Proposal to amend the Employment Relations Act 2000 and related work Office of the Minister of Labour - Cabinet Business Committee

Transcription

1 to amend the Employment Relations Act 2000 and related work Office of the Minister of Labour - Cabinet Business Committee 1. This paper seeks your agreement to amend the Employment Relations Act 2000 (the Act) to provide more flexibility, greater choice and ensure a balance of fairness for both employers and employees, whilst improving its functionality and effectiveness. I have reviewed the parts of the Act relating to the personal grievance system, the employment institutions, labour inspector enforcement powers, union access and communications during bargaining. Following this review, I have identified improvements to provide more clarity, guidance and accountability; reduce delays in the system and resolve problems earlier; improve fairness; and restore the confidence of all parties in the systems. 2. If you agree to the recommendations, this paper also seeks your agreement that the Department of Labour (the Department) provide drafting instructions to the Parliamentary Counsel Office for an Employment Relations Amendment Bill ("the Bill") to give effect to the recommendations. 3. I am also seeking agreement that I may determine any minor and/or technical decisions that might arise in the course of drafting any such Bill, provided these decisions are consistent with the policy intention of the Bill as agreed by you. Executive summary 4. I am seeking to amend the Act to: a. increase choice and flexibility for employers and employees b. ensure the balance of fairness in the legislation is appropriate for all parties c. reduce direct and indirect costs and unnecessary regulation d. improve the operation, efficiency and effectiveness of the legislation e. increase employers' confidence in the systems by addressing some perceptions about its operation f. support improvements in workplace productivity. 5. I have reviewed specific parts of the Act, rather than the Act as a whole. This review forms part of the Government's Regulatory Review Programme. I undertook reviews of the provisions relating to personal grievances (Part 9 of the Act) and, as part of the 2008 election manifesto commitments, employment institutions (Part 10 of the Act) and union access to workplaces. The remaining matters in relation to labour inspector enforcement powers and communications during bargaining are areas of concern that have been brought to my attention as Minister of Labour. 6. The review of specific parts of the Act identified that some aspects of the Act are unclear and lacking in flexibility and fairness to all parties. Improvements can be made to respond to these problems by providing more clarity, guidance and additional assistance at an early stage, thereby reducing the need for judicial intervention; enhancing the systems and the operation of the employment institutions that support the Act; reducing delays in the system; and improving the balance of fairness in the legislation. 7. I anticipate the overall impact of these changes will include problems being resolved more quickly; reduced costs; more direct employer and employee engagement; more efficient, effective and flexible processes that restore the confidence of all parties in the systems; and, if the changes are effective in achieving their objectives, an improvement in workplace productivity. 8. The changes I am seeking are consistent with the primary objects of the Act and with the objects of the relevant individual parts of the Act. They are also consistent with the objectives set out in paragraph 4 above. 9. Appendix 1 details the 27 proposals outlined in this paper. The Appendix sets out the proposal, the problem, and an assessment of the proposal in each case. An A3 summary of my programme of reform is attached to this paper for ease of reference.

2 Personal grievances (Part 9 of the Act) 10. Part 9 of the Act provides procedures and mechanisms for resolving personal grievances and employment relationship problems between employers and employees. It also establishes the principles underpinning the employment relationship problem resolution system. 11. Submissions received at the end of March this year on the personal grievance system indicate that there is not broad support for radical change. Research conducted by the Department indicates that major changes are not required, but that some change is desirable. 12. Improvements can be made to clarify some areas about which there is uncertainty; help effect prompt and effective resolution of employment relationship problems; reduce delays and compliance costs; and, enhance productivity. Employment institutions (Part 10 of the Act) 13. Part 10 of the Act provides for a problem resolution system focussed on supporting employers and employees to resolve employment relationship problems and, where possible, preserve employment relationships. The 'system' establishes a number of institutions for dealing with problems that have not been resolved directly by the parties themselves: labour inspectors, mediation services, the Employment Relations Authority (the Authority), and the Employment Court. Improvements can be made to clarify the role of the Authority in relation to the Employment Court, improve the accountability of the Authority, and provide more powers for the Authority to refer cases to the Employment Court. Labour inspector enforcement powers 14. The Act establishes statutory powers of enforcement for labour inspectors. I propose that these enforcement powers be strengthened to improve overall compliance and fairness for both employers and employees. This will widen the role of labour inspectors from a narrow complaints focus to enable a more pro-active approach to achieving compliance. Union matters Union access 15. This proposal implements the change signalled in the National Party 2008 election manifesto, that is, to retain the ability of a union official to access a workplace, provided that they gain the permission of the employer (such permission may not be unreasonably withheld). 