Observation (CEACR) - adopted 2021, published 110th ILC session (2022)

Right to Organise and Collective Bargaining Convention, 1949 (No. 98) - New Zealand (Ratification: 2003)

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The Committee notes the observations of Business New Zealand (BusinessNZ) and the International Organisation of Employers (IOE) received on 1 September 2021 and the Government’s reply thereto. The Committee further notes the observations of the New Zealand Educational Institute (NZEI) received on 6 September 2021 and the Government’s reply, as well as the observations of the New Zealand Council of Trade Unions (NZCTU) communicated with the Government’s report.

Scope of the Convention. In its previous comments, the Committee had noted that pursuant to an amendment from 2010 to the Employment Relations Act (ERA), workers engaged in film production work are considered to be independent contractors rather than employees, unless they have a written employment agreement that provides that they are employees and were thus not covered by the provisions of the ERA. The Committee requested the Government to take any necessary measures, in consultation with the social partners, to ensure that all film and television workers, including those engaged as self-employed workers, can fully enjoy the rights and guarantees set out in the Convention. The Committee notes with interest the Government’s indication that it established the Film Industry Working Group in 2017 consisting of industry, business and worker representatives to find a way to restore workers’ rights in the industry. The Working Group made recommendations in October 2018 suggesting a bespoke workplace relations regime for contractors in the screen industry which were accepted by the Government in June 2019 and given form in the Screen Industry Workers Bill, which is currently awaiting its second reading. The Bill will provide clarity about the employment status of people doing screen production work, introduce a duty of good faith and mandatory terms for contracting relationships in the industry, allow collective bargaining at the occupation and enterprise levels, and allow access to employment institutions to resolve disputes arising from contracting relations collective bargaining in the industry. The Committee trusts that the measures proposed will ensure that all film and television workers can fully enjoy the rights and guarantees set out in the Convention and requests the Government to transmit a copy of the final version of the Bill as soon as it has been approved and to provide information on its application in practice.

Article 4. Promotion of collective bargaining. In its previous comments, the Committee requested the Government to, in consultation with the social partners, review and assess the application of section 50(K) of the Employments Relations Act (ERA), which permits any party to apply to the Employment Relations Authority for a determination as to whether bargaining has concluded, with a focus on the restriction this provision may have on further initiation of bargaining, and its impact on the conclusion of collective bargaining agreements. The Committee further requested the Government to provide information on the impact of section 44A, B and C of the ERA which provided an opt-out possibility for employers presented with a notice initiating collective bargaining including them and other employers. The Committee notes with satisfaction the information provided by the Government that both these sections were repealed on 12 December 2018 through the Employment Relations Amendment Act and further notes a number of other amendments aimed at strengthening collective bargaining and union rights in the workplace.

Voluntary nature of collective bargaining. The Committee notes the detailed observations made by BusinessNZ and the IOE in which they assert that sections 31 and 33, as amended by the Employment Relations Amendment Act 2018, and 50J of the ERA, are inconsistent with the principle of free and voluntary collective bargaining enshrined in Article 4 of the Convention. In particular, the organizations refer to the obligation in sections 31 and 33 to conclude a collective agreement unless there is a “genuine reason”, based on reasonable grounds, not to, regardless of the fact that negotiations may be initiated by a union on behalf of as few as two unionised employees. Prior to the changes to these sections, employers and unions were required to bargain in good faith but bargaining could be terminated without agreement as long as it was clear that all matters had been considered and responded to in good faith. According to BusinessNZ and IOE, now, once bargaining is initiated, the process mandated by the good faith obligations must be followed to its logical conclusion no matter how many or how few employees are affected by the outcome.

