Labour's flagship industrial relations policy has been dealt a significant blow, with BusinessNZ announcing it will refuse to take part in the creation of fair pay agreements (FPAs).
On Wednesday Kirk Hope, BusinessNZ's chief executive, wrote to Workplace Relations Minister Michael Wood saying BusinessNZ would not act on behalf of employers to implement what he said was "unlawful compulsory national pay agreements".
As well as seemingly breaking the tripartite agreement with the Council of Trade Unions (CTU) and the Government, the move also sees BusinessNZ refuse to take hundreds of thousands in taxpayer funding to help build capability to negotiate the agreements.
Hope said BusinessNZ had been written into the proposed system as a default bargaining party without its consent.
After carefully considering a proposal from the Ministry of Business, Innovation and Employment (MBIE), the organisation had decided it would not take part.
"Compulsory FPAs are unlawful under both current domestic and international employment laws and are totally out of step with how we need to work in 2021," Hope told the Herald.
"They aren't needed, they remove the flexibility and autonomy of modern workplaces and won't improve pay and conditions for hardworking Kiwis."
Employment experts said it was unclear how the Government would push ahead without the involvement of BusinessNZ meaning the reforms, which have already faced a series of hold-ups, could be further delayed.
Legislation to give effect to the agreements was supposed to be tabled in Parliament before the end of the year, however Wood's office had warned last month that this could be delayed into 2022, blaming the Delta outbreak.
Last night Wood's office played down the significance of BusinessNZ's move, describing it as "a fairly small aspect of the framework and will not have a major impact".
"In the vast majority of cases we expect that employer groups in each sector will bargain themselves. We had proposed that Business NZ (and on the other side the CTU) could be 'backstops' in the event that a sector was unable to form a bargaining unit themselves."
A Labour manifesto promise since 2017, FPAs are a proposed system under which employer representatives and unions would bargain for minimum terms and conditions for all employees in a particular industry or occupation.
Wood has said the agreements represent the biggest change to industrial relations since the passing of the Employment Contracts Act in 1991.
Even before Labour was elected, BusinessNZ had issued warnings about the proposals, which would give a central role to the union movement to negotiate terms, even in sectors where union membership is negligible.
The CTU has applied constant pressure to push ahead with the agreements.
"Fair Pay Agreements will improve the lives of many New Zealanders and their families by lifting the wages of some of our lowest paid," CTU president Richard Wagstaff said in May.
But the proposals have caused concerns among business groups about the mandate for initiating the agreements, causing the policy to be delayed several times in the past term.
According to the recommendations of a working group led by former prime minister Jim Bolger - which Labour has promised to largely adopt - a fair pay agreement process could be initiated with the approval of 10 per cent of a given occupation or sector, or 1000 workers, whichever is less.
The system design assumes a central role for BusinessNZ, representing sectors and industries without a dedicated representative organisation.
When Wood announced in May that the Government was pushing ahead with the programme, he signalled $250,000 a year funding for both BusinessNZ and the CTU reflecting the "special role as social partners in the tripartite context".
Hope said: "We don't want to take taxpayer money to support a scheme we simply don't think will work and we don't believe in."
BusinessNZ would be prepared to engage in a process where participation was voluntary, he said. Covid had placed a greater emphasis on flexible conditions, which he said FPAs would not allow.
"How does it make sense to bring in FPAs, when they will make it much harder for businesses to accommodate the flexibility demanded by their employees?"
Susan Hornsby-Geluk, managing partner at employment law specialists Dundas Street, said the news represented a "major setback" for FPAs.
"Business New Zealand was to play a central role in co-ordinating and supporting employer groups. Government will need to urgently find another group to perform this role, otherwise employers will be left rudderless and without support."
Paul Goldsmith, National's workplace relations spokesman said the move should prompt a rethink of the policy.
"I don't see how it can work [without BusinessNZ] and ultimately if the Government presses ahead it will be based on force, and that's the problem with the whole policy," Goldsmith said.
"Flexible labour markets have been an essential element of New Zealand's progress of the last 30 years, when we've had high rates of job creation and low unemployment, and this is putting it all at risk.