Public Interest or Vested Interest

Labour Market Developments in New Zealand: Whither Liberalisation?

Dr Penelope Brook


The primary insight in economic policy in New Zealand in the mid-1980s was that the country's poor economic performance was to a great extent the result of the suppression of individual initiative and freedom of contract; that in the vast majority of circumstances governments and their bureaucracies are not so rational, wise and benevolent that they can outperform the market. There was also a recognition that, in terms of equity, the principal effect of pervasive and at times highly innovative intervention in the economy had been to create and protect pockets of privilege among those most adept at 'playing the system'.[1]

The response was a fundamental shift in the way in which government involvement in the economy was viewed. This was described by Roger Douglas in the following way:

    'One of the major philosophical differences in the new Government of 1984 was a change in the understanding of the roles of government and its ministers. The proper role of government is to ensure that the people get the best possible value from the country's limited human, physical and financial resources and to provide the maximum benefit for the whole population, in this case 3.3 million New Zealanders, and not just for favoured sectors of industries. Value for money from our resources and equity---basic fairness for everyone in the community---are the two basic goals of economic policy.'[2]

This role was seen as best fulfilled by a shift away from central planning, 'picking winners' and legislating for particular outcomes (whether through import quotas or price-fixing); from attempting to replace market outcomes with outcomes judged more 'socially desirable'. Instead, the emphasis was to be placed on setting the basic rules required for markets to be able to function, and leaving outcomes to individuals to decide---replacing central planning with planning by individuals.

The central planning mentality was as well entrenched in the labour market as anywhere---even if the fact that what was going on was central planning was somewhat obscured by the delegation of the power to plan to central union and employer organisations. However, in contrast to the reforms introduced in other sectors, the response was not to replace centralist, outcome-oriented policy with basic rules aimed at encouraging individual initiative in employment relationships. Instead, and despite claims to the contrary, the Labour Relations Act of 1987 involved a little tempering and a little streamlining, but has if anything reinforced the collectivist labour relations system first set in place by the passage of the Industrial Conciliation and Arbitration Act in 1894.

The intention of this paper is to review labour relations developments in New Zealand since the passage of the 1987 Act. It begins by sketching developments in the field---changes in union organisation and bargaining arrangements. It then considers the emerging role of the Labour Court in developing new legal precedents in redundancy and 'unjust' dismissal cases. Thirdly, it surveys some legislative initiatives currently being considered by the Government, which if implemented would reinforce central control of labour market relationships. It then concludes with some brief comments on the prospects for moving to a more liberal labour relations system.

The Impact of the Labour Relations Act 1987: Developments on the Ground

The Labour Relations Act has in some quarters been trumpeted as a means to decentralisation of control over employment relationships and increased labour market flexibility. In practice, subsequent developments have been rather less significant than the Act's supporters might have expected.

The degree of competitive pressure faced by unions does not appear to have increased as a result of changes in the mechanisms for electing and enforcing compulsory unionism, and for instituting changes in union coverage. Only a handful of ballots on compulsory unionism have been held under the new regime, with compulsory unionism clauses being retained. Voter turnout in these ballots has typically been low.[3] There is some suggestion that the requirement that unions, rather than employers, enforce membership has led to a decline in membership in small towns, where policing is relatively costly. However, the continuing willingness of employers to deduct union dues from employee pay has probably dampened this decline.

With regard to union coverage, there have to my knowledge been only two attempts to initiate changes in union coverage,[4] both of which have lapsed, and only two new unions have been formed since the Act was passed. The introduction of a 1000-member-minimum rule has, on the other hand, led to the creation of a number of relatively loose affiliations among small existing unions, often with little in common from an economic perspective---the Canterbury flour mill workers have merged with the Furniture Workers' Union; the sports bodies workers and the fish workers with the Allied Liquor Trades Unions; the Northern Fertiliser Workers' Union with the food workers, and:

    'shipwrights, boat builders, ship joiners, ships machinists, iron, brass and aluminium moulders, coach workers, pulp and paper workers (at Kawerau), boilermakers and optical technicians have formed an unwieldy union founded primarily on ideology'.[5]

There have also been some moves towards the creation of 'mega-unions', for example between the Electrical Workers' Union, the Printers' Union and the Post Office Union; and between the Clerical Workers' Association and the Distribution Workers' Association. In 1986, membership of unions with over 10,000 members accounted for 44 percent of the unionised workforce; by late 1989 it accounted for 66 percent.