The Committee notes the Government’s indication that the amendments to sections 31 and 33 ensure that parties genuinely attempt to reach an agreement but they will not have to settle a multi-employer collective agreement if their reason not to do so is based on reasonable grounds. According to the Government, these provisions seek to encourage the full utilisation of the process for good faith collective bargaining by putting in place mechanisms that require parties to make every effort to conclude an agreement, consistent with the duty of good faith. The underlying assumption is that if employers and unions are bargaining in good faith, they intend to reach a collective settlement and that this should result in an agreement unless they are genuinely unable to conclude. The Government indicates that the provisions originally resulted from a review of the principal Act giving rise to amendments in 2004 which identified the need to address the issue of “surface bargaining” where engagement was on matters of form rather than substance, or where deadlocks on some individual issues led to deadlock on the entire negotiation. These provisions were removed in 2015 but restored in 2018 returning the situation to that which existed from 2004 to 2015. The Government adds that the provisions do not make settlement mandatory as good faith bargaining may not always result in a collective agreement in all cases and hence the recognition of “genuine reason” and considers that if the parties are negotiating in good faith they should be able to provide genuine reasons for not being able to conclude. The Government therefore states that it does not agree with the views of BusinessNZ that the provisions impose an absolute duty to conclude contrary to Article 4. Finally, the Government considers that the number of employees affected by the outcome is irrelevant.

The Committee further notes that BusinessNZ and the IOE also refer to section 50J which permits the courts to compulsorily fix the terms of a collective agreement where the bargaining parties have not been able to conclude. In their view, this constitutes arbitrary imposition of compulsory arbitration contrary to the principle of free, voluntary negotiation. They note that while this provision was introduced on 1 December 2004, it was not an issue in practical terms until it was first invoked in February 2019 in a case in which bargaining had been protracted and acrimonious and had come to a standstill.

The Committee notes that the Government for its part rejects the interpretation that this amounts to arbitrary imposition of collective agreement terms and states that section 50J does not apply simply because the parties cannot reach agreement over a particular matter or more generally. The Government emphasizes that the section provides a specific remedy of last resort for a serious and sustained breach of the duty of good faith. In such cases, the Employment Relations Authority may make a determination fixing the provisions of the collective agreement following the application of a party only if all of the following conditions are met: the breach of duty relates to bargaining; it was sufficiently serious and sustained as to significantly undermine bargaining; all other reasonable alternatives for reaching agreement have been exhausted; fixing the provisions of the agreement is the only effective remedy for the party affected; and the authority considers it is appropriate in the circumstances so to do. The Government adds that the Committee in its 2012 General Survey (paragraph 247) has already referred to the need for measures to address improper practices in collective bargaining such as proven bad faith and unwanted delays and that compulsory arbitration may be acceptable when, after protracted and fruitless negotiations, it becomes obvious that the deadlock will not be broken without some initiative by the authorities. The Government emphasizes that the sole case of the use of this remedy in this 15-year period involved protracted bargaining over several years and the prior use of mediation and facilitation and the matter was brought before the Employment Court which held that the employer had breached the duty of good faith in 2015 and continued to do so by delaying and attempting to frustrate bargaining. The Government asserts that there was thus neither an arbitrary process nor outcome but rather a prolonged process involving careful consideration by independent bodies and the need to provide a remedy to the affected party only when specific conditions are met and after all other avenues have been exhausted.

Finally, the Committee notes the observations of the NZCTU which support the 2018 amendments to the Act, which it considers have advanced the extent to which New Zealand law gives effect to its obligations under the Convention to develop mechanisms for the promotion of collective bargaining, support the rights of workers and their unions to freely organize, and protect union members from discrimination.