16. The National Party's 2008 election manifesto also signalled policy intentions with respect to the opening of collective bargaining to non-union groups. I am presently considering advice I have received from officials on this matter. Communications during bargaining 17. Currently the Act sets out the good faith obligations of parties during bargaining, including that they must not bargain (directly or indirectly) with people for whom a representative is acting, unless otherwise agreed. Employers tell me they are unable to communicate with their staff during collective bargaining. This is not the intent of the Act, and I therefore propose that the legislation be amended to specify that communication by an employer with their staff is permitted during bargaining, as long as such communications comply with the duty of good faith. Context My approach to reforming labour legislation 18. The reviews of Parts 9 and 10 of the Act form part of the Government's Regulatory Review Programme in support of better regulation and less regulation. The proposals align with the Government's objectives of identifying and removing requirements that are unnecessary, ineffective or excessively costly, and reducing regulatory and compliance demands that impede productivity growth. 19. Since the 1980s, labour law has undergone radical changes. This Government came to office with an express commitment to make discrete changes within the existing framework to improve and enhance the functioning and effectiveness of the Act in line with the objectives stated above (paragraph 4). The proposals continue to support the

3 objects set out in section 3 of the Act, that is, to build productive employment relationships through the promotion of good faith by protecting the integrity of individual choice and promoting mediation as the primary problem solving mechanism. Findings from the reviews 20. The reviews [1] identified that some parts of the Act are unclear for both employers and employees and lack flexibility for businesses. There are perceptions of bias and, for employers in particular, concerns and uncertainties around participating in the problem resolution systems. 21. A lack of clarity in employment relations provisions has a negative impact on employment relationships and the efficiency of the labour market because employers and employees have to divert resources towards trying to establish what their rights and obligations are. Misleading perceptions are also important to counter as they influence parties' decisions around how to respond to an employment relationship problem. Personal grievances, disputes, and enforcement (Part 9 of the Act) proposals 22. Part 9 of the Act outlines the principles underpinning the employment relationship problem resolution system. This includes recognition that access to information and mediation services is more important than adherence to rigid, formal procedures; and, recognition that problems are more likely to be resolved quickly and successfully if they are first raised and discussed by the parties to the relationship. 23. Part 9 also outlines the procedures and mechanisms for resolving personal grievances and employment relationship problems. The "employment relationship problem resolution system" refers to all possible methods for resolving employment relationship problems (such as personal grievances) from resolution by the parties themselves, through to recourse to mediation, the Authority, or the Employment Court ("the employment institutions"). The review of the personal grievance system 24. I directed the Department to conduct a review of the personal grievance system and to provide a report to me on the findings and options for addressing any problems, including whether any amendments to the legislation are necessary or desirable. 25. The submissions (and other research) indicate that many employers hold strong negative views about the fairness and operation of the system, and that these views influence their decisions when responding to a personal grievance claim (including whether to participate in formal processes or not). 26. Improvements can be made in terms of levels of understanding about the approach of the Authority and Employment Court; levels of confidence about 'fair and reasonable' disciplinary and dismissal procedures; the need to reduce unnecessary delays and costs in the system; and concerns about the behaviour of some employment representatives. 27. The research suggests that more could be done to raise awareness about employees' and employers' rights, obligations and the problem resolution processes. Increasing understanding and knowledge will help to dispel commonly held misconceptions about the system. I expect the Department to carry out a range of activities to raise awareness, but I consider that awareness-raising alone is insufficient to adequately address the issues raised. 28. The reviews have identified the issues that can be directly addressed by the Department (for example, better or more detailed guidance around problem resolution). The Department will progress and implement these improvements as appropriate. The proposals 29. I am proposing the following 11 changes in respect of the personal grievances system: a. Amend the "test of justification" to indicate that there are a range of fair and reasonable responses available to an employer in any situation (change 'would to could' in the test). Clarify the "test of justification" to set out case law around the minimum requirements for a fair and reasonable process. These changes are designed to increase employer confidence and reduce uncertainty and compliance costs. b. Develop a code of employment practice around disciplinary and dismissal procedures to support the above amendments. This change is designed to improve employer confidence and reduce uncertainty.

