Photo: Angus Dreaver/ RNZ
Note: For a shorter rundown of the Bill, check out our explainers on Instagram and Facebook.
Minister Brooke van Velden’s Employment Relations Amendment Bill has passed its first reading. It proposes sweeping changes to the Employment Relations Act which threaten some of the most fundamental rights of workers in New Zealand.
The Bill is incredibly imbalanced in favour of employers and designed to heighten imbalances of power that already structurally benefit bosses, while stripping workers of protections and rights that may address and remedy these imbalances.
There are six parts to this Bill:
- The first part amends s 6 of the Act and defines a statutory class of worker, the ‘specified contractor’, and provides that this new category of worker will be shut out of employment protections.
- The second part dismantles the effectiveness of personal grievance mechanisms.
- The third part introduces ‘fire at will’ for workers above a wage and salary threshold (set at $180,000 per year).
- The fourth part of the Bill removes the 30-day rule along with any statutory obligations for employers to facilitate the active choice of workers to join a union.
- The fifth part of the Bill expands the effect of 90-day trail periods.
- And the sixth part of the Bill amends s 103A and weakens the statutory ‘test of justification’ which protects employees from unjustifiable actions and dismissal.
On this page:
- Changes to contractor law
- An ineffective personal grievance system
- A wage/salary threshold for ‘fire at will’
- 30-day rule
- 90-day trial periods
- Unjustified dismissal
- Conclusion
Changes to contractor law
Clause 4 of the Bill amends s 6 of the principal Act to create a new class of worker, the ‘specified contractor’.
A new s 6(1)(d) of the Act states that the meaning of ‘employee’ under the Act will exclude workers who are deemed ‘specified contractors.’
According to the new s 6(7), proposed by the Bill, a ‘specified contractor’ will be:
a natural person (person A) who has entered into an arrangement to perform work for another person (person B), and—
a. that arrangement includes a written agreement that specifies that person A is an independent contractor; and
b. person A is not restricted from performing work for any other person, except while performing work for person B; and
c. either—
i. person A is not required to perform, or be available to perform, work for person B at a specified time or on a specified day or for a minimum period; or
ii. person A is allowed to sub-contract the work for person B to another person (who may be required to undergo vetting by person B to ensure compliance with any relevant statutory requirements before being sub-contracted by person A); and
d. the arrangement does not terminate if person A declines any work offered to them by person B that is additional to the work that person A agreed to perform under the arrangement; and
e. person A had a reasonable opportunity to seek independent advice before entering into the arrangement.
In other words, s 6(7) describes a new category of worker in New Zealand.
While traditionally the Employment Relations Act and the common law have recognised 2 distinct categories of workers (employees and genuinely independent contractors), this Bill introduces a new category, where a worker may have all the features of an employee, in terms of being controlled and integrated into a controlling employer’s business, but still be deemed a contractor if it meets the new, s 6(7) test.
One aspect of the s 6(7) test is that it makes it possible for a contractual label to determine whether a person is a contractor or an employee. For example, the criteria under the test for specified employer requires that written agreement merely state that a person is an independent contractor and lets this statement stand alone. Usually, the Authority or the court may look pass the label to the qualitative substance of a work relationship, meaning that you cannot simply make an employee a contractor by just saying so.
This test does not require the Authority or the court to look beyond a written label and gives a stronger party in the agreement a tremendous degree of power to impose a contractor status on a worker who would otherwise be an employee.
There are other criteria aside from looking at the superficial label affixed to a relationship in a written agreement. For example, a specified contractor must be able to subcontract (in accordance with s 6(7) (c)(i) or (ii). However, this requirement is another example of where a mere statement in a written agreement is taken as determinative, with no regard to whether sub-contracting is viable, practical, or in any way realistic.
The test for ‘specified contractors’ also requires that a worker must be free to work for other people (when they are not working for the engager) and that the relationship between worker and engager is not terminated simply because the worker turns down a specific request for work. However, these requirements in the context of the provision do not ensure that only genuinely independent contractors are captured by this new category. In fact, the most vulnerable and precarious employees in the country will fit these requirements, as low-income earning casual employees frequently hold multiple jobs to make ends meet.
