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'.
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
'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.'
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
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. 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
With regard to union coverage, there have to my knowledge
been only two attempts to initiate changes in union
coverage, 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'.
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.
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. 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.
- 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. 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'.
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
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,
'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.'
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
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
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
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.
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
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.'
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
'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.'
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.
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. 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
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'.
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,
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
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
9. N.Z. Food Processing Chemical Related Union v
ICI Limited, Wellington Labour Court, 98/99.
10. Quoted in The Evening Post, 27 December
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.