4 c. Amend the Act to explicitly state that the Chief Executive of the Department of Labour will, as part of his or her provision of mediation services, include a service whereby a mediator may assist parties, without representation, to resolve an employment problem at an early stage. d. Promote mediation by providing preferred access to the Authority if parties have tried mediation first. This change will encourage parties to make use of mediation as the primary problem solving institution. This preference would not be exercised where another case may be of a more pressing or urgent nature. e. Allow mediators and Authority members to make recommendations (at the request of parties) to resolve an employment problem. This initiative is designed to encourage speedy decision-making and reduce costs for parties. f. Enable the Authority to filter out vexatious or frivolous cases. If a member considers a claim to be vexatious or frivolous, he or she may refuse to investigate the claim. The intention of this power is to reduce the time and cost involved in the pursuit of cases that lack merit (the decision of an Authority member to refuse to investigate a case may be appealed to the Employment Court). g. Allow penalties for delaying behaviour at the Authority. The provision of such a penalty would act as a deterrent to delaying tactics by parties. h. Extend 90-day trial periods to firms with fewer than 50 employees. This increases choice and flexibility for employers. i. Retain reinstatement as a remedy (where practical and reasonable), but remove it as the primary remedy. Reinstatement is seldom awarded as, in the majority of cases; the damage to the employment relationship is irreparable. j. Enable cases that have been inactive for three years in the Authority to be treated as withdrawn. Such withdrawal would achieve closure for employers and employees. k. Encourage employment representatives to adhere to a set of industry-agreed (and voluntary) standards, or a code of professional ethics, to improve the quality of representation, employer confidence and system credibility. 30. Unions and other groups may argue that some of the proposals in this paper will have a negative impact on employees and may reduce the level of fairness for employees. Some groups may also argue that there are proposals that will reduce access to justice and weaken the principles of natural justice. 31. The proposals are intended to impact positively for employers and employees and overall I consider them to be balanced. 32. There has been opposition to the 90-day trial period for small businesses (under 20 employees) and extending this to employers with less than 50 employees may feed this opposition. I consider that the current 90-day trial period law is working well and provides an incentive to businesses to employ people. I consider that the extension of the law will further extend this incentive. Employment institutions (Part 10 of the Act) proposals Review of employment institutions 33. The Department's review indicates that improvements can be made to the system for resolving employment relationship problems. These improvements centre on the powers and operation of the Authority, and its interface with the mediation service, on the one hand, and the Employment Court on the other. 34. The changes I am proposing in response to these findings, if agreed, would fulfil intentions signalled in the National Party's 2008 election manifesto in respect of the Authority and the Employment Court while ensuring that: a. there is fairness to all the parties, and b. the right institution is dealing with the matters that it is best positioned to resolve.

5 The proposals 35. I am proposing to make the following seven changes to the Act: a. Empower the Chief of the Authority to oversee the operation of the Authority to improve transparency and accountability. This also addresses concerns about the approach of Authority members and perceptions of inconsistency. b. Clarify the Authority's powers to issue injunctions and ex parte orders to settle boundary issues between the Authority and the Court and reduce uncertainty. c. Empower the Authority to refer cases to the Employment Court to ensure problems are resolved by the appropriate legal body and ensure timely resolution of problems. d. Empower the Authority to actively consider the appropriateness of referring demand notices to mediation to ensure employment entitlements are not negotiated away at mediation and cases are dealt with by the appropriate body. e. Extend the application of pre-proceeding discovery (a minor and technical change to Schedule 3 of the Act) to improve the operation of the system. f. Clarify the Act in relation to the withdrawal of proceedings (a minor and technical change to Schedule 3 of the Act) to improve the operation of the system. g. Enable minors between the ages of 16 and 18 to sign records of settlement and for these agreements to be full, final and binding. The purpose of this proposal is to provide access to justice for minors. 36. I consider that the risks with regard to these proposed changes are minimal. With respect to the proposal on access to justice for minors, there is a risk that the employer may question the impartiality of a mediator who is charged with protecting the interests of a minor. Labour inspector enforcement powers proposals 37. The Act establishes statutory powers of enforcement for labour inspectors in three areas: an assessment of noncompliance; the ability to "demand" compliance after an assessment; and, a sanction of penalties for non-compliance through the judicial process of the Authority. 38. Minimum standards investigations are growing in number each year increasing the pressure on current government resources [2]. In addition, evidence of increasing levels of non-compliance suggests that many employers are being disadvantaged by the anti-competitive practices of those who are not meeting the minimum standards in law. 39. Current enforcement levers, in particular penalties and demand notices, are insufficient and inefficient ways to incentivise compliance by employers. They do not support appropriate responses for low level non-compliance, nor do they adequately deter severe or long standing non-compliance. The current system of enforcement levers does not have the gradation of sanctions required in order to effectively target non-compliant practices in workplaces. The options proposed in this section address this inefficiency in the current system and would support greater responsiveness to businesses and a more flexible and efficient use of inspection resources. Review of labour inspector enforcement powers 40. I asked the Department to review the limitations on the enforcement powers of labour inspectors, within existing resources. This review was informed by: a. Research conducted by the Department into complaints received between 2007 and 2009 that indicates labour inspectors conduct a growing number of investigations based on complaints. b. An assessment of current statutory levers that uncovered deficiencies in the current mechanisms for remedies and sanctions in the event of non-compliance. c. An internal practice development programme for labour inspectors that has been designed to embed a multifaceted approach to regulation that draws on a range of statutory tools and non statutory levers such as information, advice and education.