While the Act was promoted as facilitating bargaining at an enterprise or workplace level, there has in practice been only limited, and hard-won, progress in this direction. Some enterprise-level agreements have been negotiated, notably at Nissan and Mitsubishi. However, composite agreements of this kind were also possible under the pre-1987 legislation. There has been little use of the new provision for unions to cite individual employers out of national awards, so as to negotiate separate agreements. For the most part, this practice has been used only where voluntary separate agreements existed before the Act was passed. Nor has there been much success in using Section 152 of the Act, in which there was some provision for groups of workers to negotiate directly with their employers---in the 1988/89 award round, an attempt by Ventec workers to activate this provision was disallowed by the Labour Court.

Within awards, there have been some attempts to promote changes in working conditions that would enhance productivity, generally in exchange for wage concessions. These have on the whole been more marked in the state than in the private sector, and in particular in the state-owned enterprises---the Electricity Corporation, for example, has developed seven separate agreements for its individual business units, with differing wage adjustments and some significant changes in conditions.[6]

A further, potentially significant development in the 1988/89 round was that some awards were not settled (although individual employers have independently passed on wage increases to workers covered by these awards). This has led to increased union pressure for a return to compulsory arbitration. However, the costs of non-settlement are for the meantime muted, as under the current legislation an award that is not renegotiated continues in existence for a further two years.

There seems to be a number of reasons for the retention of traditional bargaining structures. First, decentralisation is strongly opposed by central union officials, who favour instead a shift to centralised industry-level bargaining. The combination of effective compulsory unionism, barriers to shifts in union coverage and the 1000-member rule strongly limit the potential for worker initiatives for decentralisation. Secondly, this initiative cannot be taken readily by employers, as it is only unions who can cite employers out of existing awards. Thirdly, where there have been attempts to shift towards enterprise-level bargaining, as in the case of Nissan and, more recently, moves to port-by-port agreements on the waterfront, the costs in terms of industrial disruption of making this transition have been high. At least in the short run, it is likely that many employers view these costs as exceeding the benefits to be gained from the transition. Fourthly, there are for some employers few incentives to change, as, among other things, the present system minimises their need to pay attention to their employment relationships, reduces competition for workers, and has in recent rounds delivered wage increases that are low by historical standards. At least in the short run, the award system remains a means by which some union officials and employers can collaborate in protecting their own interests at the expense of workers and other companies.

Developments in the Labour Court

One significant change introduced in the 1987 Act was the separation of the former Arbitration Court into an Arbitration Commission, now primarily concerned with the registration of awards and agreements and related functions, and a Labour Court, charged with adjudicating disputes of right. A number of recent cases suggest that the Court is taking an increasingly activist role in the areas of redundancy and dismissals, establishing a body of precedent intended primarily as 'protective' of workers---rather than of sanctity of awards and agreements. In the process, it has arguably moved well beyond simply enforcing the requirements of the Labour Relations Act.

In the area of redundancy, a number of recent cases suggest that there is now no clear right on the part of employers to transfer staff to a new employer when a company is sold, without the consent of those staff, unless this is specifically provided for in the employment contract. Where there is no such specific provision, workers who refuse to transfer are regarded as technically redundant, and the seller is liable for redundancy compensation. In one case, the seller was held liable for redundancy compensation when the buyer made two workers redundant eight months after purchasing the company.[7] If this case is adopted as a precedent, the effect will be to impose a liability of unknown magnitude on any employer selling his or her business as a going concern.

In another recent case, an employer was taken to the Labour Court for attempting to replace an employee cleaner with cleaning contractors, a change which would have afforded an annual saving of around $5000.[8]

  • The employer claimed that this was a redundancy, necessitated by a downturn in its business. The court, deciding that it was instead an unjust dismissal, claimed that it had insufficient evidence to show that the company was in fact in need of financial restructuring. The implied readiness to interfere with commercial decisions is a cause for considerable concern. (In this case, the company involved apparently had insufficient resources to be able to take the decision to appeal.)

