ERA risks setting pay rates employers can't afford - lawyer

An employment law expert is warning of unintended consequences as recent changes to the Employment Relations Act could see more collective agreements imposed on employers.

This comes after the Employment Relations Authority set collective pay rates for employees of Jacks Hardware and Timber, which operates Mitre 10 Mega stores in Dunedin and Mosgiel.

The landmark decision was the first time the authority has fixed the provisions of a collective agreement.

Megan Richards, a partner at law firm MinterEllisonRuddWatts and expert in employment law, said although this was an extreme example, this type of decision could become more frequent.

"It's important to note there is quite a high threshold for when that clause will be invoked and the authority has to agree that there has been serious and sustained breaches of duty of good faith," she said.

First Union had been engaged in extensive bargaining with Jacks Hardware since 2013. Despite two Authority recommendations and litigation in the employment court, the parties were unable to reach an agreement on pay rates.

As of May 6, an amendment to the Employment Relations Act says collective agreements must include the rate of wages or salary payable. Richards believes this could lead to more unresolved negotiations as employers often prefer to use individual performance pay policies and don't want to be locked into wage increases.

"The rate of wages obviously has a huge impact for employers, so they have to be careful that while they are paying their staff a competitive rate to retain them and incentivise good employees to join – equally you don't want to go out of business," she said.

Managing director of Jacks Hardware, Martin Dippie, told the authority Jacks could not afford to pay the level of increased wages the union sought and argued that employees were happy with the wages set based on an annual review of individual performance.

The Authority ordered the minimum rate to be paid for staff without experience will be $19 an hour, $1.30 an hour more than the legal minimum wage, while an experienced worker will be paid $21 per hour and a worker with a trade qualification $23 per hour.

However, chief executive for Retail NZ, Greg Harford, said the wage rate appeared to be "out of kilter" with market rates for similar businesses in Dunedin.

Richards said the ERA ran the risk of setting a pay rate an employer cannot afford, which could result in downsizing and job losses.

"The ERA would not want the finger pointed at them for that – so it is quite a responsibility to have.

"I think they would much prefer for the parties to engage and take responsibility themselves for finding a rate that each party can live with. The ERA is probably not that comfortable with a role where they are imposing terms that really should be agreed directly by the parties."

Employers who are not able or willing to find an agreement with a union do run the risk of a third party imposing an agreement upon them.

Richards says it is always better to reach an agreement if possible, as there is less risk in controlling the outcome.

"You carry the risk – it might go your way or it might not. If you've got market evidence in your favour then you might think 'let's take that risk'. But it's always better to agree it if you can."

BusinessNZ lobbied against the changes and a spokesperson said the ERA's provision for compulsory arbitration was "inconsistent with international labour conventions".

While some businesses may have concerns about compulsory arbitration being used to settle pay claims, BusinessNZ said there are high thresholds for triggering arbitration which should make it an uncommon occurrence.

"The length of time this agreement remained unresolved was likely to be the reason why compulsory arbitration has been invoked in this unusual case," a spokesperson said.

"BusinessNZ recommends that all parties to wage bargaining should make efforts to conclude an agreement promptly."

Daniel Brunskill is an AUT journalism student on work experience at NZME.