The National Government was elected in 1990, in part, on the strength of its promise to change two fundamental areas that Labour had not been prepared to alter. These were the labour market and the social security system.
Within days of taking office, the new Minister of Labour promised early labour market reform. The Employment Contracts Act became law on 15 May, 1991.
The Act was exactly what had been promised: a radical revision of the labour laws and procedures that had stood (more or less) in New Zealand for 90 years. An extremely controversial piece of legislation, it drew passionate debate from all the protagonists in the employment relationship throughout its nine-year life. One reason for this was that the Employment Contracts Act wasn’t just a response to practical difficulties that were faced in the workplace. It was also driven by a particular ideology about the way in which the labour market ought to operate.
The Labour Relations Act 1987 had tried to encourage freer bargaining in the workplace by giving workers the option of opting out of the national awards system in favour of developing localised employment agreements with specific employers. It is debatable whether this succeeded.
The right to ‘cite out’ of an award was given only to unions. If they chose not to, both unions and employers remained bound by the awards system. And unions were not especially keen to leave the security of the award system. One reason for this was unions’ concern for their long-term survival if the system of wage negotiation became too decentralised. In 1990, the vast majority of employers were still bound by the national awards system and were becoming frustrated by their lack of options.
New economic theories about the way the labour market operates were gaining momentum. In particular, a number of ideas came out of the United States from what has become known as the ‘ Chicago School ’. This is a reference not only to the University of Chicago , but also to a number of leading economists whose theories supported the views coming from that institution.
The philosophical debate that surrounded the Employment Contracts Act included arguments from the Chicago School. Traditional views of employment relations have been founded on the premise that workers and employers do not have an equal bargaining position. Workers are perceived as being weaker than employers and vulnerable to exploitation. Accordingly, governments intervene in the employment relationship in order to redress this imbalance and ensure minimum standards and conditions within the workplace. There is an assumption that the objectives of employers and workers are in conflict.
The Chicago School did not agree that the employment relationship is inherently unequal. They believed governments should regard the relationship as a private contract between two citizens capable of transacting their own terms and conditions to best suit themselves. They saw workers’ and employers’ objectives as essentially compatible, and state intervention as patronising, compounding conditions of unemployment by keeping minimum standards of work too high and discouraging employers from employing workers. Within this context, the intervention of trade unions is also seen as compromising. Their solution was for governments to back out of the employment relationship and leave the parties to make whatever arrangements best suited them. They believed the influence of trade unions should be minimised, and the labour market completely deregulated.
In New Zealand , this economic theory was popular with the Business Roundtable and other employer groups who pressured the government and made submissions to the select committee considering the terms of the Employment Contracts Bill. It found favour with the New Zealand Employers’ Federation, a group that had influence within the National Party. The Chicago School ’s theory formed the philosophical basis of the Employment Contracts Act.
The Council of Trade Unions (CTU), on the other hand, argued that the new legislation upset everything achieved in New Zealand industrial relations in the past 100 years. The CTU feared an economy based on exploitation, the isolation of vulnerable groups of workers, and instability in working relationships. It argued that basic civil rights and standards of social decency were not met, and that the new law failed to recognise that unions had a legitimate role in the employment relationship.
The Employment Contracts Act 1991 favoured the views put forward by the employers’ groups and signalled a dramatic shift away from state intervention. It dealt a significant blow to the union movement, which was not well equipped to cope with the shift away from centralised negotiations.
Parties retained the right to go to voluntary arbitration if agreed. There was provision for a two-tier dispute resolution process. The Act established the Employment Tribunal and the Employment Court , conceding that employment disputes cannot always be settled between the parties. Under the terms of the Act, either party could take a dispute to the Tribunal and, failing effective mediation there, to the Employment Court. The court’s decisions were legally binding.
This radical departure from the previous system of labour relations included the provision for every employee to choose whether or not they wished to belong to a union. Unions lost any special rights or privileges to negotiate on behalf of workers. Unions remained the primary bargaining agents for large-scale collective contracts, but by far the majority of individual employment contracts were negotiated directly between employer and employee without any third-party assistance.
The Act distinguished between collective employment contracts, entered into by one or more employers with two or more employees, and individual employment contracts entered into directly between one employer and one employee.
Bargaining agents (not necessarily unions) could negotiate collective contracts on behalf of groups of workers, but the contracts did not take effect until the workers concerned endorsed the agreement by countersigning them. Collective contracts had to be in writing and specify a fixed expiry date.
Collective contracts dominated large-scale industries. Contracts moved quite rapidly away from the old occupational class negotiations, where several different contracts would prevail in one workplace, to new industry-based contracts, where one contract applied to all the employees in a given business or industry. In response, unions had to shift their own focus and become more responsive to the demands of whole organisations, rather than the particular needs of certain groups within them. This led to the dominance of a few key unions and the gradual decline of many smaller, less effective unions.
Individual employment contracts were more common among white-collar workers and in smaller businesses. The majority of these were negotiated directly between the parties themselves. Individual contracts did not have to comply with the same formalities as collective contracts. They could be made orally or in writing and they did not have to specify an expiry date.
The Act provided for a centralised system of dispute resolution. Employers and employees could resolve their differences within the Employment Tribunal and the Employment Court. The Act set out a grievance procedure to apply in the absence of anything agreed between the parties and for different types of grievances. These included unjustified dismissal and unjustifiable disadvantage, unlawful discrimination, sexual harassment and the duress of making employment conditional on membership or non-membership of a union.
The remedies available through the tribunal process included reimbursement of wages lost as a result of the grievance and reinstatement to the same or a similar position. Another remedy was payment of compensation for loss of dignity, injury to feelings and humiliation.
The history of ill-will that often went with cases before the Employment Tribunal meant that reinstatement was seldom a realistic option. Awards by the tribunal and the court were almost always financial.
The Employment Contracts Act recognised the legitimacy of using direct action such as strikes and lockouts in negotiating employment contracts. However, it was unlawful to take direct action where other avenues for addressing the difference were still available. Strikes and lockouts were forbidden if a collective employment contract was still current, or if the grievance procedure was available.
Although the state was distancing itself from the employment relationship, other legislation guaranteed minimum conditions of employment such as holidays and breaks, and continued to offer some protection to the most vulnerable workers.
In 1919, the International Labour Organisation was formed as a conglomerate of workers, employers and governments. It examines working conditions throughout the world, and issues conventions for employment relationship conditions which member countries incorporate into their internal laws. New Zealand has been a member of the ILO since its foundation and has mostly incorporated these conventions into law with little controversy.
There are two notable exceptions. Convention 87 requires member countries to guarantee workers the right to freedom of association and the right to organise. In addition, Convention 98 provides for the right of workers to belong to independent unions and to organise. The Employment Contracts Act provided for freedom of association, which it defined as being the right of workers to choose whether or not to belong to a union. It did not provide for the right to organise or for the recognition of unions.