With regard to 'unjust dismissal', a recent decision suggests that in some circumstances nonrenewal of a fixed-term employment contract will be taken to constitute an 'unjust' dismissal, liable to compensation and/or reinstatement.[9] Commenting on his decision, the presiding judge asserted that:

    'the simple fact that a contract had expired was not sufficient reason for not renewing it. There must always be an inquiry into whether the termination of a contract was justifiable, even though the contract was determinable at will and expressed to expire at a fixed date... An employer may not, without good reason, impose a fixed term contract of employment on a worker, and this court is entitled to examine those reasons. If not satisfied by the employer at the very least that the reasons are such as might prevail with a reasonable employer giving due consideration to award obligations, then we are entitled to say that from the start the employer has set the stage for a dismissal which in the end will turn out to be unjustifiable'.[10]

The possible adverse implications for employers seeking to increase the flexibility of employment by relying more extensively on fixed-term contracts, and for workers using these kind of contracts to escape some of the strictures of the labour relations system, are substantial.

The separation of the Labour Court from the Arbitration Commission was arguably a step forward in that it placed adjudication of disputes over the implementation of awards and agreements in what was ostensibly a branch of the normal court system. However, this does not appear to have been translated in the Labour Court into a concern to uphold the law and contracts made according to the law; rather it has taken upon itself a role not unlike that of the earlier Arbitration Court of deciding cases according to its own notions of bargaining power and substantive justice, and of providing a kind of paternalistic running commentary on the relationships of the parties who come before it, rather than testing the legality of their actions.

To summarise, there is a tendency towards increased central oversight of employment relationships, and increased restrictions on contractual terms---implying higher overall costs of employment. Although the decisions of the Labour Court in unjust dismissal and redundancy cases are probably benevolently motivated, their ultimate effects are likely to be quite detrimental to the workers they are ostensibly trying to protect, through decreased choice over employment structures and conditions, and decreased aggregate employment opportunities.

New Legislative Initiatives

Since the passage of the Labour Relations Act, there have been a number of significant proposals for legislation on particular aspects of employment relationships. These include the introduction of an 'employment equity' Bill, proposals for 'industrial democracy' legislation, proposals to bring independent contractors within the purview of the Labour Relations Act, the introduction of a Bill reforming occupational health and safety regulation, the establishment of an employer and state-funded Trade Union Education Authority, and union-government negotiations over the establishment of a 'Compact', with a view to a more coordinated union influence not only over labour market policy but in general policy formation.

In each case, there is a tendency in the direction of more, not less, central government control over the features of employment relationships. This reflects a view that remains common among academic commentators and social policy advisors that more reliance on the market in other areas of economic activity, rather than increasing pressures on employers to upgrade their employment relationships, has made workers more vulnerable. Thus the Royal Commission on Social Policy in 1988, firmly convinced that freedom in labour markets was a euphemism for wage slavery, reported, with approval, that:

    'The free market model is argued by some as not being appropriate for New Zealand conditions. That model is argued to be based on 'Western European values of freedom and individual rights and a belief that active pursuit of these will result in the greatest good for all'... [It is argued that] this approach is monocultural, taking no account of collective values, ignoring existing structural inequalities, and creating greater inequalities. Similarly, ... the free market ethic [is viewed] as resulting in a society which serves the needs of those who command power and financial resources: in New Zealand this group is predominantly white, middle class, middle aged, able-bodied and male'. The Commission is broadly in agreement with these criticisms.'[11]

Late nineteenth century concerns about 'bargaining power' and exploitation, and a belief in the comforts of Fabian Socialism, are clearly alive and well in late twentieth century New Zealand.

I shall concentrate here on two of the recent policy initiatives---the Employment Equity Bill and the 'industrial democracy' proposals.

