KiwiRail is being accused of breaching a collective agreement with the Rail and Maritime Union.
The state owned operator is accused of outsourcing maintenance work on locomotives to Chinese-based company CNR.
Rail and Maritime Union and Kiwirail are going before the Employment Relations Authority over the next three days to sort the dispute.
Union spokesman Todd Valster said they had the staff and the workshops here in New Zealand to do the work. The case would also cover the working conditions of those doing the work on behalf of CNR.
Valster said employees may be getting paid more or less than the minimum wage, but they haven't been able to get a satisfactory answer from KiwiRail.
In April KiwiRail began negotiations for a new funding package it hopes will run from 2017 to 2020.
At the time it was reportedly looking for a small number of rail upgrade projects that would demonstrate that there is a "value of rail" to New Zealand beyond purely commercial returns.
KiwiRail cheif executive Peter Reidy told BusinessDesk one project would be in Wiri, South Auckland, where the addition of just three kilometres of railway track could unblock a major rail freight and passenger bottleneck and help alleviate road congestion.
"The next three to four years is very much about getting to some of the tough bits of infrastructure requiring investment," Reidy said.