The tests reliance on superficial labels will make it easier to misclassify workers who are genuinely employees as contractors. Misclassification is recognised as a serious problem in certain industries, especially where workers are vulnerable, not unionised, and have weak bargaining power. Misclassification is a door to exploitation of these workers as it means that these workers can be kept from the rights and protections provided by law to employees. These include rights to sick leave, paid holidays, minimum wage and collective bargaining mechanisms.
Yet this Bill offers no protection against misclassification and the exploitation that comes along with it. In fact, the Bill embeds misclassification by allowing thousands of workers who are ‘in reality’ employees, to be branded as ‘independent contractors’, even if they are controlled by their bosses in the same way as employees.
The Bill says that a worker signing these contracts must have a ‘reasonable opportunity’ to seek independent legal advice before entering the arrangement.
However, this does not place any obligation on an employer to bargain with the worker and will bolster employers who seek to impose these types of classifications on workers on a ‘take it or leave it basis’.
While the drafters of the Bill claim that the amendments therein will give greater weight to the intention of the parties, this cannot be taken seriously. The Authority and the courts already give weight to contractual intention but also recognise that artificial labels do not determine the real nature of a relationship.
The Bill does not scrap the real nature test outright. It remains undisturbed in the Act. However, these amendments place a trapdoor in front of that test that is designed to catch the most vulnerable, most precarious workers in the country and bar them from accessing their rights.
An ineffective personal grievance system
The second tranche of amendments to the Act will make it impossible for employees to obtain remedies for valid personal grievances.
New sections 123A (4A), and 123B require the Authority or the court to not provide any remedies where an action of an employee contributed to the situation giving rise to a personal grievance if that contribution amounts to serious misconduct.
The Authority and the court do not reward serious misconduct. Workers who pursue personal grievances for actions taken by their employers regularly lose their cases, if the employer acted fairly and reasonably in response to serious misconduct (or misconduct).
Moreover, even where an employee is successful in establishing a valid personal grievance in the Authority or the court, s 124 of the Act allows for the Authority or the court to make proportional deductions from any remedies where the employees conduct contributed to the situation that led to the grievance.
The new section 123C of the Bill goes further and removes the right to reinstatement, and the right to gain compensation where any degree of contribution is found, no matter how minor that contribution may be.
These changes strip employees of remedy entitlements and dismantle the effectiveness of the personal grievance system. Reductions to personal grievance remedies are already allowed and frequently occur. However, they must be proportional to the degree of contributory behaviour. This is essential to preserve basic justice as the remedies being reduced are entitlements arising from a worker having proven unjustifiable and unlawful treatment at the hands of an employer.
The Bill’s explanatory note claims that these changes will ‘re-tilt’ the balance between employer and employee interests. It achieves this by taking away the fundamental rights of working people. A complete removal of entitlement to remedies, without any ability to consider context or apply proportionality, is designed to leave workers exposed to imbalances and abuses of power.
For employees, a personal grievance is the only mechanism available for resolving an employment relationship problem against an employer, who can use a variety of tactics to punish and control their workers. Where personal grievances are raised, employers and legal institutions should have the merits of the grievance claim as the primary focus. These changes will put the focus squarely on the worker and will encourage employers, not to take grievances seriously, but to scrutinise employees for anything that can be construed as contribution so that responsibility for poor treatment can be avoided.
These amendments will have a crushing impact on good faith in a legal jurisdiction that deals with (often complex) human relationships.
A wage/salary threshold for ‘fire at will’
Employers are not free to dismiss workers at a whim. Decisions to sack workers must be procedurally and substantively justified.
Also, employers must comply with ‘good faith’ obligations outlined in the Act, meaning that before a decision to dismiss is reached, the employer must provide the employee with reasons and information about the proposed dismissal, giving the worker a reasonable opportunity to comment on that reasoning and change the employer’s mind.
The idea of ‘at will’ dismissal, where an employer can sack a worker for no reason, is deeply inconsistent with the basic principles of justice expressed in our employment law. Yet, this Bill introduces a ‘fire at will’ for any employee who meets a ‘specified wages and salary threshold’ , that will be outlined in the new s 113B of the principal Act.
The Act comprehensively removes statutory protection against unjustifiable dismissal in several ways.
Firstly, the new s 67I removes any obligation on employers to comply with the good faith obligations outlined at s 4(1A) (c) of the Act, meaning that employers are no longer required to provide affected workers reasons, evidence, or information about a decision to terminate an employment relationship, before the decision is finalised.