6 The proposals 41. I propose to amend the Act to: a. Define the role of labour inspectors in the Act to clarify and give greater transparency to their role and enhance enforcement powers. b. Introduce enforceable undertakings so labour inspectors can negotiate outcomes with willing employers, and enforce those undertakings if necessary. c. Introduce statutory improvement notices for labour inspectors to create an incentive for unwilling employers to improve practice and avoid litigation. d. Impose a penalty for failure to comply with a demand notice and penalty interest for long-standing and repeated non-compliance. Currently there are no consequences for employers who do not comply with obligations in relation to wages. e. Require the employer to provide a copy of current signed terms and conditions of employment as outlined in the relevant sections of the Employment Relations Act 2000 or, in cases where an employee has not signed terms and conditions of employment to provide an unsigned copy of these terms and conditions. This will preserve the integrity of the provisions that ensure parties have written individual agreements. f. Enable labour inspectors to bring penalty actions across a wider range of breaches of legislation so that compliant employers are not being disadvantaged by persistent non-compliant businesses. g. The maximum penalties for non-compliance with the Act are increased from $5,000 to a maximum of $10,000 for individuals and from $10,000 to a maximum of $20,000 for companies and other bodies corporate in order to adequately deter non-compliance and not put employers who meet or exceed their employment obligations at a competitive disadvantage [3]. Union matters proposals 42. I propose to amend the Act to give effect to the policy change signalled in the 2008 National Party election manifesto, that is, to retain union access to workplaces, with the prior consent of the employer. Such consent may not be unreasonably withheld. 43. In addition, I am proposing to clarify that direct communications can occur between an employer and his or her employees (including those who are union members) during collective bargaining. 44. The National Party's 2008 election manifesto also signalled policy intentions with respect to the opening of collective bargaining to non-union groups. I am presently considering advice I have received from officials on this matter. 45. Unions have indicated that they do not support the signalled changes to workplace access. This change, if implemented, may particularly impact on workplaces where there is currently no union presence (and therefore no established relationship between the employer and union, and the purpose of the business is clearly to recruit new union members). Benefits of improving the Act 46. The positive effect of the proposed changes would include: a. clearer legislation for employers and employees making it easier for parties to understand and comply with the legislation b. reduced direct and indirect costs for employers to comply with the law (as a result of problems being resolved more quickly, additional assistance prior to problems being escalated, and reducing the need for judicial intervention) c. speedier resolution of employment problems and discouraging poor practices is likely to reduce the overall costs of resolving problems for employers and employees and improve the efficiency of the employment problem resolution system d. improved confidence in the system through greater knowledge of the legislation and improved mechanisms in place (for example, filtering out cases at an early stage that are frivolous, vexatious and time-wasting in nature)

7 e. better supporting measures to facilitate direct employer / employee engagements to negotiate workable solutions in good faith for their workplaces, thereby boosting productivity levels [4] f. less prescription and more flexibility, giving employers discretion to make (and quickly give effect to) decisions about their business and workplace, hence allowing them to focus on growing the business and improving productivity g. the promotion of a level playing field for businesses where more appropriate sanctions will discourage the anticompetitive practices of employers who benefit financially by not meeting their employment obligations. Impact on compliance costs 47. The proposed changes are designed to have a positive impact on employer / employee behaviour, by improving the efficiency and operation of the Act. This is likely to reduce costs for both parties and support productivity improvements for business. 48. One proposal ('union access') could be considered to impose compliance costs on employers as their consent to access is now required. As this requirement is consistent with general practice, the level of compliance is considered to be minimal, and likely to be offset by other benefits of the change. 49. One of the proposals will mean that an injunctive power (search and freeze) may only be determined by the Employment Court (rather than, as can happen now, by the Authority). This will require parties to have recourse to the Employment Court rather than to the Authority for such an injunction to be awarded, and this may increase costs for a party. However, clarifying the boundary issue in this case could reduce costs. 50. Enabling labour inspectors to better enforce minimum employment standards will create compliance costs for employers currently acting in a non-compliant manner. However, compliance costs associated with minimum standards are not new compliance costs. I consider that these costs are necessary to ensure fairness for the majority of employers who comply with the law, and to ensure the effectiveness of the minimum code. The new tools (such as improvement notices and enforceable undertakings) involve less compliance costs for employers than the current legalistic approach associated with the demand notice. 51. Any litigation in relation to the amendments to the Act (such as union access) will be a cost for all parties. Other parts of my regulatory reform programme 52. As Minister of Labour, I have a statutory obligation to request a report on the operation of the "Continuity of employment" provisions (Part 6A of the Act) as soon as possible after September I must also present this report to the House of Representatives but there is no specified timeframe for this. 53. I also have a statutory obligation to review flexible working arrangements (Part 6AA of the Act) as soon as possible after July The Employment Relations (Rest Breaks and Meal Breaks) Amendment Bill has been referred to the Transport and Industrial Relations Select Committee, which is due to report back by October I am also submitting my recommendations to you regarding changes to the Holidays Act Consultation 56. The Treasury, State Services Commission, Te Puni Kokiri, Ministries of Economic Development, Social Development, Education, Health, Justice, Women's Affairs, Pacific Island Affairs, the Departments of Corrections and Prime Minister and Cabinet and Inland Revenue have been consulted in the development of this paper (and Appendix 1). All comments have been considered and, as far as possible, incorporated. Separate agency comments are set out below. State sector perspective 57. The State Services Commission advises that specific experiences on personal grievances in the Public Service take place between the public sector employer and the employee. Departments have not advised the State Services Commission on any issues surrounding personal grievances.

