Fair Pay Agreement farce rolls on

Dr Bryce Wilkinson
NZ Herald
21 April, 2022

This government is teaching us many things.

One is that it and its supporters have no quarrel with governments that steam-roll radical reforms through parliament. David Lange’s government was fine in that respect, after all.

Two weeks ago, Parliament gave the government’s misnamed Fair Pay Agreements Bill a first reading. No doubt it will be pushed through Parliament this term without material changes.

A better name would be the Trade Union Privilege Bill. Upfront, the Bill removes everyone’s freedom to contract out of its measures. Freedom is not important.

The Bill will empower trade unions to ‘negotiate’ pay and conditions for groups of workers even if 90% disagree.

The 90% can refuse to ratify the terms and conditions to be imposed on them, but only twice. After that the union can take the proposal directly to the Employment Relations Authority. 

The Authority can tick what the union wants (or impose some modified option). To call that an ‘agreement’ is offensive.

The term ‘negotiate’ is also farcical. No large private sector employer groups exist to negotiate with.

To be fair, the Bill does recognise this reality. Its remedy is to require the chief executive of MBIE to appoint a ‘default’ employer bargaining agent.

How is the hapless official to do this? Could the appointee be Imran Khan (newly out of a job), a modern-day Mother Teresa, or a favoured iwi? What would its real incentives be?  

I did not find the answer in the Bill, despite more than two hours of searching.

Lawyers and other lovers of complexity might be disappointed to find that the Bill comprises only 65,376 words of turgid detail, spread over 184 pages broken into 11 parts with 244 sections, followed by four schedules.

The good news for them is that this is merely the beast’s bow wave. The kicker is the superstructure of regulations to follow. MBIE’s useful Departmental Disclosure Statement lists 18 distinct categories of new regulating powers to be put in place.

The second item on this list ended my search. It identifies the need for a regulation to “specify who the employee default bargaining and the employer default bargaining parties are”.  

When will the government tell us how these parties will be assigned? To delay until after the Bill is passed into law would be to treat Parliament and the public with contempt.

Nevertheless, the Bill has enough detail to keep lawyers, the courts, and labour law academics gainfully employed for decades. Complexity breeds complexity.

Who is an employer, and who is a ‘covered worker’? Who defines the boundary between one occupation and another, or one industry or another?

The Bill mentions Māori employers, but who are they? Is The Warehouse a Māori employer?

When is a contractor to be treated as an employee? How can an employer prove purity of intention when hiring a contractor rather than an employee? (The Bill puts the burden of proof on the employer.)

How much weight should be given to regional differences, and what appeal rights are there?

How much weight should be put on the likelihood that workers lose their jobs because an ‘agreement’ imposed on them makes their employment non-viable?

A deep problem is that it suits the trade unions to portray the employment relationship as confrontational -- either workers or employers win. This zero-sum perspective goes back to Karl Marx’s class struggle theory. The unions are the heroes.

The reality is very different. The employment relationship is overwhelmingly win-win, not lose-lose. A business does not exist without willing workers, and workers cannot work if there is no employer.

Both contract for mutual benefit. Neither side is forced to offer the job or to take it. Choice can prevail. It does. The national average staff turnover rate in 2019 was 20%.

The system works astonishingly well in most cases. Statistics New Zealand reported in 2019 that “88 percent of New Zealanders in paid employment were either satisfied or very satisfied with their main job. Eight percent were neither satisfied nor dissatisfied, while 4.3 percent were either dissatisfied or very dissatisfied.” Presumably, the dissatisfied ones were in the process of changing jobs.

MBIE’s regulatory analysis accompanying the Bill makes empty assertions of an imbalance of bargaining power and races to the bottom. The current labour shortage shows how absurd this is. Wage rates respond to supply and demand.

The Wellington Regional Council’s recent debacle over Wellington bus contracts also illustrated this. The successful new contractor hoped to lower wage costs. It did not work. Instead, bus trips were cancelled for a lack of drivers.

It is also absurd to argue that small and medium-sized enterprises have market power. They are important. They comprise 99% of all businesses in New Zealand and employ 43% of the workforce. Typically, they struggle to pay the wages that the largest firms can afford to pay. (Large firms likely wrap more capital around each worker. This lifts productivity.)

If this legislation increases wage rates beyond what small- and medium-sized enterprises (SMEs) can afford, they will have to lay off their least productive workers or cut back on non-wage labour costs. In extreme cases, they will fold.

It is easy to see why the large unions want to ‘negotiate’ with larger employer groups. Neither large firms nor large unions are much affected by the plight of SMEs.

The striking thing about the recent Hansard speeches in support of the Bill is their utter indifference to the plight of the biggest losers from what they propose – the most marginal workers or would-be workers. The Bill would most stump their job opportunities.

The government laments the prevalence of low-paid jobs. Yet, its attitude to the failure of state schools to produce better-educated pupils is clear from its termination of partnership schools.

Perhaps the only good news is that National and ACT have pledged to rescind this gargantuan imposition on worker and employer freedoms when next in power.


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