NEW ZEALAND LAW SOCIETY EMPLOYMENT LAW CONFERENCE 30 AND 31 OCTOBER 2008AUCKLAND

Collective Bargaining - A Union view

ANDREW LITTLE, NATIONAL SECRETARY, EPMU.
(Delivered by Tony Wilton, General Counsel, in Andrew's absence.)

1.     Introduction

Collective bargaining is fundamental to unions.  It is, to use that sometimes erudite-looking phrase, a sine qua non for unions.  It defines what they do.

This paper will look at:

• The statutory encouragement given to collective bargaining in New Zealand
• The inherent inequality of power in the employment relationship
• Why collective bargaining is important to unions
• A brief account of the EPMU's successful "5 in ‘05" collective bargaining campaign
• A comment on the hideous appearance of arguments about employer's freedom of association as a device to defeat multi employer collective bargaining, and why employers really do not want this argument to succeed.

The common law has no notion of a collective agreement, certainly a collective employment agreement. Statute law has had to intervene (for over 100 years in New Zealand) to recognise and protect collective agreements and collective bargaining. Statutory intervention is justified on grounds ranging from the need for industrial and social order (it provides rules where previously there was none) to a means of delivering a wages and incomes policy.

Collective bargaining, like most negotiations, is seldom about the law and legal procedures. It is about power and the quality of relationships. The conduct of it is driven by emotion, personality, psychology, the circumstances of the participants of the day, good fortune, bad fortune, the physical environment and, sometimes, facts and figures. It is riven with ambiguity, equivocation, misunderstandings and competing agendas - and this is often within one negotiating team.

Collective bargaining is not a natural environment for most lawyers. This paper attempts to explain the drivers of union negotiators in collective bargaining rather than provide a dissertation on legal rights and strictures. It is an attempt to give an account of the values and principles union representatives bring to the negotiating table.

2.      Statutory encouragement for collective bargaining

It is obvious that the Employment Relations Act 2000 ("the Act" or "the ERA") is designed to encourage and promote collective bargaining.  Section 3 of the Act states that an object of the Act is to build productive employment relationships through the promotion of good faith by, amongst other things, "promoting collective bargaining" (section 3 (a)(iii)).

A further object of the Act is to promote observance of International Labour Organisation Convention 98 on the Right to Organise and Bargain Collectively (section 3(b)).  Article 4 of ILO Convention 98 states:

Measures appropriate to national conditions shall be taken, where necessary, to encourage and promote the full development and utilisation of machinery for voluntary negotiation between employers or employers' organisation and workers' organisation, with a view to the regulation of terms and condition of employment by means of collective agreements.

These explicit objects should be seen against a background of predecessor legislation, the Employment Contracts Act, which was, at best (from the union point of view) neutral whether bargaining was individual or collective. But that legislation was accompanied by rhetoric unequivocally favouring individual employment agreements.

The context of the ERA provisions includes the over-arching passage in the object statement of the Act that building productive employment relationships through the promotion of good faith is also about "acknowledging and addressing the inherent inequality of power in the employment relationships".

It is the inherent inequality of power in employment relationships that is the principal driver behind union organisation and collective bargaining. This needs some explaining.

3.      Inherent inequality of power in the employment relationship

To some commentators ([1]) the so-called inherent inequality of power in the employment relationships is regarded as an economic or market issue. Supply of and demand for labour determines the price of it, and so a buoyant economy and low unemployment sees wages rising either in order to retain workers or to recruit them.  On this analysis, the ability of workers to walk away from a current job (whether on notice or not) and go to another job is seen as conferring economic power on the worker.  Employers are seen as having equal means in the labour market (small employers have the same ability as big employers to pay more). It is a negative power.  It is a threat to walk away from a job and cause disruption in the workplace, presumably with a view to extracting a concession or greater value from the current employer, rather than necessarily being able to achieve a higher price for labour with a new employer. Causing disruption in the workplace is not something unions are precious about, of course, but this theory of market power assumes all workers have the same ability to cause the same level of disruption on their own regardless of the position they hold in the particular business. 