8 Combined comment from the Ministry of Economic Development and The Treasury 58. Treasury is generally supportive of the proposed amendments, which predominantly clarify legislative provisions and employer and employee obligations, or codify current practice and existing case law (e.g. Test of Justification, communication during bargaining). However some of the changes may be controversial, but are likely to have only a modest impact on the functioning of the legislation. 59. Expanding the 90-day trial period to firms of more than 50 workers or extending the length of trial periods would provide greater labour market flexibility for employers. s to provide new powers for labour inspectors were made late in the review process and may impose compliance costs on businesses. 60. There are other options for change that have not been included in the paper. More substantive options that could have a greater impact on labour market flexibility (e.g. contracting out of personal grievance provisions) have not been considered because of timeframes. Ministers agreed to terms of reference for a review of Part 6A (protection for vulnerable workers during redundancy and restructuring), but changes to Part 6A are no longer part of the paper. Manifesto commitments relating to collective bargaining without belonging to a union are not included in the legislative proposals. 61. There are other areas of the Employment Relations Act that could also be reviewed including passing on provisions; temporary and fixed term contracts (identified as areas New Zealand could be more flexible by the OECD); and other areas of labour market regulation such as re-introduction of a separate youth minimum wage, and occupational licensing. 62. A RIS should have been prepared for the Cabinet paper given the complexity of the issues involved, the lack of robust evidence on the impact of proposed amendments and likely public interest in the outcome of the Employment Relations Act review. Tabling a RIS at the Cabinet Legislation Committee does not meet the regulatory impact analysis requirements, as substantive policy decisions will have been made. Ministry of Justice 63. The Ministry of Justice is concerned about the proposals affecting minors aged years. The Ministry has responsibility for the Minors' Contracts Act 1969, which contains general rules relating to the status of contracts made by minors. The Minors' Contracts Act provides special protections for young people who are relatively inexperienced in commercial matters and vulnerable to exploitation from adults. In general there is a presumption that a contract is not enforceable against a minor. 64. Contracts of service for employment are treated as an exception to the general rules in the Minors' Contracts Act. It may be appropriate for related employment mediation settlements to be binding without the Authority's approval but this ought to be clearly justified. 65. The current process of the Authority having to approve mediation settlements provides some protection for minors. If the Authority does not have to approve settlements, there is a risk that the mediator may not be able to safeguard minors' interests in the event that a minor does not have a parent or guardian present, and remain independent. 66. Other statutes contain specific rules about minors in relation to discrete types of contracts, such as residential tenancy agreements. An option may be for mediators to appoint a personal representative for minors as under the Residential Tenancies Act Financial implications 67. There are no immediate financial implications arising from the proposals within this paper. Human rights 68. Some proposals in this Cabinet paper could have an effect on the right to natural justice. However, these proposals do not appear to be inconsistent with the New Zealand Bill of Rights Act 1990 and the Human Rights Act A final view as to whether the proposals will be consistent with the Bill of Rights Act will be possible once the legislation has been drafted.