The Employment Equity Bill

The Employment Equity Bill, providing for mandatory, results-oriented equal employment opportunities programmes (that is, affirmative action) and comparable worth, was introduced late in l989. This was despite widespread opposition from the business community and from government officials concerned about incongruities between the Bill and at least the announced intentions of the Labour Relations Act, and about the likely costs of comparable worth, both fiscally and in terms of unemployment. The Government, however, regards itself as having made a strong electoral commitment to the policy, and the Minister of Women's Affairs has threatened resignation if legislation is not put through.

The key assumptions underlying these proposals are familiar ones: the concentration of women in a limited range of occupations and a gap between the average ages of women and men are seen as reflecting discrimination; discrimination is seen as inherent in market relationships (according to some, markets are little more than a tool of white male oppression), and the only means of countering this 'discrimination' is thought to be the creation of a rational, wise and caring 'gender-neutral' bureaucracy---charged not with uncovering and penalising discriminatory behaviour, but with promoting equal outcomes whether in paid rates or in the distribution of women and cultural minorities across jobs and job hierarchies.

Comparable worth and affirmative action policies have been attempted elsewhere---and have been shown to have significant costs in terms of reduced efficiency and employment opportunities, and a deterioration in equality of opportunity. The problems that they would cause in New Zealand are likely to be of a greater magnitude than in countries such as the United States, because of the nature of our labour relations system. Notions of 'just price', comparable worth and 'fair' relativities are already strongly enshrined in this system, and the market is already substantially squeezed out. (In so far as discrimination is a problem in the New Zealand labour market, it is enshrined not in 'the market' but in the heavily bureaucratic system that has sought to replace it.)

These sorts of policies will harm productivity and workplace equity regardless of how they are implemented. However, the means by which they would be implemented under the New Zealand proposals are an added cause for concern.

The implementation of the proposals would be in the hands of an 'Employment Equity Commissioner', given extensive powers both to set and to enforce policy, given information-gathering powers and rights of entry that would be the envy of the police, and subject to minimal appeal rights. The resulting combination of virtually unlimited power over employers and workers with very limited accountability is completely at odds with attempts in other areas of government activity to separate policy advice from policy implementation, and to increase bureaucratic accountability.

The 'equal employment opportunities' part of the Bill is highly prescriptive (including requiring 'targets'). Detailed programmes are required for a wide range of 'designated groups'---women, Maori, Pacific Islanders, workers with mental or physical disabilities, 'any group of workers who have the same ethnic or national origin', and any other group of workers that the Commissioner cares to designate. It is difficult to conceive of any group that could not be brought within at least one of these designations, but it must be presumed that some means would be found of excluding white, able-bodied men. The Commissioner is given the right to set minimum standards for programmes, and also to require amendments to programmes, both when they are first being prepared and after they have been in force for two or more years---without any right of appeal.

The part of the Bill concerned with comparable worth (under the misnomer 'pay equity') is even more bureaucratic and cumbersome. Simply carrying out a 'pay equity' assessment would require nine distinct procedures and paper mountains. 'Female' occupations would be defined according to almost infinitely flexible Statistics Department categories that in any event bear scant relationship to real job requirements. Women not represented by a union or with a recalcitrant union would effectively have no means of having a claim implemented, as implementation is solely through the existing award system; in other words, there is a strong bias in favour of existing unions. Minimal provision is made for recognising 'economic' factors in assessing and implementing claims---so that disemployment effects are likely to be glossed over. Further, this part of the Bill is directly at odds with the Labour Relations Act, providing for comparable worth claims, based on paid rates of pay, to be fed into award rates, and for access to compulsory arbitration of comparable worth claims.

The 'employment equity' proposals were promoted by their creators as furthering both efficiency and equity. In practice, the proposed legislation is likely to harm both, and at a considerable cost in terms of compliance. And its reassertion of bureaucratic power and centralised decision-making represents a significant step away from the kind of system that would empower workers by broadening their opportunities.

'Industrial Democracy'

In 1989, the Government established a Committee of Inquiry to consider legislation for 'industrial democracy', defined as 'meaningful participation' by workers in the decisions affecting their working lives, at the workplace, enterprise, industry and national level. An important motivation seems to have been an interest in the applicability of the 'corporatist' models of the middle European and Scandinavian countries to the New Zealand system---with 'codetermination' at the company level, industry-wide planning and participation by union officials in economic planning at the national level. (This interpretation was adopted with some enthusiasm by the Council of Trade Unions.) The Committee was constrained by the requirement that its recommendations should conform with the intentions of the Labour Relations Act---when in practice the only effective means to improve workplace relations and the development of participation schemes tailored to workplace circumstances would be substantial reform of the Act.

