Authority sets wage rates after bargaining fails

The Employment Relations Authority (the Authority) has fixed the wages provisions of a collective agreement (CA) between First Union (the Union) and Jacks Hardware and Timber Limited (Jacks) following years of protracted bargaining and litigation between the parties.The Authority has had the power to fix provisions in a CA for almost 15 years, but this is the first time the Authority has done so, giving employers some insight into how any future applications may be determined.

The issues to be decided

By the time that the Authority heard this application to fix terms, all material terms of the CA had been agreed between the parties apart from the wage rates and the term of the CA.  The Union submitted that employees on the lowest tier wage (for entry level staff) should receive $21.50 per hour and tier 2 wage employees should receive $23.00 per hour, with further increases proposed from 1 September 2019.  The Union argued that the Authority should use the “living wage” as a basis for setting the wage tiers in the CA, noting the overall pressure on employers to lift wages that has come hand in hand with significant recent increases to the minimum wage.

Jacks submitted that the Authority ought to set the tier 1 wage at $0.25 above the minimum wage and the tier 2 wage at $1.00 above the minimum wage until April 2020, at which point the rates should increase again to $0.25 and $1.00 above the then minimum wage rate respectively.  Jacks cited financial concerns and its own internal system of reviewing wages individually based on performance as the basis for its counter-proposal.  It also introduced evidence from Retail NZ to suggest that the Union’s claims were out of step with the country’s retail and hardware sector entry-level wages.

Decision

The Authority observed that it has a duty to promote collective bargaining as well as to address inequality in the employment relationship.  While the Authority would not set the rates to punish Jacks, it also considered that it was reasonable to take into account the significant period of time that had elapsed between when the Union first initiated bargaining for a CA (in October 2013) and the decision.  In particular, the Authority considered what rate the union members may have achieved had bargaining occurred earlier, and considered that it was likely that they would have had wage increases above the minimum wage Jacks was currently paying to its tier 1 waged employees.  Accordingly, the Authority set the tier 1 wages at $19 per hour and the tier 2 wages at $21 per hour.

How do employers avoid this scenario

Employers may be alarmed at the thought of the Authority using its powers to fix and impose CA terms on them, especially wages.  However, under the Employment Relations Act 2000 (the Act), the Authority can only intervene in this manner if the grounds in the Act are satisfied.  This includes a requirement that all other reasonable options for reaching agreement have been exhausted.  In this instance, the parties had not managed to reach agreement despite being engaged in bargaining since 2013 and being involved in seven Authority determinations, six Employment Court judgments and receiving two sets of recommendations from the Authority following facilitation.

Additionally, before the Authority can fix the terms of a CA, there must have been a breach of the duty of good faith in relation to the bargaining. Such breach must be sufficiently serious and sustained so as to significantly undermine the bargaining.  In addition, fixing the provisions of the CA must be the only effective remedy for the party (or parties) affected by the breach.  This is a high threshold to meet.

What can we expect to see happening in future collective bargaining?

While this type of case may be atypical, employers should be aware of the precedent set by the decision and keep in mind that the Authority does have the ability to step in and fix the terms of a CA in some circumstances.  In the vast majority of cases, employers are likely to do all they can to avoid a third party imposing CA terms on them, particularly wages.

However, the ability of employers to negotiate and agree collective terms of employment solely for their own business is changing.  Some recent changes to the Act now mean that employers are no longer able to opt out of multi-employer collective bargaining. In addition, the Fair Pay Agreements Working Group has recommended that if required, the terms of fair pay agreements should be set by an arbitrator.  We are yet to find out the Government’s response to the Working Group’s recommendations (including whether fair pay agreements should apply to contractors as well as employees).  Given the potential impact on businesses and other organisations we expect that this developing area will be watched carefully by employers and those engaging contractors.

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