9 Legislative implications 69. The Act will need to be amended to give effect to the proposals outlined in this paper. Regulatory impact analysis 70. The Regulatory Impact Statement (RIS) is being developed by the Department. A RIS has not been able to be developed within the timeframe available for drafting this paper. The RIS will be available at the same time as Cabinet Legislation Committee considers an Employment Relations Amendment Bill that will result from any decisions made in respect of this paper. Gender and ethnicity implications 71. The proposals outlined in this paper have no specific gender or ethnicity implications. Disability perspective 72. The proposals outlined in this paper raise no specific implications for people with disabilities. Publicity 73. This Cabinet paper will be publicly available on my Ministerial website once Cabinet has made its decisions in respect to proposals outlined in this paper. In addition, media releases will be made at key points of the legislative process, such as when the Bill's introduction. A communication strategy will be developed prior to the amended Act taking effect to raise awareness about the objectives of the changes. Recommendations It is recommended that Cabinet: 1. note that, following reviews of the relevant parts of the Employment Relations Act 2000, the proposed amendments are intended to: 1. improve the "personal grievances" system to increase understanding and address the concerns and uncertainties that some employers have about participating in the personal grievance process 2. improve the functioning of the system for resolving employment relationship problems ("employment institutions"), including increasing the flexibility of the Employment Relations Authority and clarifying some aspects of its operation 2. note that changes I am seeking by amending the Employment Relations Act 2000 will increase choice and flexibility for employers and employees; ensure the balance of fairness in the legislation is appropriate for all parties; reduce compliance costs; improve the operation and efficiency of the legislation; and, increase employers' confidence in the consistency of the system 3. note that I have reviewed the way the Employment Relations Authority and the Employment Court work and union access to workplaces by consent, as part of progressing the policy changes signalled in the National Party's 2008 election manifesto 4. note that I have reviewed the personal grievance system, particularly in terms of the balance of fairness Recommendations for legislative amendments related to Personal Grievances (Part 9 of the Employment Relations Act 2000) 5. agree to amend "the test of justification" in the Employment Relations Act 2000 by replacing the word 'would' with the word 'could' in section 103A (the test of justification), so that the amended Act reads as follows "the question as to whether a dismissal or an action was justified must be determined on an objective basis by considering whether the 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" 6. agree to amend the Employment Relations Act 2000 to set out the minimum requirements of a fair and reasonable process as established in case law, including but not limited to specifying 1. that the employer's processes will not be the subject of pedantic scrutiny 2. that an employer's resources will be taken into consideration

10 3. that the Authority will give consideration to whether a process has been fair and reasonable, including the following: 1. whether the employer has properly investigated the allegations 2. whether the employer's concerns have been communicated to the employee 3. whether the employee had a reasonable opportunity to respond to any concerns the employer raised 4. whether the employer has considered (with an open mind) the employee's explanation before making a decision 5. whether, as a result of any deficiencies in the process undertaken by the employer, there was a probability that the employee was unjustly treated 7. agree to the development of a Code of Employment Practice around disciplinary and dismissal procedures 8. agree to amend the Employment Relations Act 2000 to state that the Chief Executive of the Department of Labour will provide mediation services for early problem resolution without representation 9. agree to promote mediation by providing that the Employment Relations Authority will give priority to mediated cases 10. agree to amend the Employment Relations Act 2000 to enable mediators and members of the Employment Relations Authority to make recommendations to parties at their request 11. agree to amend the Employment Relations Act 2000 to enable Employment Relations Authority members to identify and filter out vexatious or frivolous cases at an early stage 12. agree to amend the Employment Relations Act 2000 to provide for the Employment Relations Authority members to award a penalty against a party that does not attend a scheduled Employment Relations Authority investigation, and when a party files a late claim at the Employment Relations Authority (without good reason) 13. agree to amend the Employment Relations Act 2000 to extend the 90-day trial period provision to firms with fewer than 50 employees 14. agree to retain reinstatement as a remedy where practicable and reasonable but remove it as the primary remedy 15. agree to amend the Employment Relations Act 2000 to provide that personal grievance claims that have been filed in the Employment Relations Authority, but that have not been actively pursued or progressed by a party within three years of the last formal action in respect of the claim, are treated as withdrawn 16. agree that Department of Labour work with the employment representative industry to develop a code of professional ethics Recommendations for legislative amendments related to Institutions (Part 10 of the Employment Relations Act 2000) 17. note that the Department of Labour considers that the employment relationship problem resolution system, while generally working well, could be improved through a series of practical options to address specific concerns 18. agree that the Chief of the Employment Relations Authority be granted further powers to oversee the operation of the Employment Relations Authority, namely that the Chief may: 1. issue a set of instructions, or individual instructions, for members of the Employment Relations Authority 2. at his or her discretion, as part of the appointment process, provide a report on an Employment Relations Authority member for consideration by the Minister of Labour prior to making a recommendation to the Governor General 3. direct the education, training, and professional development of Employment Relations Authority members. 