The report of the Committee of Inquiry was released late in 1989. It recommends (highly prescriptive) legislation for participatory councils to be established within enterprises, a move towards more industry-level consultation, and an expansion of national tripartite initiatives. These recommendations appear to have been taken seriously by the Minister of Labour, who is now contemplating legislation.

Both the quality of the Committee's report and the Minister's willingness to give credence to their recommendations serve to reinforce the concerns about the direction of labour market policy created by the likes of the 'employment equity' initiatives. The Committee's report is a strange mixture of assertions of pragmatism and crude pseudo-marxist ideology, of logical inconsistency and confused empirical reference. It illustrates no understanding that competition in the labour market is not competition between employers and workers but between employers for workers, and between workers for jobs. Its treatment of empirical examples (such as the Swedish system so beloved of advocates of collectivist 'social justice') is confused. And its recommendations are both highly prescriptive (despite expressed admiration for Australian literature insistent on voluntary solutions) and biased in favour of unions at the expense of workers poorly represented by their unions (and of the fervently biased Trade Union Education Authority, of which one of the Committee members is Director).

The one strong impression that the report creates is of a will to legislate, contrary to the Committee's own assertions about the importance of voluntary solutions, and against all evidence that legislation would cause more harm than good. (Its approach is nicely summarised in its own assertion that: 'Our approach is pragmatic. We do not intend to embark on philosophic, academic or broadly principled analyses.'[12]


In each of the cases discussed here, there are real and important concerns to promote the wellbeing of workers---to promote equity in the workplace, and to promote communication and cooperation between workers and employers. The problem rests in the chosen means of approaching these concerns---means that are primarily coercive, and means that rely heavily on the involvement of bureaucrats and elected officials. In much of the rest of economic policy, it has been recognised that government agencies---no matter how well-intentioned and intelligently staffed---face insurmountable information problems when it comes to bettering market outcomes in most spheres of activity. As Hayek has expressed it:

    'At least before the obvious failure of East European socialism, it was widely thought by ... rationalists that a centrally planned economy would deliver not only social justice but also a more efficient use of resources. This notion appears eminently sensible at first glance. But it overlooks the fact that the totality of resources one could employ in such a plan is simply not knowable to anybody and therefore can hardly be centrally controlled.'[13]

This is particularly true in the case of the infinitely variable needs, preferences and circumstances of workers and companies. And the problem is compounded by the fact that, in practice, those given positions of authority in a centralised regime cannot be expected to act solely for the general good. This is a lesson that has been learned only slowly by countries caught up in the romance of collectivism. Apparently it has yet to be learned in the context of labour market regulation in New Zealand.

Concluding Remarks

The Labour Relations Act of 1987 has proved a disappointment in so far as anyone expected it to increase choice and flexibility in employment relationships. This is hardly surprising, in that it maintained statutory protection of a highly hierarchical and centralised system, in which worker interests and the interests of companies in investing in employment are given minimal weight. Subsequent policy proposals have sought a strengthening of this essentially coercive approach to labour market regulation. This is in spite of increasing awareness---including among workers themselves---that the kinds of rigidity and political game-playing perpetuated by this system are harmful to job security and income prospects in an economy trying to adapt to increasing domestic and international competition.

Recently, the Government has begun to speak of the need for some kind of labour market reform aimed at increased flexibility. What would seem most likely is a limited reform package---for example allowing employers to cite themselves out of awards (an initiative currently restricted to unions). Such a move would, of course, be beneficial---but also insufficient as a means of giving workers effective control over their property rights in their labour, and giving employers and workers together full scope to develop contracts that met their mutual interests. There must also be a concern that any such beneficial move would be 'traded off' politically against increased rigidities elsewhere in the system---such as the proposed 'employment equity' legislation, increased emphasis on industry-level bargaining, or a return to compulsory arbitration.