This theory of the power of workers to push up the price of labour simply by leaving one job and going to another is dependent on a number of factors.  These are:

• Perfect, or at least good, information about demand and about an alternative employer's willingness to pay more than the worker is being paid at the time of the proposed move
• High mobility (i.e. the worker is able to travel to where the higher priced labour is and any additional costs in travelling there are at least offset by a better return. Disruption to family life and personal interests and community involvement are not barriers to mobility for the worker)
• Low socialisation (i.e. the worker is not concerned about the relationships he or she has in the workplace and has little or no connection to the employer or organisation they are working for).

Workplace surveys routinely show that factors that are most important in retaining workers are:

• Quality of the workplace and environment including work colleagues and facilities
• Quality of management, including worker-management relations and a climate of mutual respect
• Values of the organisation and a sense of purpose beyond just generating a profit.

The market analysis of power in employment relationships depends, like most theories based on economics, on the existence of perfect information, neutral cost to participants, little or no social engagement in one's present employment and a range of other factors seldom found in real life. From the union's point of view, the inherent inequality of power in employment relationships is less about market conditions and more about the real nature of the employment relationship at common law.  The inherent inequality of power in the employment relationship derives from two fundamental principles of employment law:

• The employer's right to manage, which entails the right to issue lawful and reasonable instructions, and
• The employee's duties of obedience and fidelity.

These common law duties and obligations repose in the employer enormous power and in the employee, in the absence of any statutory intervention, a lack of power and autonomy.

Historically, prior to any statutory arrangements or protections, workers in the industrial world and in larger industrial settings, showed a tendency to organise to protect and to advance their interests.  This was so even when, as for example in the United Kingdom, legislation outlawed "combination" (i.e. workers organising in the workplace and acting together).  As union organisation continued, and as unions became if not more effective at least more and more disruptive, the demand for legislative intervention grew.  The most vulnerable industries in the industrialised world were energy (largely coal) and transport (largely shipping with the associated waterfront work that went with it).  In New Zealand, legislative recognition and regulation of union activity was compelled by a number of factors that came together by the 1890's:

• Hugely disruptive strikes in Australia and New Zealand which compromised primary product exports
• An emerging depression
• A growing view that leaving workers and employers with no recourse to resolve disputes was brutal and uncivilised [2].

The Industrial Conciliation and Arbitration Act of 1894 was received with mixed views (it would civilise industrial relations; it was an intolerable interference by the state in the private affairs of individuals and would interfere with the laws of supply and demand).  This legislation led to:

• Nearly 15 years of industrial stabilility
• A massive growth in the number of unions and in union membership
• The acceptance of collective bargaining, albeit with enthusiasm in it tempered from time to time by the Arbitration Court, as the principal means for wage-setting in New Zealand.

Collective bargaining enjoyed statutory protection and promotion, and in varying degrees compulsion, continuously until 1991. New Zealand's collective bargaining heritage is long and strong. The attempt to afford it protection and preference from 2000 in the ERA is consistent with this heritage and the level of preference is a much lighter shade than previously.

4.      Why collective bargaining is important to unions

I have explained the notion of the inherent inequality of power in the employment relationship in terms of the respective duties and obligations that employees and employers have. 

In the absence of anything else, the employer could dictate the price of labour and the individual employee had little option but to accept it (the alternative is to leave).  In the absence of any statutory framework, and assuming a purely unregulated labour market, it is difficult to see what mechanism market would lead to perfect information for employees.  Workers organising amongst themselves to, at the very least, share information about their wages and conditions is the only natural phenomenon that could be expected in a truly unregulated labour market.

