'Free Riding' – Clarity At Last
National Distribution Union Inc v General Distributors Ltd
The Employment Court recently released its long awaited decision,
clarifying the extent to which employers are prohibited from passing
on terms and conditions of a collective agreement to employees who
are not covered by it. In a comprehensive decision that considers
the 'free riding' prohibition under section 59B of the Employment Relations
Act 2000 ("Act"), the Court has provided some clear guidelines
for employers.
The Legislative Framework
Section 59B came into force in December 2004 with the enactment of
the Employment Relations Amendment Act (No 2) 2004 ("Amendment
Act"). Section 59B provides that an employer may be in breach
of good faith (section 4 of the Act) if it passes on, in certain circumstances,
terms and conditions of employment to non-union employees where they:
(i) Are the same (or substantially the same) as those terms and conditions
which are already contained in a collective agreement which binds that
employer; and
(ii) Have been agreed upon (or “reached”) in collective
bargaining between the employer and the union, but which have not yet
been incorporated into a concluded and ratified collective agreement.
Section 59B creates different tests for the breach of good faith in
two situations. Firstly, where the terms and conditions are already
contained in a collective agreement which binds the employer, any passing
on of those terms and conditions must be made with both the intent
to undermine, and have the effect of, undermining the collective
agreement. Secondly, where the terms and conditions have been
agreed upon, but not yet concluded and ratified, any passing on must
be made with either the intent to undermine, or have the effect
of, undermining the collective bargaining. The reason for this distinction
is probably because Parliament saw the interim period between agreement
and ratification as more susceptible to the passing on of terms and
conditions.
The Amendment Act also provides for bargaining fee arrangements. Parties
to a collective agreement may agree that bargaining fees are payable
by a non-union employee who adopts the terms and conditions of a collective
agreement. The fees represent payment for the union's services
of negotiating the terms of the collective agreement of which a non-union
member is gaining benefit. Following a majority vote ballot,
employees whose work is covered by the agreement must opt out to be
exempt.
National Distribution Union Inc v General Distributors Ltd
The National Distribution Union ("NDU") wanted the wages
of all the supermarket employees increased, irrespective of whether
they were union members. It wanted to achieve that by collective
bargaining for its union members and allowing non-union employees to
benefit from the bargaining, provided they paid a bargaining fee.
Negotiations resulted in the parties agreeing upon a wage increase
of 60 cents per hour for employees employed under the collective (approximately
25% of the waged employees). Non-union employees who had paid
the bargaining fee had their wage rates increased by 60 cents per hour.
Non-union members who had opted out of paying the bargaining fee did
not receive the increase. However, less than one month after
the collective agreement commenced, General Distributors Limited ("GDL")
advised these employees that they would receive a wage increase of
5.2% for Countdown staff and 5% for all other supermarket staff. These
employees did not receive the non-wage "enhancements" that
union members now enjoyed, unlike previous years.
The NDU argued that the wage increase offer made to the non-union
employees who had opted-out of paying the bargaining fee, was a breach
of sections 4 (good faith) and 59B (passing on) of the Act and a breach
of the collective agreement.
Unlawful Passing On?
The Court did not accept the NDU's argument that the terms and conditions
of the collective agreement could only be accessed by non-union employees
via the payment of bargaining fees. Instead, it held that passing
on is "prima facie lawful unless certain criteria are established". The
Court said for passing on to be in breach of good faith, it is necessary
to establish both the intention, and effect of, undermining the collective
agreement.
The Same or Substantially the Same?
The Court considered whether the wage increase of 60 cents per hour
and the wage increase of 5.2% or 5% for non-union, non bargaining fee
paying employees, was the "same (or substantially the same)". It
found that Parliament had stipulated for the higher, or more precise
standard of sameness, and if it had intended for a lesser degree of
sameness, it could have used the words: "similar or (substantially
similar)".
Undermining
The Court adopted the same meaning of "undermine" from one
of its earlier decisions (Association of University Staff Inc v
Vice-Chancellor of the University of Auckland):
"to work secretly or stealthily against (a person etc);
overthrow or supplant…by subtle or underhand means. To
win over, pervert, by subtle means…Weaken, injure, destroy
or ruin… surreptitiously or insidiously…"
It held that it should not be concerned with any undermining of the
union, its ability to bargain, its ability to attract members, or future
bargaining for a future collective agreement. Rather, it should
be concerned about the undermining of an existing collective agreement.