19. agree to amend the Employment Relations Act 2000 so that ex parte search and freeze orders are only used by the Employment Court 20. agree that the Employment Relations Act 2000 be amended to enable the Employment Relations Authority to remove a matter to the Employment Court at the motion of the Employment Relations Authority, on the basis of the existing criteria set out in the Act 21. agree that the Employment Relations Authority must, prior to referring a demand notice relating to minimum code issues (such as minimum wage and holidays entitlements) to mediation, consider whether it is appropriate to do so to prevent the negotiation away of minimum entitlements 22. agree that the Employment Relations Act 2000 be amended so that minimum entitlements can still be a matter for consideration in mediation, but the lawful quantum of these entitlements cannot be the subject of negotiation and possible reduction

11 23. agree that the Employment Relations Act be amended so that it is clear that applications for pre-proceeding discovery can be dealt with by the Employment Court regardless of whether the matter is brought, or is intended to be brought, in the Authority or the Employment Court 24. agree that the Employment Relations Act 2000 be amended so that it is clear that the withdrawal of claims by one party in the Employment Court does not affect claims made by another party in the same proceeding 25. agree that the Employment Relations Act 2000 be amended so that minors between the ages of 16 to 18 years be enabled to agree to terms of settlements that are full, final, and binding Recommendations for legislative amendments related to the enforcement powers of labour inspectors 26. agree to amend the Employment Relations Act 2000 to define the role of a labour inspector as one of managing complaints and supporting businesses to achieve compliant practices and systems 27. agree to amend the Employment Relations Act 2000 to introduce enforceable undertakings to enable written agreements between a labour inspector and an employer that set out commitments in respect of compliance 28. agree to amend the Employment Relations Act 2000 to provide improvement notices to be issued by labour inspectors to motivate compliance 29. agree to amend the Employment Relations Act 2000 to provide that a penalty may be awarded in relation to a demand notice and penalty interest for long-standing and repeated non-compliance 30. agree to amend the Employment Relations Act 2000 to require the employer to provide a copy of current signed terms and conditions of employment to a Labour Inspector as outlined in the relevant sections of the Employment Relations Act 2000 or, in cases where an employee has not signed terms and conditions of employment to provide an unsigned copy of these terms and conditions 31. agree to amend the Employment Relations Act 2000 to enable a labour inspector to seek a penalty action, and the Authority to award a penalty for; 1. breaches of legislation in relation to the obligation to provide employees with a copy of intended and mutually agreed terms and conditions of employment, 2. except in circumstances where the employer has made best endeavours to provide an employee with a proposed agreement and resolve any issues raised and the employee has nevertheless refused to sign the agreement 32. agree to amend the Employment Relations Act 2000 to increase the quantum of existing penalties up to a maximum of $10,000 for individuals and up to a maximum of $20,000 for companies or other bodies corporate Recommendations for legislative amendments related to union matters 33. agree to amend the Employment Relations Act 2000 to provide that union access to workplaces is conditional on the consent of the employer (such consent may not be unreasonably withheld) 34. agree to amend the Employment Relations Act 2000 to provide a clarifying statement to the effect that the Employment Relations Act 2000 allows an employer to communicate directly with his or her employees while bargaining for a collective employment agreement is underway, provided such communications are consistent with the duty of good faith 35. agree that the Minister of Labour may determine any minor and/or technical decisions that may arise in the course of drafting an amendment bill, provided these decisions are consistent with the policy intent previously agreed by Cabinet 36. invite the Minister of Labour to instruct the Parliamentary Counsel Office to draft an Employment Relations Amendment Bill to give effect to agreed recommendations 37. note the review has indicated areas where the Department of Labour can enhance the services it delivers, particularly in respect of preventing employment relationship problems arising, or resolving these at an early stage, and improving its information and guidance to employers and employees who may have an employment relationship problem 38. note that I intend to release the Cabinet paper publicly on my ministerial website once decisions have been made by Cabinet in respect to proposals outlined in this paper. Hon Kate Wilkinson Minister of Labour

12 APPENDIX 1: RECOMMENDED AMENDMENTS TO THE EMPLOYMENT RELATIONS ACT 2000 AND OTHER PROPOSALS PERSONAL GRIEVANCES, DISPUTES AND ENFORCEMENT Personal grievances: Objectives of the review 1. I directed the Department to conduct a review of the personal grievance system and to provide a report to me on the findings and options for addressing any problems, including whether any amendments to the legislation are necessary or desirable. The objectives of the review were to consider whether the personal grievance system: a. strikes a fair balance between employer flexibility and employee protection b. does not impose unnecessary costs or obligations for employers or employees c. supports improvements in workplace productivity d. is efficient and effective e. has met its objectives (as set out in the Act). 