Employment Relations Authority breaks new ground over collective agreement

27 May 19

Column written by Dunedin Partner John Farrow, published in the business section of the Otago Daily Times on Saturday 25 May.

The decision of “Jacs Hardware & Timber Limited v First Union Inc.” is the first time the Employment Relations Authority has fixed the provisions of a collective agreement being bargained for. The authority concluded the case was one of the rare sort contemplated by the Act requiring “the game-breaker” of fixing the provisions of the agreement. The case is particularly timely given the recent amendments to the Employment Relations Act. Some of those amendments relating to unions and collective bargaining enhance union access to the workplace, encourage union membership and require parties to a collective agreement to continue to bargain, in good faith, until that bargaining has concluded.

From May 6, pay rates (and how those rates may increase) must be included in a collective agreement. The authority can fix the provisions of a collective agreement only if there has been a breach of the duty of good faith in relation to the bargaining. The breach must be sufficiently serious and sustained so as to significantly undermine the bargaining. The authority also has to find that other reasonable alternatives for reaching agreement have been exhausted and that fixing the provisions of the collective agreement is the only effective remedy for the party affected by the breach of good faith. This is an extremely high threshold and explains why it has not been reached before this case.

Bargaining began in October 2013. The union and the company had not previously been parties to a collective agreement. There were fundamental disagreements over the union’s proposed pay scale. The union wanted to have the scale included in the collective agreement but Jacs Hardware did not. Since May 6 this year, there has no longer been room for such dispute. The parties engaged in mediation but settlement was not reached. The union then planned industrial action. Jacs Hardware objected to the proposed action and alternative arrangements were agreed.

Bargaining resumed in February 2015. Jacs Hardware then announced bargaining had gone as far as it could. It claimed there were genuine reasons, based on reasonable grounds, not to reach agreement. That proviso still remains, despite the May 6 requirement to conclude bargaining. However, genuine reasons do not include opposition or objection in principle to including rates of wages or salary in a collective agreement.

In December 2015, the court granted a declaration to the union that the company had acted unlawfully. The unilateral decision to end bargaining was criticised by the court. The company was held to have misled or deceived the union over its intentions to resume bargaining. The court found that Jacs Hardware did not return to bargaining in February 2015 other than “in a very restricted, artificial and strategic way” and found that those actions breached the bargaining process agreement.When the company made its announcement to end bargaining, there had been no discussion about mediation or other ways to address the impasse. The court held that adherence to the duty of good faith included complying with the bargaining process agreement, which Jacs Hardware had not done.

In July 2016 the Employment Relations Authority conducted facilitated bargaining but agreement was not reached. The authority made a recommendation to the parties and proposed the wording of a trial provision and wage clause. The union was prepared to accept the recommendation but Jacs Hardware did not accept or reject it, instead stating a preference to return to facilitated bargaining. The authority ended the facilitation and at the same time it produced a further recommendation. The decision to end facilitation left the union and Jacs Hardware still bargaining for a collective agreement. However, the impasse still existed from the previous year.

In June 2017, the union applied to the authority for an order fixing the provisions of the collective agreement. Jacs Hardware opposed the application, maintaining that the grounds for fixing the terms of the collective had not been established. The Employment Relations Authority determination was delivered in January 2018. It relied on the earlier finding that the company had breached its duty of good faith. One of the crucial questions the authority was required to decide was whether the breach of good faith needed to be new or could be the same breach as the one the court had already found to exist. The authority concluded that a new breach was not required because “otherwise, simply by refraining from causing one, the party in default could continue to undermine the bargaining indefinitely”. Further facilitated bargaining took place in May 2018. Some progress was made but a collective agreement was not concluded. As agreement was not reached, the union asked the authority to conclude fixing the terms of the collective.

In June 2018 the authority granted that application. It considered the parties had unsuccessfully used direct bargaining, mediation, facilitation and litigation to try to reach agreement, so all reasonable alternatives had been exhausted. Jacs Hardware challenged this determination before the Employment Court. The court found that a breach sufficient to trigger facilitation does not dissipate because of subsequent remedial behaviour. It also found there was nothing in the Act requiring there to be a new breach. While the court found the company was not bound to conclude a collective agreement, the duty of good faith prevents behaviour designed to frustrate bargaining.

Jacs Hardware was found to have engaged in delaying tactics contrary to the duty. These tactics included a lengthy delay when it did not respond to recommendations. It declined to engage with the union about wage rates unless that occurred in a facilitated meeting. This involved delay while a meeting was organised. Jacs Hardware also unsuccessfully sought to adjourn an investigation meeting scheduled to fix the provisions of the collective agreement because the timing of it clashed with its annual budgeting, claiming that until that task was undertaken it would not be able to complete its evidence. While there was an occasion when Jacs Hardware pursued the union for answers to correspondence, the pattern was one where the company was delaying and, as a result, was frustrating bargaining. The court found that the breaches were sufficiently serious (adequate or important enough) to move to the next step of fixing the provisions of the collective agreement. The court also considered whether there were reasonable alternatives but found there was no basis to consider that further bargaining was a reasonable alternative.

The union successfully argued that the intention of the Employment Relations Act could not be to require the parties to endlessly go through the process of mediation, facilitation and fixing each time a new proposal was made or considered. The Employment Relations Act requires fixing the terms of the collective to be ‘”the only effective remedy”. The emphasis in the section is on effective remedy, not any remedy. The court found that all the processes provided by the Employment Relations Act to assist the union and Jacs Hardware in negotiating and settling a collective had been used unsuccessfully and there were therefore no other effective remedies available to the union.

It remains to be seen whether or not the recent changes to the Employment Relations Act will result in a greater number of cases where the authority fixes the terms of the collective. However, the obligation to include pay rates in collective agreements in some instances is likely to further complicate bargaining. What amounts to genuine reasons, based on reasonable grounds, not to reach agreement also remains to be seen. While the Employment Relations Act details what is not a genuine reason, it does not offer much guidance on what might constitute a genuine reason. That is something only time will tell.


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