However, for workers the benefit of, and attraction to bargaining goes beyond just the inherent inequality of power issues.  There are issues of fair treatment and fairness of reward and remuneration.  Most employers instinctively know that good management of the workplace requires fair and consistent treatment.  This, after all, was the nub of the argument advanced by the Employers and Manufacturers Association (Northern) recently in its campaign over its perception of unfairness in the KiwiSaver legislation aimed at preventing employers offsetting their increasing contributions against future pay increases.  The EMA thought it unfair that you could have one worker who is a member of KiwiSaver foregoing a portion of their income and receiving an employer contribution partly paid for through a tax credit, working alongside another worker who is not a member of KiwiSaver (and presumably not a member of any other employer superannuation scheme) who receives their pay without deduction and with no contribution towards superannuation from their employer. The perceived unfairness was that two workers doing the same job for the same employer would appear to receive different benefits (for the record, I disagree with the EMA's approach.  There is no unfairness in this situation.  There are incentives to participate in a scheme which has long term personal as well as public policy benefits but with a detriment until retirement, i.e. reduced disposable income. This was the nature of private employer superannuation schemes of the 1970s and 1980s. In any event, the EMA may have found its conscience a little too late; the practice of paying workers at different rates for no other reason than it was the employer's preference to do so was endemic in the 1990's and I don't recall the EMA saying anything then.)

At the enterprise level, then, collective bargaining, assuming it is conducted on the basis of genuinely independent advocacy for employees and putting aside any issues of passing on to non-union labour, offers the following general benefits:

• Openness and transparency in terms of what the applicable minimum pay rates are for particular roles and occupations and the conditions (e.g. qualifications, skills) that give rise to entitlement to them
• Greater consistency within a workforce because the same rules apply to all those covered by the agreement
• Gives workers a real voice with management on remuneration policy rather than just their own individual circumstances
• Opportunities for joint problem solving over wages or, more likely, over issues such as hours of work, rostering, managing continuous processes, etc.

Negotiating together (collective bargaining) accompanied by associated set up and reporting back processes (e.g. claims meetings; report back and ratification) is the basis of openness and transparency, and gives a workforce greater confidence that there are minimum standards in place and commonly understood rules which are enforceable. Knowing what the rules are and that everyone in the workforce is treated fairly under the collective agreement is more likely to engender greater confidence in management or at least remove one cause of distrust.

The current statutory framework, drawing as it does from other periods in our history during which collective bargaining was promoted ahead of individualised employment arrangements, provides other benefits:

• The requirement that there be an expiry date provides certainty in terms of renegotiation and renewal
• The explicit good faith requirements ensure there are rules about the conduct of bargaining, including such things as the right to seek relevant information.

None of this assumes, nor needs to assume, that the employment relationship is bad, nor that the employer is hated and reviled.  Good employers who want efficient wage setting and problem solving mechanisms will generally see collective bargaining as a means to be open and fair in these respects.

Of course, collective bargaining is not just pursued at the enterprise level.  For unions operating at an industry-wide level, industry bargaining is also extremely important.  Industry or multi employer bargaining is important to:

• Prevent, as far as practicable, wages and labour costs becoming a point of differential between equally competing businesses creating pressure to drive down the cost of labour
• Dealing with industry-wide issues such as promoting more training, etc
• Better enable movement of labour within an industry because of consistency of pay rates.

Industry, or multi-employer, bargaining is equally important to unions where they have significant proportions of an industry organised. Employers and unions have different views about the fairness of consistency of pay rates for comparable work in an industry. Employers view the issue from their specific business and what suits it, and regard any setting of labour costs from outside the business as an unacceptable interference in it. Most other input costs are determined without reference to individual businesses, so the issue is one of power and control. Unions and workers tend to see differing pay rates for comparable work within an industry as unfair since what the employer is using is the employee's training, skills and experience and the particulars of an individual business should not be determinative of the market rate for labour in the industry. The fact that individual businesses can determine what is paid allows management inefficiencies to influence the price of labour inputs in a way no other input price is influenced.

 

5.      "5 in ‘05 Campaign

In 2005 the EPMU ran one of the most ambitious campaigns it had embarked on for many years.  It was the campaign to achieve a 5% pay rise across the board for as many of its members as it could.  The campaign was endorsed by the Council of Trade Unions and became a union movement-wide campaign.

At the time, the EPMU negotiated around 1500 collective agreements over a two-year period, with approximately half falling in one year and half falling in the other of any two-year period.  Of the half dozen multi employer collective agreements, the largest was (and continues to be) the Metals industry agreement with around 180 employer parties.