This new provision will also release employers from any obligation to comply with a request from a dismissed employee (under s 120 of the Act) for their former employer to provide them with a written statement outlining their reasons for firing the worker.
Workers will no longer have a right to comment on an employer’s reasoning for dismissal and employers may predetermine a decision to dismiss a worker without hearing their side of the story. And after being sacked under these new laws, they will have no way of getting information about the reasons for the employer’s decision to dismiss them.
The Bill will also remove the need for employers to justify any action taken with respect to dismissal. The proposed sections 113A (2)(a)&(b) will mean that employees who meet the salary threshold will not be able to raise a claim for unjustifiable dismissal, or unjustifiable disadvantage in connection with the dismissal.
These changes will leave impacted workers completely vulnerable to unfair treatment and abuse of power. Even though these employees may still raise claims that do not relate to dismissal, the overarching power of employers to dismiss at any time, without giving reasons, will have a crushing impact on the ability of workers to freely exercise their rights without fear of employer retaliation.
The wage threshold that determines which workers will be impacted by these amendments is set at the proposed s 113B and will be initially set at $180,000, meaning all workers who meet or exceed this salary or wage figure will be vulnerable to ‘at will’ dismissal. For workers who are affected by the threshold, but who are under current employment agreements, these ‘fire at will’ provisions will not apply for a period of 12 months following the date on which the Bill comes into force (see the new Part 8 inserted into Schedule 1AA of the Act).
The policy justification for stripping away the ability to challenge unjustifiable dismissals for workers who meet a specified threshold is that those impacted workers are ‘high-income’ earning and are presumed to have greater bargaining power.
Indeed, the Bill allows for employees and employers to agree that the provisions at new ss 67I and 113A do not apply.
However, the assertion that the affected workers are stronger in relation to their employers is unfounded.
Not only is the income threshold set at an arbitrary rate, but it also ignores the fact that many so-called ‘high income’ earning employees still face a real imbalance of power that favours the employer. Unionised workplaces often have higher than average incomes, but these ‘high incomes’ do not reflect the strength of individual workers, but collective strength expressed through union led bargaining.
In Australia, some high-income earning employees are restricted in their ability to use statutory mechanisms to challenge unjustifiable terminations. However, that law does not apply to unionised workers who gained their pay rates and conditions through collective strength, not individual strength.
In contrast to the Australian law, this Bill offers no protection to pay rates and conditions that have been won through collective bargaining power. Instead, this Bill will undermine the collective strength that many New Zealand workers have relied on to obtain fair terms by exposing unionised workers for unjust dismissals where they engage in lawful union activities that may displease their employers.
30-day rule and undermining active choice
The Bill scraps the ’30-day rule’ in s 62 of the Act, meaning that ‘new starts’ in worksites covered by collective agreements will not be automatically covered by collective terms for the first 30-days of their employment.
The 30-day rule is consistent with one of the core purposes of the principal Act, that is to ‘promote collective bargaining’ (s 3(a)(iii)). In fact, the 30-day rule is a key provision in the Act for promoting this statutory purpose.
The Bill will replace the existing s 62 with a new provision that requires an employer to inform a new worker of the existence of a collective, state that the union party may be joined by the worker, inform the worker how to contact that union, and explain that upon joining a union, an employee will be bound by a collective agreement.
Where multiple collective agreements with different unions cover the new employee’s work, the notification obligations only apply to the union with the most members employed by the employer, and an additional obligation for the employer to inform the worker of the existence of another agreement (or agreement) applies.
The new provision takes away a new employee’s ability to directly experience collective terms and requires that an employer only provide a copy of the collective agreement. It also gives employers an opportunity to actively seek an employee’s agreement to enter into individual terms, which may be inconsistent with collective terms (the Bill would require employers to, with the worker’s consent, notify the union ‘as soon as practicable’ that the employee has entered into an individual agreement with the employer).
The Bill will also repeal s 62A, that requires employers to share information share new employee information with union unless employee objects. The repeal will take away a vital source of information for unions who seek to connect with new employees on collectivised worksites and provide first hand explanations as to the role of unions as agents of collective bargaining and worker representation. Section 62A also obliges employees to provide new employees with ‘active choice forms’ that are designed to facilitate an employee’s ability to genuinely and freely choose to join a union on their worksite.