The Committee observes that the amendment to section 31 of the Act specifically provides that the object of Chapter 5 on collective bargaining includes the duty of good faith that requires parties bargaining for collective agreements to conclude a collective agreement unless there is a genuine reason, based on reasonable grounds, not to, while section 33 which previously provided that the duty of good faith did not include a duty to conclude an agreement has been replaced by a section defining the elements for determining what may or may not constitute “genuine reason”. In this respect, section 33 subsection 2 specifies that “a genuine reason not to conclude an agreement does not include opposition or objection in principle to bargaining for, or being a party to, a collective agreement or to including rates of wages or salary in a collective agreement or disagreement about including a bargaining fee clause” and adds the situation of unsettled pay equity claims. Subsection 3 provides that opposition to concluding a multi-employer collective agreement is a genuine reason if that opposition is based on reasonable grounds. The Committee notes that these provisions, which had been effective in the country for over a decade in the past and have been reintroduced, do provide a certain flexibility to employers in the collective bargaining process not to conclude an agreement based on notions of good faith and genuine reason and that the amended section 33 appears to principally aim at deterring situations where a party is simply in principle opposed to bargaining or including wage rates or where there is disagreement about a bargaining fee clause. The Committee further observes, however, that section 50J providing for the possibility of the Employment Relations Authority to fix provisions of a collective agreement where there has been a serious and sustained breach of the duty to bargain collectively in good faith is connected with the re-introduction of the amendments to sections 31 and 33 and may therefore also be invoked where a breach of the duty to bargain collectively in good faith concerns the non-conclusion of a collective agreement without genuine reason. The Committee considers that, under the Convention, ensuring the voluntary nature of collective negotiations is inseparable from the principle of negotiation in good faith if the machinery to be promoted under Article 4 of the Convention is to have any meaning. The Committee recalls in this respect that the overall aim of this Article is the promotion of good faith collective bargaining with a view to reaching an agreement on terms and conditions of employment. The Committee observes that sections 31, 33 and 50J as currently drafted had not given rise to any comments by the social partners for the decade in which they were jointly in force until the application of section 50J in 2019 imposing a collective agreement for a period of 14 months on an employer found to have been in serious and sustained breach of the duty of good faith. The Committee observes that the Act provides for significant consideration before section 50J can be applied, including the right of appeal to the Employment Court for a determination of the existence of a serious and sustained breach. The Committee notes that more information would be required in order to determine whether the good faith obligation in section 33 may hinder the voluntary nature of collective bargaining. Recalling the limited circumstances in which compulsory arbitration may be imposed as referred to by the Government and BusinessNZ and IOE, the Committee requests the Government to provide detailed information on the use and practical implementation of sections 31, 33 and 50J and in particular on any specific cases where genuine reason not to conclude a collective agreement was either found to be present or not and the resulting consequences.

Fair pay agreements. The Committee notes the concerns raised by BusinessNZ and the IOE in relation to the Government’s announced intention to introduce Fair Pay Agreements (FPAs) covering all employees in an industry or occupation. Only unions would be allowed to initiate bargaining for an FPA and they will specify whether it will be industry-based or occupationally based, as well as the scope and coverage. There is no ability for employers to opt out and any disputes will go to compulsory arbitration with no right of appeal against the terms that are fixed. According to BusinessNZ and the IOE, many of the proposed provisions of the FPA process are also physically cumbersome, unworkable and ultimately ineffective. On the initiation of the process, BusinessNZ and the IOE indicate that the union must show that it represents at least 1000 workers or 10 per cent of the workforce or it is in the public interest to have an FPA for that industry or occupation. It is then for the Government to administer the public interest test, thus inserting itself into the FPA bargaining process. Secondly, they note that union density is very low particularly in the private sector where it is around 9 per cent which means that almost any industry or occupation can be forced into bargaining for an FPA by a union that represents a tiny fraction of the workforce to be covered. In their view, this would be contrary to the principle whereby the most representative organizations have primacy of rights to collective bargaining. They further raise concerns about the mode for ratification of an FPA through a simple majority vote of employers and employees, with smaller employers’ votes to be weighted according to the number of employees. Two failed ratification votes however will result in an arbitrated outcome being imposed, without a right of appeal. They consider this contrary to the principle of free and voluntary collective bargaining as well as of the good faith obligations in the domestic law governing collective bargaining generally, while further observing that extensive good faith obligations in the Act will be difficult to meet with respect to ratification. Finally, they refer to a number of statements of the Government which they consider demonstrate the Government’s cognizance that its proposals would not be in compliance with the Convention and maintain that the nature of all of the alleged breaches is so significant that failure to address them risks weakening the ILO core values and integrity of the standards supervisory system.