2. The proposals, in addition to being assessed against the objectives of the review as listed above, have also been assessed against the following considerations that primarily derive from the specific objects of the legislation: a. supports equality of bargaining power (an object of the Act) b. supports informal resolution of problems (an objective of the personal grievance system) c. supports natural justice (International Labour Organisation (ILO) Convention 158) and considered important by all submitter groups. Inputs into the review 3. The review of personal grievances was informed by: a. a public submissions process (219 submissions were received following release of a discussion paper on 2 March 2010) b. research carried out by the Department between January and April this year, including a review of New Zealand literature; a scan of practices in international jurisdictions; a media scan; interviews with employers and employees; an analysis of the Authority decisions during July 2009; and an analysis of other Departmental data c. other relevant research undertaken by the Department in recent years. Submitters' views on the personal grievance system 4. Of the 219 submissions received, 63 percent were from employers or employer representatives, and 10 percent were from employees or employee representatives. The remainder included submissions from law firms, employment advocates, and academics. The submissions show a divergence of views between employers and employer representatives and most other groups (although there was consensus on some issues across groups and differences within groups). In general, employees, employee groups and some academics support the status quo. 5. The submissions (and other research) indicate that many employers hold strong negative views about the fairness and operation of the system, and that these views influence their decisions when responding to a personal grievance claim (including whether to participate in formal processes or not). 6. Improvements can be made in terms of levels of understanding about the approach of the Authority and Employment Court; levels of confidence about 'fair and reasonable' disciplinary and dismissal procedures; the need to reduce unnecessary delays and costs in the system; and concerns about the behaviour of some employment representatives. Research findings 7. The research found that, when confronted with a personal grievance, employers tend to seek advice and learn from the experience of others through colleagues, friends and family, and social media (e.g. blogging and message boards). This can lead to a perpetuation of misleading information, unnecessary escalation of employment issues and illinformed perceptions about the system. Media reporting does influence people's understanding of the system and

13 can drive their perceptions of the system and processes. For example, there is low awareness that the Authority takes account of employee conduct when determining remedies. 8. The research suggests that more could be done to raise awareness about employees' and employers' rights, obligations and the problem resolution processes. Increasing understanding and knowledge will help to dispel commonly held misconceptions about the system. I expect the Department to carry out a range of activities to raise awareness, but I consider that awareness-raising alone is insufficient to adequately address the issues raised. The proposals, outlined in paragraph 19, aim to address these misconceptions. Personal grievances: the proposals 9. A range of options has been identified that address the concerns and uncertainties that some employers have about participating in the personal grievance process, in particular, providing more guidance about what a 'fair and reasonable' process is for the purposes of determining whether a dismissal, or other action of the employer, was justified. The proposals also clarify the sorts of things that the Authority or Employment Court must consider when answering this question. 1. Amend and clarify the "test of justification" The "test of justification" 10. The question of whether a dismissal or other action was justifiable must be determined, on an objective basis, by considering whether the employer's actions, and how the employer acted, were what a fair and reasonable employer would have done in all the circumstances at the time the dismissal or action occurred. 11. In 2000, the Court of Appeal suggested a test which emphasized the actual employer's subjective assessment of its options (W&H Newspapers v Oram [2001] 3 NZLR 29), where the test was reformulated in terms of what a fair and reasonable employer "could" do in all the circumstances. 12. The standard approach of the Court of Appeal during the 1990s was to test the employer's actions against those of a "fair and reasonable" employer. 13. The word "reasonable" imported an objective test (Northern Distribution Union v BP Oil NZ Ltd [1992] 3 ERNZ 483), where the test was stated in terms of what a fair and reasonable employer "would" do in all the circumstances. 14. Many employers have expressed concern that there is too much emphasis on the employer's process and not enough focus on the substantive reasons for the employer's action. They argue that there is not sufficient consideration given to a range of reasonable responses in any situation. 15. In addition, employers are uncertain as to the minimum requirements of a fair and reasonable employer as established by case law, and appear to be largely unaware that the Authority and the Employment Court take the employer's resources into consideration when arriving at a decision on the matter. 16. I propose that the statutory test of justification (section 103A of the Act) is amended to allow for the employer to consider a range of possible disciplinary actions by replacing the word "would" with "could". This change reflects the principle that it is not for the Employment Court to substitute its judgment as to the course of action taken by an employer in respect of an employee. 17. I also propose that the Act be amended to include the minimum requirements of a fair and reasonable process, with references to established case law. Minimum processes 18. The Department advises me that case law has established the minimum requirements of a fair and reasonable process. I propose that the Act be amended to clarify that the Authority will consider among other things: a. whether the employer has properly investigated the allegations b. whether the employer's concerns have been communicated to the employee