Altogether, the amendments in this part of the Bill flip the statutory purpose of promoting collective bargaining on its head.
Instead of having substantive provisions that promote collective bargaining (in accordance with the Act’s stated legislative purpose) the Bill will transform the Employment Relations Act into an instrument that promotes individual terms over collective ones.
Though this tranche of amendments is labelled as ‘relating to collective agreements and new or prospective employees’, this is somewhat misleading. One of the provisions repealed under this part of the Bill is s 63A, which (apart from s 63A(1)(c)) does not relate to collective agreements or new employees in collectivised worksites.
Instead, s 63A largely provides general obligations on employers who are seeking to establish individual employment terms with their employees, to ensure that bargaining is genuine and that workers have reasonable opportunities to understand terms put to them, seek independent advice, and participate in the formation of the individual agreement.
It is unclear why these general obligations have been removed. However, this repeal adds to the overall effect of this part of the Bill, that is to undermine collective bargaining while empowering employers to impose, as unilaterally as possible, individual terms and conditions on their new employees.
90-day trial periods
This amendment is designed to ensure that employees cannot raise personal grievances for disadvantage caused by an employer’s unjustifiable action, where those actions relate to a dismissal under a 90-day trial period.
90-day trial periods already impose harsh restrictions on the rights of new employees to challenge unjustifiable dismissals.
However, employers who breached their obligations in the context of the employment relationship, including taking actions that damaged the employment relationship, or spurred a dismissal during a 90-day trial period, could still be held accountable for that bad treatment, even if the dismissal itself could not be challenged.
This Bill ensures that not only can employers protect themselves from accountability for unjustifiable dismissal under a 90-day trial period, but they can also poorly treat a worker, if they can connect that bad behaviour with the dismissal of the worker.
This amendment can be contrasted with the policy intention behind other parts of the Bill, where remedies for successful grievance are removed to ‘strengthen the consideration of and accountability for the employee’s behaviour’. In this part of the same amendment Bill employers who contribute to situations where an employee is dismissed, by acting unjustifiably and causing disadvantage to the employee, can be completed shielded from accountability.
Unjustified dismissal: Weakening the ‘test of justification’
The amendment Bill adds another element to the mandatory considerations that the Authority or the court must consider in applying the statutory ‘test for justification’. This test is established at s 103A of the principal Act and provides that an employer’s actions are justifiable if –
‘…employer’s actions, and how the employer acted, were what a fair and reasonable employer could have done in all the circumstances at the time the dismissal or action occurred’.
Subsection (3) of that provision provides a list of matters that the Authority or the court must consider when applying the test. The amendment Bill will add the requirement that the Authority or court must consider ‘obstructed’ the employer from behaving in a manner consistent with the broader test.
Employee actions are already considered when determining whether an employer fulfilled its obligations under the test of justification. This amendment seeks to change the nature of the test, from being one that can assess the behaviour of an employer in all relevant circumstances, to one that provides an opportunity for employers to point to employee behaviour to escape accountability for bad behaviour.
While this amendment is not clear, it does align with a broader policy that is expressed in this Bill, whereby employer accountability is minimised (or removed) while worker responsibility and vulnerability is heightened.
The Bill also removes any obligation on employers to avoid major procedural defects in employment processes, if these defects did not result in the employee being treated ‘unfairly’.
Section 103A (5) of the Act already provides that minor defects in an employer’s processes will not make an employer’s actions unjustifiable, if those defects do not result in the worker being treated unfairly.
Procedural fairness is essential in ensuring fair employment outcomes. They must, at the very least, be sufficient to give a worker a reasonable opportunity to be heard over matters that impact them at work.
Encouraging employers to view major procedural defects as excusable will result in more unfair outcomes for employers.
Conclusion
The Employment Relations Amendment Bill poses a tremendous threat to working people. Despite the government’s comments, this Bill as nothing to do with balance.
Far from addressing and remedying the inherent power imbalances that disadvantage workers in employment, this Bill seeks to entrench those power balances by undermining worker rights and protections on several fronts. At the same time, the amendments will promote an employment culture where employers are not accountable for bad behaviour.
This Bill must be opposed in its entirety. The passing of this Bill into law will inflict harm and undermine constructive industrial relations.