By the end of 2004/beginning of 2005 the union observed the following:

• The Employment Relations Act was 4 years old
• Within the EPMU, the average pay settlement over the previous four years was more or less the same as the CPI for each of the calendar years. The same was the case for the last three years of the Employment Contracts Act.
• Shortages of skilled labour had been reported as early as 1998. Trades rates of pay continued along the same path as other pay levels, generally only adjusting for CPI. There was a small number of improvements in overtime rates of pay and penal rates but these were by no means widespread.
• The economy was buoyant, achieving growth rates close to 3% with growth rate forecasts of 4% and more.
• Company profitability over the previous 3 years was healthy and the value of the market capitalisation of the country's top 50 companies listed on the stock exchange had increased by nearly 100% over that period.
• Aggregate data on management pay showed increases throughout 2004 of between 5.8% and 7.2%. The pay levels of the 25 top chief executives in the country had increased, on average, by 25%.
• The NZIER's consensus forecast for pay increases for the 2005 year was 4%.

The average wage gap between comparable positions in NZ and Australia, a gap which had accelerated during the 1990's, was not much talked about at that time but data suggested it was around 30%.

In summary, the position was that after 4 years of the Employment Relations Act and good faith requirements as well as other more prescriptive requirements around collective bargaining, not much had changed in terms of outcomes.  Yet, the NZ economy was performing well and management personnel were reaping their rewards.

By 2000, unions' defensive adaptations to the 1990's environment had not yet given way to new modes of operating in line with the changed environment under the ERA. There was a burst of industrial action in the 2001/2002 period, a burst of adolescent freedom perhaps, but the outcomes in wages terms were unspectacular.  The concessionary bargaining environment of the early 1990's had clearly come to an end but unions and their members seemed to be content with pay adjustments barely in line with the rate of inflation.  By 2004, not many unions had changed the mode by which they operated (the NZ Nurses Organisation was one obvious exception).  The EPMU had undergone a period of intense internal restructuring over the previous 3 years and arising out of the consultation over that change was a clear sentiment and expectation that the union's role was to enable workers to achieve collectively more than they could achieve individually.

Figures from the Statistics Department at the time showed (and continue to show today) that in any one year only about 50% of wage and salary earners receive a pay increase.  For union members, comprising around 20% of the workforce, the proportion receiving a pay increase in any year is nearly 100%.  Figures at the time showed average pay increases across those who were receiving them were about the rate of inflation.  In material terms, there wasn't much to distinguish between what the union workers were achieving in terms of pay increases and what many non-union workers were achieving.

The EPMU's "5 in ‘05" campaign was conceived against this background.  As noted above, in December 2004, the NZIER, in its forecasts for the year ahead, saw the cost of labour rising on average 4%.  If unions were to demonstrate they could achieve better collectively than what might ordinarily be achieved individually, it was necessary to achieve pay increases, on average, better than 4%.  The figure of 5% seemed achievable. The year was 2005.  The "5 in ‘05" campaign was born.

The objectives of the "5 in ‘05" campaign were:

• To achieve an average pay increase for the year better than market forecasts
• To build a campaign footing, and in doing so, a campaign infrastructure and culture in the EPMU and, hopefully, in other parts of the union movement
• to highlight New Zealand's low wage problem, its endemic modest pay increases and the disparity between New Zealand Australian pay rates for comparable work which would cause a growing tension in the New Zealand workforce
• To start to claim for working people some of the benefits of the buoyant economy in the form of real wage increases.

The dispute that heralded the beginning of the campaign was the breakdown in the negotiations of the EPMU's largest multi employer collective agreement, the Metals industry agreement.  In the 6 weeks leading up to the breakdown of these talks, the EPMU had gone on public record as saying wages needed to rise more rapidly than had previously been the case and the union made clear its expectations of minimum pay settlements for that time.

The breakdown of the Metals industry agreement was followed by mass rallies in Auckland of members covered by the agreement along with industrial action in a number of workplaces.  Before negotiations resumed the union secured signed undertakings from more than 30 employers covered by the Metals agreement (then, about one sixth of employers covered by the Agreement) confirming that settlement at 5% was acceptable to them.  Negotiations ultimately settled on 5% for a 13 month agreement.  From the activity associated with the Metals agreement that year many other EPMU members and members of other unions took heart and confidence and also made clear their expectations to their employers in negotiations.  There was a heightened level of industrial action throughout that year, including during the election campaign of that year (notwithstanding the mindless predictions of some that the EPMU would curtail industrial action during an election campaign). We were aware from anecdotal evidence that some employers, including employers of non-union labour, offered pay increases of 5% in 2005 because this was seen as the going rate.