The Committee notes the Government’s indication that FPAs are the result of a long, considered and inclusive policy process undertaken over several years. The Government indicates that the FPA Bill is expected to be introduced later in 2021, however at this point the legislation is yet to be drafted, tabled in Parliament, and heard by the Select Committee (including the hearing of public submissions), let alone be voted into law and take effect. The Government nevertheless provides context to the FPA system including entrenched weaknesses in the labour market with wages lagging behind increases in labour productivity and low-quality jobs having grown significantly in prevalence. A decentralised and uncoordinated system of collective bargaining has been operating in the country since the 1990s with the result that most employees are not covered in a union or by a collective agreement, with collective bargaining coverage at around 17 per cent for the last two decades, down from around 70 per cent 30 years ago. Most collective bargaining is confined to the enterprise level and most bargaining per se happens between individual employers and individual employees. The Government also indicates that there is increasing evidence of a race to the bottom in some sectors and believes that the current employment regulatory landscape does not promote effective multi-employer or occupational or cross-industry bargaining at levels that might reduce the negative factors of low wages and wage growth, the decoupling of wages from productivity growth, poor labour practices vulnerability, and an over-reliance on statutory minimum conditions as the norm rather than a floor for bargained terms and conditions. The Fair Pay Agreement Working Group recommended an approach to developing an FPA system to create a new bargaining mechanism to set binding minimum terms at the industry or occupation level. According to the Government, these will build on national minimum standards and provide a new floor for enterprise level collective agreements where an FPA has been concluded, thus improving outcomes for employees with low bargaining power. Firms will benefit from better sector-wide co-ordination and dialogue, which should reduce transaction costs and allow parties to capitalise on the potential to address industry or occupation-wide issues and opportunities. The level playing field provided by FPAs will support firms to improve wages and conditions without fear of being undercut on labour costs by competitors and create incentives to increase profitability or market share through increased investment in training, capital and innovation. The Government adds that it is therefore important to note that the policy elements that have been developed to date reflect New Zealand’s particular situation and the factors that have led to it (as noted above) and that the key aim of an FPA system is to drive enduring, transformational system-wide change benefitting workers – in particular those in low paid jobs, or in sectors where there is low or no effective collective representation or bargaining. To embed and support this change requires specific measures to incentivise use of the system and generate effective and wide-reaching outcomes that demonstrate its benefits. In light of the rationale and objectives for FPAs, the Government considers that it is appropriate that only workers, through unions, be able to initiate bargaining for an FPA. As regards the threshold for triggering negotiation, the issues raised by BusinessNZ regarding the generally low level of unionisation in New Zealand actually highlight why this level of threshold is necessary. Employees will be represented in bargaining by registered unions. Unions other than the one that applies to initiate FPA bargaining, will be able to decide whether they want to be a bargaining party to that FPA. Union bargaining parties will also have an obligation to represent non-union members within coverage. The Government further contends that it is not ‘inserting itself into the bargaining process’ as alleged by BusinessNZ – the administration of legislative frameworks for collective bargaining by the competent authority is a common and necessary feature of bargaining systems generally. Nor is the extension of bargaining outcomes to employers and workers not directly involved in the original bargaining a unique feature of FPAs, which will apply to whole sectors or occupations once settled. The Collective Agreements Recommendation, 1951 (No. 91) of the ILO makes explicit provision in its guidance for this. The use of arbitration also needs to be seen against the objective of FPAs of promoting sectoral collective bargaining as a means of addressing the situation of low paid, vulnerable workers and the fact that industrial action by either side will be prohibited within the FPA system. Only if all other reasonable alternatives for settling the dispute have been exhausted or a reasonable time period has elapsed within which the bargaining sides have used their best endeavours to identify and use reasonable alternatives to negotiate and conclude a FPA, and bearing in mind that industrial action is not permitted within the FPA system, will the Authority then be able to proceed to determine the matter. The Government reiterates that, although compulsory arbitration is generally seen as inconsistent with Convention No. 98, it is permissible in specific circumstances as highlighted in the 2012 Committee’s General Survey (paras. 247 and 250), including when, after protracted and fruitless negotiations, it becomes obvious that the deadlock will not be broken without some initiative by the authorities or in its use in first agreements.

