The Slow Erosion of Employment Protection
As I was finishing this piece news came out that Brooke van Veldon, probably the worst Minister for Employment in living memory, has decided to retire from politics. Another blog has helpfully provided a summary of the destruction she managed to wreak in her short period in government.
It would, however, be good to see an unequivocal promise by Labour to reverse the damage she has done during her term in office beginning with a commitment to fully restore the ability bring pay equity claims and the ability to bring fair pay claims. In this post I also suggest that a comprehensive review of the ERA is well overdue.
However, to return to the main theme. One of van Veldon’s last initiatives, the changes to the personal grievance provisions, is the latest in a line of developments that has gradually undermined the protection that should be provided by those provisions.
Dismissal at common law
Before looking at this in more detail it is useful to recall that before 1973 workers enjoyed virtually no employment protection.
When the modern foundation of the employer relationship, the common law contract of service, was developed by the common law judges in the late 19th century the judges sought to ensure the ‘values’ of the older law and those of the Master and Servant Acts were retained. The legal fiction of “equality” between contracting parties and the development of generalised implied terms in the contract of service provided the means to incorporate those values: subordination, fidelity, obedience and insecurity of employment, into the new contractual model.
The model also incorporated the right of an employer to dismiss at will subject only to giving any period of notice stipulated in the contract, often as short as an hour or less.
An employer had no obligation to justify or provide reasons for dismissal – if a woman got married, a worker joined a union or, the employer took some personal snitch against a worker they could be dismissed.
Employment and economic security hung on a very thin thread. For most of New Zealand’s history the difference between a worker having a degree of economic security and penury was the temper of their employer.
Workers of course sought to limit those powers, but until 1973 the only effective means of combatting unjustified dismissals was though industrial action – actual or threatened. This remedy was effective but confined to members of more militant unions employed in relatively large workplaces. The introduction of the personal grievance procedures in 1973 probably owed as much to the level of stoppages following such disputes as any real desire to provide an effective remedy for unjustly treated workers.
Personal grievances: a strong beginning
Unlike most countries the personal grievance procedure introduced in 1973 was not limited to unjustified dismissal but covered a wide range of unjustifiable actions by employers. On its face, personal grievance protection was one of the most far reaching internationally.
Moreover the early decisions of the Arbitration Court and the Labour Court took a liberal approach to what constituted “justification”. The test was broadly neutral as between employer and worker and applied in a broad workplace context taking into account:
… the conduct of the worker; the conduct of the employer; the history of the employment; the nature of the industry and its customs and practices; the terms of the contract (express, incorporated and implied); the terms of any other relevant agreements, and the circumstances of the dismissal. The Court also has regard to good industrial practice which includes some consideration of the moral and social attitudes of the community
The main deficiency of the provisions was their restricted coverage. Prior to 1991 only award covered workers had access to personal grievance provisions (noting that until 1988 separate and more favourable protections applied in the public service).
However, in 1991, to the apoplectic fury of the Business Roundtable which had sought an employment-at-will regime, the right to raise a personal grievance was extended to all employees -from the lowest to the highest paid. That continued to be the case until this year when those earning over $200,000 lost their right to raise a personal grievance in yet another regressive initiative by van Veldon.
In principle the expanded coverage in 1991 could have resulted in a significant degree of employment and economic security being provided for all New Zealand employees. But that was not to be.
The counter- reaction: undermining the basics
Given the hostility to the continuation of personal grievance rights in 1991, and as might be expected, that protection came under immediate attack lead by a reactionary Court of Appeal. Before 1991 the Court of Appeal had been broadly supportive of the Labour Court’s approach but that position rapidly changed.
First, the termination of an employee at the end of a period of rolling fixed term contracts was held not to constitute a “dismissal”. The Court virtually invited employers to adopt such employment as a means of avoiding personal grievances.
Second, the broad, neutral and objective test of justification laid down by the Labour Court in the 1970s and 80s was increasingly narrowed to become an employer focussed subjective test: as long as basic procedural fairness was observed the decision whether to dismiss was seen as one for the judgment of the particular employer, not the courts. Objectivity or neutrality were largely sidelined.
Unfortunately, while the ERA did set the justification as that of an “objective employer” that response was at best lukewarm. No attempt was made to return to the pre-1991 neutral approach which was much better placed to balance the interests and values of bother employers and employees.
Increasing litigation risk
Whether to bring a personal grievance, or how far to proceed with it, is of course largely but not entirely an economic decision (a sense of injustice can also be very powerful). That requires assessing the probability of success and the benefit potentially gained against the cost of failing.
A stark example of the impact of changing that balance was seen when the UK government increased the filing fees for unfair dismissal cases to a value more or less equivalent to the amount awarded in successful cases. Unfair dismissal claims plummeted overnight.
Since 1991 litigation risk for New Zealand employees has increased significantly: to list just a few factors:
· The employer-focussed standard of justification lowers the probability of an employee being successful in their claim;
· The more formalised and legalistic processes introduced in 1991 have significantly increased costs both in time and in the cost of legal representation. Going beyond mediation is unlikely to be economic in the great majority of cases especially if an adverse costs award is made.
· It should also be noted that an employee must meet all costs out of their net income and that if they cannot be met bankruptcy is a possibility. Employee costs are not tax-deductible (although an award favouring an employee may be taxable).
· The cost and likelihood of recovering an award even if successful may make the win more illusory than real. It is far too easy for small employers to declare insolvency and hide beyond the corporate veil.
The recent amendments increase litigation risk significantly by lowering the amount that may be awarded to a successful employee claimant. “Contribution” or “serios misconduct” reduce and may prevent granting of the remedies available. The extent to which this will happen in practice has yet to be determined by the courts but the risk could be substantial. “Serious misconduct” is a very flexible term, one derived from a common law attitude that saw any elements of insubordination, breach of fidelity, or disobedience by a “servant” as serious’.
The extent to which the courts view the reforms as a direction to significantly reduce remedies is yet to be seen but a reversion to common law attitudes to employment and employees would be highly detrimental.
Time to review the ER Act?
Labour’s 2000 ERA was a lukewarm attempt to take the rough edges off the neoliberal ECA. I have often described the ERA as “the ECA with a happy face”.
And to be fair some of the changes were transformative – in particular the concept of “good faith” which runs through the Act as a whole and which, together with the notion of an “employment relationship”, is slowly reshaping the ethos of labour law for the better.
However the reforms did little to promote union member and collective bargaining – and thus promoting self-help solutions to problems of pay and conditions.
And they did little to enhance employment security.
That, and many other problems, suggest that a rethinking of the underlying legislation is long overdue.