The results for the year speak for themselves (see graph below). A sharp rise in the value of pay settlements in 2005 was achieved, an increase in the average 12 month settlement of nearly 1% (from about 3.5% to just over 4.5%). The effect of the campaign on wage rates more generally is shown in the rise that year in the LCI, and the relationship between average pay rises and heightened industrial action is also evident.

 

 

It is true that in some of the settlements, the 5% pay increase was achieved in the 2005 year with a concessionary rate of increase settled on for the subsequent year (usually around 3%, giving an average over the two years of closer to 4%). Strenuous efforts were, however, made to stamp out this practice.

 

6.       Freedom of Association of Employers in Multi Employer Collective Bargaining - what the ...?

It remains to comment on one of the more disturbing developments in the more recent jurisprudence on collective bargaining.  This is the unwholesome entry of arguments about the right of freedom of association of employers as a device to constrain unions' collective bargaining rights in relation to multi employer collective agreements.

The argument has arisen in Epic Packaging v EPMU [2006] 1 ERNZ 617 (the Employment Court's decision was reversed on appeal to the Court of Appeal and this decision is reported as EPMU v Whitney Investments [2008] 2 NZLR 228) and SFWU v Auckland District Health Board [2007] 1 ERNZ 553.  In the EPMU case, the argument turned on whether or not the EPMU's usual multi employer collective employment strategy of negotiating and settling a multi employer collective agreement with a group of employers and then initiating bargaining with subsequent employers to have them joined to the original agreement was permissible under the Employment Relations Act, and specifically whether it was possible to initiate bargaining under section 42 of the Act on this basis.  The argument in the SFWU case was over the extent to which an unwilling employer, one of many on whom bargaining was formally initiated, could resist being compelled to meet to continue bargaining and avoid the effect of the 2004 ERA amendment which required a collective agreement to be concluded unless there are good reasons not to.

In the Epic Packaging/Whitney Investments, the Court of Appeal ultimately decided that arguments about freedom of association of employers were contrary to the statutory bargaining provisions of the ERA to the extent that the employer's argument was dependent on the reference in the section 3 objects section of the ERA to integrity of individual choice being one of the objects of the Act. The Court of Appeal stated that this reference "is referring to the integrity of choice of an individual employee" and that it "is not a principle that is designed to protect employer integrity of choice."[3]

In the SFWU decision, the court decided that the good faith duty to conclude a collective agreement unless there are good reasons not to did not require a Multi Employer Collective Agreement to be agreed to just because this was the form of collective agreement sought, and that providing a single Employer Collective Agreement was agreeable to the employer, this was enough.  This decision was not appealed.

The question arises over how on earth arguments about employer's freedom of association ever arose in the first place.

In summary, the argument goes something like this:

• The New Zealand Bill of Rights Act 1990 (NZBORA) is to be relied upon to assist in interpreting statutes (NZBORA, section 6), and that statutes must be interpreted in light of and consistently with the civil and political rights outlined in the NZBORA
• Section 29 of the NZBORA state that the provisions of the Bill of Rights apply "so far as practicable, for the benefit of all legal persons as well as for the benefit of all natural persons."
• Section 17 of the NZBORA states "everyone has the right to freedom of association."
• Section 3 of the ERA states that one of its objects is "... protecting the integrity of individual choice" as well as promoting the observance in New Zealand of ILO convention 87 on freedom of association, amongst others
• When unions seek to negotiate with more than one employer at a time or otherwise seek to join two or more employers into a common collective employment agreement, they are interfering with the employer's freedom of association, irrespective of whether the employer is a natural person or, as is more likely the case in employment disputes, a legal person.
• Consequently, the right of unions to seek multi employer collective agreements under the ERA should be read down in order to preserve, to the best extent, the employer's freedom of association.