The prospects for real and lasting reform will depend instead on a fundamental change in perceptions of what labour market relationships are really about---a recognition that relative freedom in employment relationships is both economically desirable and essential to the self-worth of workers. And here there is some cause for optimism. Public opinion polls on industrial relations issues, for example, consistently show support for freedom of choice both about whether to join a union and about which union to join. Employment relationships are widely perceived as based on mutual benefit, rather than as adversarial, and there is strong support for the more decentralised bargaining that would foster the pursuit of mutual benefits.[14] The key question now is not whether further reform is required, but how the transition from the present system should be managed.

The labour market is by its nature slow to adjust. Even dramatic reforms would therefore need some time to take effect, at least in terms of those structural changes necessary to strengthen worker choice and union accountability. The most immediate changes in any reform process are likely to occur in companies that are under strong competitive pressure, that have used their present capacity for enhancing productivity and protecting jobs to the absolute limit. For this reason, widespread product market deregulation and a tight monetary policy can be seen as providing an essential backdrop for a relatively speedy transition towards more liberal labour market arrangements. In this regard, the extent of product and finance market liberalisation in New Zealand can be seen as an important determinant of the changes achieved under the Labour Relations Act to date.

Relatively rapid, decisive change in labour market law would seem to offer benefits over more gradual change in terms of the greater certainty it would create for companies in planning employment and related policies, and for workers making decisions about employment and career plans. As such, it could significantly reduce the risks of 'bad' decision-making based on faulty expectations about the extent and direction of future reforms. It would also reduce the risk, typically associated with gradual reforms, that impediments to opportunity would be removed in an unbalanced way so that the burdens of adjustment were unfairly distributed.

The cry of 'political impossibility', Shenfield writes, 'is the bane of good government and good social arrangements'.[15]


    1. This paper draws extensively on the forthcoming book, Liberating Labour: The Case for Reforming Labour Law in New Zealand.

    2. Douglas, R.O. (1989), 'The Ends and the Means', Walker, S. (ed), Rogernomics: Reshaping New Zealand's Economy, Auckland Centre for Independent Studies, at pp.22-23.

    3. For example, the compulsory unionism ballot for farmworkers was decided by a vote of 102 for, 46 against, from a total membership of over 20,000. (This ballot was subsequently disallowed.)

    4. The right to initiate changes in coverage is limited to existing unions. Central union organistions have recorded opposition to use of these provisions.

    5. New Zealand Herald, 27 March 1989, at 9.9.

    6. It should be noted that state sector labour legislation, embodied in the state-owned enterprise reform legislation and the State Sector Act of 1988, is more permissive of desegregation and worker choice than the private sector legislation.

    7. N.Z. Storeworkers, Packers, Warehouse Employees IUOW v Tulloch Road Limited and Mogul Freight Services Limited, Christchurch Labour Court, 62/89.

    8. N.Z. Cleaners, Caretakers etc. Union v Ferrymead Historic Trust, Christchurch Labour Court, 1 December 1989.

    9. N.Z. Food Processing Chemical Related Union v ICI Limited, Wellington Labour Court, 98/99.

    10. Quoted in The Evening Post, 27 December 1989.

    11. Royal Commission on Social Policy (1988), The April Report, 2: Future Directions, Wellington, Royal Commission on Social Policy, at p.512.

    12. Horn, J.R.P., Sissons, L. and Wilks, R. (1989), Report of the Committee of Enquiry into Industrial Democracy, Wellington, at p.26.

    13. Hayek, F.A. (1988), 'Central Planning: The Fatal Conceit', Anderson, A. and Bark, D.L. (eds), Thinking About America: The United States in the 1990s, Stanford, Hoover Institution Press, at p.501.

    14. See, for example, Heylen Research Centre (1987), Public Opinion Survey of Industrial Relations Issues, Wellington, Heylen Research Centre, and Insight New Zealand (1988), Industrial Relations Issues in New Zealand: A Survey of Public Attitudes, Auckland, Insight New Zealand.

    15. Shenfield, A. (1986), What Right to Strike?, London, Institute of Economic Affairs, at p.49.

Why HR Nicholls?