts
of employment relations legislation?
 Attach these concepts to all aspects of the
employment environment and of the
employment relationship?
 In my opinion, there is a complex and
interwoven set of economic, political and
social forces which have produced this
government action.
18
Approaches to
employment relations
legislation
 During its short history, New Zealand has had 3
distinct approaches to employment relations
legislation
 The conciliation-arbitration approach (over 90 years –
1894 to 1991)
 The contractual approach (9 years – 1991 to 2000)
 The relational approach (2000 to present)
 Each approach has been based on a distinct
socio-economic and political ideology
19
Conciliationarbitration approach
 Resulted from the Industrial
Conciliation and Arbitration Act 1894
 Described as an Act to encourage the
formation of industrial unions and to
facilitate settlement of industrial
disputes by conciliation and arbitration
 A highly formalised and highly
centralised approach to employment
relations
 Built on four main features
20
Features of conciliationarbitration approach (1)
 If a trade union registered with the
government they obtained ‘exclusive
jurisdiction’ over a particular type of worker
 Eliminated competition between unions for
members
 Compulsory arbitration was provided for
the settlement of wage-fixing disputes, in
exchange for strict restrictions on the right
to strike or lockout
 Significantly reduced the incidence of strike
action
21
Features of conciliationarbitration approach (2)
 ‘Blanket coverage’ of wage awards
 Once a trade union and an employer (or
group of employers) reached a settlement, it
was extended to all employers and employees
in that particular industry or occupational
grouping, anywhere in the country
– Nearly eliminated wage competition between
employers
 Compulsory union membership
 Dramatically reduced the need for trade
unions to focus on the needs of their
members
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Ideology of conciliationarbitration approach (1)
 This highly formalised and highly
centralised system of wage-fixing
was coupled with a trade policy of
high tariffs which were protective of
the domestic economy (‘domestic
defence’
 Resulted in what has been termed a
“wage-earners’ welfare state”
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Ideology of conciliationarbitration approach (2)
 The conciliation-arbitration approach is consistent
with a Keynesian socio-economic/political
ideology which assumes:
 A market economy is not self-regulating and does not
automatically result in an automatic, spontaneous and
harmonious tendency towards a market-clearing
general equilibrium
 The state should therefore play an active interventionist
role in managing the economy in order to maintain full
employment and stimulate economic growth
 The state also has a role to play in redistributing
income in order to counter social inequity
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Outcomes of the
conciliation-arbitration
approach (1)
 For a time, the outcomes were highly
successful (1950s-60s)
 High level of worker protection
– Through the comprehensive set of minimum wages
and working conditions
 High level of economic growth
– One of the highest levels of per capita GDP in the
world
 High levels of equality, equity and
egalitarianism within society
– Through the redistributive effects of the wageearner’s welfare state
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Outcomes of the
conciliation-arbitration
approach (2)
 Over time a number of negative outcomes
accumulated (1970s-80s)
 Large numbers of small, inefficient operations
processing imported raw materials for
domestic consumption
 Ability of producers to pass wage increases
along to consumers contributed to inflationary
pressures in the economy
 Rigid wage relativities between industries and
occupations were viewed as a barrier to
productivity, income and employment,
adversely impacting employers’ ability to
adapt to a changing world economy
26
Emergence of a neoliberal ideology
 In the 1980s in New Zealand (as elsewhere) the
Keynesian ideology was replaced by neo-liberal
socio-economic/political ideology which assumes:
 An economy is always tending towards general
equilibrium with the full employment of resources
 The state should therefore play a strictly limited role in
managing the economy and redistributing income and
wealth within society. Focus should be on maintaining:
– Low inflation
– Price flexibility in markets and
– Minimal welfare state
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Emergence of the
contractual approach to
employment relations
 Embedded within the Employment
Contracts Act 1991
 Described as “an Act to promote
efficient labour markets”
 A highly decentralised, deregulated and
informalised approach to employment
relations
 Built on five main features
28
Features of the
contractual approach (1)
 An employment relationship is a private
contractual relationship between an
employer and an employee
 Imbalance of power between employer
and employee is irrelevant
 Individual choice of employers and
employees in contractual arrangements is
a key consideration, therefore there should
be few restrictions on contractual
arrangements
29
Features of the
contractual approach (2)
 The state should refrain from
intervening in labour markets other
than to support fair market
exchanges
 Unions are unwanted and unneeded
third parties in employment
relationships
30
Outcomes of the
contractual/ neo-liberal
approach (1)
 Significant shifts:
 From centralised to decentralised, enterprise-based
wage-fixing
 From collective to individual employment relationships
 Increases in:
 Employer power
 Adversarial, litigious settlement of employment
relations disputes
 Inequities in the redistribution of wealth
 Decreases in:
 Real wages and working conditions
 Continuing stagnation of the economy
31
Emergence of the
relational approach
 Embedded within the Employment
Relations Act 2000
 Described as an act to build productive
employment relationships
 A decentralised, but more regulated approach
to employment relations
 Encourages cooperative and collaborative
behaviours between employers, employees
and trade unions
 Encourages collective bargaining but does not
make trade union membership compulsory
32
Ideology of the
relational approach
 Built on a ‘Third Way’ socio-economic and
political ideology which:
 Attempts to combine the broad concepts of
neoliberal economic management with an
increased degree of state involvement in
labour market policies, education, economic
infrastructure development and research and
development
 Assumes markets are largely self-regulating,
but the state can intervene in some areas to
increase economic growth rates and counter
inequality
33
Conclusion (1)
 Why trust and good faith in the
employment relationship?
 There is a complex and interwoven set of
economic, political and social forces which
have produced this government action
– The neo-liberal/contractual approach did not
produce sustained economic growth and instead
contributed to increased inequities and divisions
within society
– Large portions of New Zealand society believed the
neo-liberal/contractual restructuring of the
government had gone too far and was morally and
ethically bankrupt
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Conclusion (2)
– A significant driver is the emergence of a
‘Third Way’ socio-economic/political
ideology within the political party which
has formed the government
– The decline in the presence of trade
unions in the workplace and the increases
in employer powers result in need for
government to provide measures for
employees to be protected from the
actions of some employers
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