It is a lawyer's argument. But it is ahistorical and out of context.  It seeks to rely on principles and instruments created to protect citizens from incursions into their autonomy and dignity by the state into something to protect corporate interests from citizens who are employees.

Freedom of association is one of just many civil or political rights that has its origins in the great social revolutions of the last three hundred years as peasants threw off the yoke of feudal oppression, as citizens in modern states sought to assert their autonomy and as workers in the emerging industrialised world sought to stand up to new forms of exploitation. This is the background to modern expressions of civil and human rights.

The right of freedom of association is expressed in the 1948 Universal Declaration of Human Rights (emphasis added).  There, it states in article 20:

1.                 Everyone has the right to freedom of peaceful assembly and association.

2.                 No one may be compelled to belong to an association.

The right appears again in Article 22 of the International Covenant on Civil and Political Rights, and states:

Everyone shall have the right to freedom of association with others, including the right to form and join trade unions for the protection of his (sic) interests."

The ILO Convention 87 on Freedom of Association refers to workers and employers having the right to establish and join organisations of their own choosing without previous authorisation (Article 2) with the remaining articles confirming rights not to have those organisations interfered with by the state (Articles 3 to 7). Article 10 defines "organisation" as an organisation of workers or employers for furthering and defending their interests. 

The Employment Court's analysis in the EPMU and SFWU cases twists and distorts the notion of an organisation or association in relation to the principle of freedom of association.

The Universal Declaration of Human Rights places the freedom of association alongside the right of peaceful assembly. Corporate entities do not engage in peaceful assembly, such is the nature of legal fictions. Only people can do peaceful assembly. The ICCPR refers to the freedom of association "with others" and co-locates the right with the right to join trade unions. These are rights of citizens, not corporate entities.

The situation the Court was faced with in these two cases was, as far as the employers were concerned, a commercial one: they were cited into multi employer agreements in order to set the price of labour. Neither union was attempting to create an organisation to further their interests.

The two employers in these cases were companies. The limited liability company is a creature of statute. It was created to protect owners and investors of commercial entities against assuming all risks associated with a business. This alone gives those involved in the company a power and protection not available to non-company traders. In many cases, companies are already an organisation of freely associating individuals. But as a corporate entity, there is no further freedom to protect in relation to the citizens who make it up. Extending to corporate entities the rights and protections of citizens is a travesty of those rights.

Here is a possible consequence if this analysis is allowed to prevail.

Employees employed directly by an employer fall under the obligations of an employment relationship.  But employers are able to use labour under different arrangements. An increasingly common form of engagement these days is employment through labour hire agencies and contractors. When a worker directly employed by an employer works alongside labour hire and contractor labour he or she works alongside them not as a fellow employee with tandem obligations to the business both are working in the interests of.

One owes obligations to one employer. The other owes obligations to another employer. They stand together as individuals and no legal relationship connects them (apart from the statutory obligation under the health & Safety in Employment Act to take all practicable steps to prevent harm). They are, in legal terms, strangers. So why would the directly employed worker be under any obligation to work alongside the labour hire or contractor worker? The only constraint the directly employed worker might be under is the duty to comply with lawful and reasonable instructions, including an instruction to work alongside labour hire or contractor labour.  But if the Court is to elevate freedom of association to employers who find themselves cited into union claims for multi employer collective agreements, then the same right should apply to workers in relation to matters beyond just union membership.  To compel a directly employed worker to work alongside a labour hire worker when the former is unwilling to do so would be to breach the freedom of association right. It must amount to an unreasonable instruction, and therefore one the directly employed worker can refuse.

Statutory employment rights, including rights to organise and to bargain collectively, have their origins in attempts to provide a better balance of power in the employment relationship. Using civil and political rights, whether declared in legislation or international instruments, to defeat those rights simply swings the balance back.

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[1] Hogbin, Geoff, Power in Employment Relationships: Is there an imbalance?, 2006, NZ Business Roundtable; Epstein, Richard, "In defense of the contract at will," 2001 UCLR 51

[2] Holt, James, Compulsory Arbitration in New Zealand: the first forty years, 1986, AUP

[3][2008] 2 NZLR 228 at 241, para 74