The Committee notes the observations of the NZCTU supporting the development of legislation to allow bargaining of industry standard agreements, to be known as Fair Pay Agreements. In its view, the direction indicated by the Government for the development of this legislation gives effect to Article 4 of the Convention by implementing mechanisms appropriate to the country’s national conditions for the negotiation and regulation of terms and conditions at an industry sector level. The Government’s development of the Fair Pay Agreement mechanism has proceeded on the basis of recommendations from a tripartite working group, with the participation of the NZCTU and BusinessNZ and which were developed in the context of New Zealand’s specific national conditions, including the absence of existing effective mechanisms to facilitate industry-level sector bargaining. The Committee further notes the NZEI’s view that there is an urgent need for this system to be developed to address previous lacunae and for education to take place to ensure that both employers and employees understand the potential benefits the system can afford them and are able to engage effectively in the system.

The Committee observes that the FPA system is aimed at promoting collective bargaining, especially for low-paid workers and those in vulnerable situations, where trade union representation has been particularly low and, according to the Government, is based on recommendations emanating from a tripartite working group including the main social partners in the country. While no legislation has apparently yet been drafted, the Committee takes note of a number of concerns that have been raised by BusinessNZ and the IOE and the explanations provided by the Government. As regards the initiation of negotiations, while the Committee observes that it has found over the years a variety of industrial relations systems to be in conformity with the Convention including those that are not based on a system of most representative organizations, the Committee does consider that nothing should impede the possibility of representative employers’ organizations or multiple employers in the industry or occupation to initiate negotiations should they so wish. As regards the concern that any disputes will go to compulsory arbitration with no right of appeal against the terms that are fixed while employers are not able to opt out, the Committee first wishes to recall that compulsory arbitration in the case that the parties have not reached agreement is generally contrary to the principles of collective bargaining. In the Committee’s opinion, compulsory arbitration is only acceptable in certain specific circumstances, namely: (i) in essential services in the strict sense of the term, that is those the interruption of which would endanger the life, personal safety or health of the whole or part of the population; (ii) in the case of disputes in the public service involving public servants engaged in the administration of the State; (iii) when, after protracted and fruitless negotiations, it becomes obvious that the deadlock will not be broken without some initiative by the authorities; or (iv) in the event of an acute crisis. As regards the possibility of employers to opt out, while duly noting the Government’s distinction between an agreement which covers the industry or sector fully at the outset and a collective bargaining agreement between some parties in a given industry or sector and extended through government action to cover the entire sector, the Committee considers that a number of the principles set out in Recommendation No. 91, namely, that the collective agreement covers a number of the employers and workers concerned which is, in the opinion of the competent authority, sufficiently representative bearing in mind the specific conditions, and that the employers and workers to whom the agreement would be made applicable should be given an opportunity to submit their observations, are a sound basis for development of industry-wide agreements. In light of the above, the Committee requests the Government to take the above considerations into account in its drafting of the FPA Bill and requests it to transmit a copy of the proposed provisions as soon as they are drafted.

COVID-19. Finally, the Committee notes the comments of the NZEI concerning the challenges of the COVID-19 pandemic and that, throughout the pandemic response, the Government has consulted with education unions ahead of all advice going out to schools; been responsive to feedback; continued to pay the salaries and wages of school employees and provided additional funding in specific circumstances, such as supporting vaccinations. The Committee further notes the NZEI concerns however that in the early childhood sector, which is largely privately operated, the impact has been much more severe. There is very limited collective agreement coverage in the sector and few other industrial mechanisms for setting out employment terms and conditions for employees, while employers exercise considerable power over decision making with little or no union engagement. The NZEI emphasizes that the COVID-19 response requires a carefully nuanced conversation and unions should be involved. As regards vaccinations, the NZEI indicates that the Ministry of Education has also consulted with education unions on recent advice about vaccination and generally been responsive to feedback. The Government in its reply adds that it is conscious of the need to achieve an appropriate balance of individual rights, workplace health and safety duties and public health objectives and has been consulting with affected sectors and unions – directly and via the peak union body, the NZCTU, throughout the process of policy development.