Intent
The Court agreed with GDL that "the intent to harm the [NDU]
need not be the primary purpose, but it must be at least a concurrent
or activating purpose". The Court found that if the undermining
is an incidental, although a foreseeable, consequence of an employer's
act done for some other purpose, that will be insufficient to establish
the necessary intention to undermine.
Effect (of undermining)
To establish that the collective agreement has been undermined, the
Court held that the evidence cannot consist solely of a reduction of
the potential number of employees covered by the collective agreement. This
is because an employee who pays a bargaining fee is able to enjoy all
of the terms and conditions of the collective agreement albeit under
an individual employment agreement. In addition, although less
people may join the union (and therefore membership numbers decrease),
the union's financial position is protected.
Other Statutory Factors
The Court also considered the following statutory considerations under
section 59B(6) of the Act to determine whether GDL had acted with the
intent and the effect of undermining the collective agreement:
- Firstly, whether the employer bargained with non-union employees
before they agreed on a new term or condition of employment. The
Court held that it should be presumed that, when an employee enjoys
a new term or condition without bargaining, it is more likely to
have been passed on in breach of the Act, as opposed to result
from genuine negotiations. In this case, as the workforce was
so large and as GDL had advised employees of the opportunity to discuss
any problems with their manager, the Court held that this was sufficient
to amount to bargaining.
- Secondly, whether there was consultation with the union in good
faith before a new term or condition of employment was agreed with
non-union employees. The Court said the absence of good
faith consultation before any widespread passing on of conditions
was an indication that the employer had the requisite intent to pass
on.
- Thirdly, whether the respective numbers of employees covered by
the collective agreement meant that it was less or more likely to
be susceptible to being undermined (i.e. the lower proportion of
employees covered, the more vulnerable the agreement is to undermining).
- Fourthly, how long the collective agreement has been in force. The
Court held that Parliament intended that the sooner any passing on
has occurred after the collective agreement comes into force, the
stronger the inference that the employer had acted with the intent,
and effect of, undermining the agreement. However, in this
case the Court decided that this factor had to be balanced against
the non-union employees' expectation that they would have received
a wage review at that time of year in any event.
- The final necessary consideration is the application of section
63 of the Act. Section 63 requires that for the first 30 days
of employment, new starts must be employed under the terms and conditions
of the collective agreement if their work is covered by that agreement. The
Court held that in this case, it was relevant that the individual
employment agreements were substantially different, both in form
and content, from the collective agreement. Further, that there
were enhanced provisions in the collective that were not offered
in the individual agreements.
The Court found that although Parliament had set out (in section 59B(6))
what matters must be taken into account in determining whether an employer
has acted with the intent, and the effect, of undermining a collective
agreement, this section does not limit the Court from taking into consideration
other matters.
The Decision
Following a comprehensive interpretation of section 59B and other
related sections, the Court held that the NDU had "failed to prove
that GDL [had] acted otherwise than in good faith towards it or that
it had breached the collective agreement". Specifically,
it held:
- GDL did not do anything to mislead or deceive, or that was likely
to mislead or deceive, the [NDU] in breach of s4 of the [Act];
- The wage increases offered…were not the same or substantially
the same as the relevant terms or conditions in the collective agreement…;
- The wage increase offers made by GDL to non-union employees were
not made with the intention of undermining the collective agreement;
- The wage increase offers, and their acceptance by non-union employees,
did not have the effect of undermining the collective agreement;
and
- The wage increase offers made to non-union employees by GDL did
not breach the collective employment agreement between the parties.
What This Decision Means For Employers
When agreeing new terms and conditions with a union for a new collective
agreement, then subsequently with non-union (and non-bargaining fee
paying) employees, it is important to be aware of the passing on prohibitions
under the Act, particularly section 59B. Although the Court has
made it clear that employers are not prevented from passing on negotiated
terms and conditions to non-union employees, the Court has now provided
some clear guidelines about how to avoid passing on that may amount
to a breach of section 59B of the Act.
If you need assistance because you are involved in (or are likely
to be involved in) collective bargaining which may impact on terms
and conditions of employment subsequently offered to non-union employees,
please do not hesitate to contact us.
For more information, please contact:
Erin Davies
Partner
t: +64 9 979 2177
m: 029 622 2300
e: Erin Davies
Last updated: 3 April 2007
This article is intended to be brief in nature and should be used for information only. It should not be relied on as legal advice. |
