July 27, 2006

Media Release

New job risk - is the boss up to it?

An incompetent boss is as much of a risk to workers as is an incompetent worker to employers, says the union leading the Work Rights, Our Right! campaign.

Engineering, Printing and Manufacturing Union national secretary Andrew Little told members of the Institute of Directors at a breakfast meeting at the Northern Club this morning that employees moving to a new job were putting their faith in the company’s ability to trade profitably, and thus provide them with the income they needed to support their families.

“Much of the public discourse about employment law and employment regulation tends to assume that the only party that assumes any risk is the employer or the business,” he said.

“I want to talk about how employment agreements and the law that covers them are ultimately about the distribution of risk between the employer and the employee.”

The biggest risk to employees starting with a new company was whether the mangers were up to the job, he said.

“This is the risk of bad management and bad management decision-making. This risk applies to all employees regardless of length of service.”

Employers expected the law to impose duties of fidelity, confidentiality and the obligation to obey instructions on workers, but there had to be balancing duties to stop employers abusing their power, Mr Little said.

“Unless employees are to be regarded as subjects – and employers to take on the role of feudal lords – then the law must afford them – employees – rights and protections against irrational and arbitrary decision-making,” he said.

These included the right to be treated fairly, to be told of the likely impact of decisions and to be heard on matters that affected them.

“Much of our current employment law, especially in relation to dismissal and fair treatment, can be defended on this basis,” Mr Little said.

“The need for protection against arbitrary decision-making is no less necessary whether in the first 90 days of employment or after 900 days of employment.”

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Speech notes follow.

SPEECH TO
INSTITUTE OF DIRECTORS – AUCKLAND BRANCH
NORTHERN CLUB
THURSDAY, 27 JULY 2006
8.00AM

BY ANDREW LITTLE, NATIONAL SECRETARY, EPMU

EMPLOYMENT RISK: WHOSE IS IT?

Thank you for the opportunity to speak this morning. It is a welcome development and, I hope, a mark of maturity in our industrial relations that a union leader can speak to an audience such as this, of company directors and members of boards of organisations in the interests of health discussion and debate.

In most organisations, issues of employment – certainly of employment practice and procedure – is regarded as an operational matter and, therefore, the province of management. Governance seldom involves itself in matters involving the management of the employees of an organisation or business.

Boards are, however, concerned with business risk. And, obviously, boards will want to know how risks associated with employment matters are being managed and mitigated. The board will want to know that there are some standardised policies and procedures for recruitment, for setting terms and conditions, for managing health and safety, and so on. Depending on the size of the business, it may have a human resource strategy – processes for critical functions, retention of key employees, succession planning, investment in training, flexible work arrangements, etc. All of this is to state what will be to everyone here pretty much the obvious.

The issue of risk in employment – both business risk and the risk employees take – is very important in the current debate not only about the legislation currently going through Parliament providing for so-called probationary periods, but about employment regulation generally.

Much of the public discourse about employment law and employment regulation tends to assume that the only party that assumes any risk is the employer or the business. I want to talk about how employment agreements and the law that covers them are ultimately about the distribution of risk between the employer and the employee. This is nothing particularly radical or new. It’s just that we don’t hear much about it in debates that invariably are reduced in the public arena to “workers want more” and “we bosses cop enough already and we can’t do our job.”

The employer’s, or business owner’s, risks are obvious. These include:

- Their capital, or capital they have raised, is at risk, for a start-up until the business starts trading and cash comes through the door, or for an established business until they start to get a return.

- There are risks in relation to suppliers – of materials, of services, and including access to labour.

- There is the risk of the market – that consumer wants and needs may change.

- There is the risk of regulation and of regulatory change.

In relation to employment, the one risk faced by employers and most often stated publicly is that labour taken on by the business (whether as employees or contracted in) is unable to perform the work required or is otherwise unsuitable. There are other employment risks, too. The risk that the labour market is unable to supply the skills and talents required for the business, or that those skills and talents are priced above what the particular business is prepared to pay.

These are the sorts of risks attributed to employers. So, what about employees?

Risks taken by employees when starting a new job include:

- Whether the job is exactly as the employer has made out.

- Whether the workforce and workplace are accommodating of the particular employee.

- And, arguably the most important, whether the management of the business is of a quality to ensure security of employment. This is the risk of bad management and bad management decision-making. This risk applies to all employees regardless of length of service. Employees will regard the risk as heightened every time there is a change of business owner or manager.

Putting aside those who are entering the workforce for the first time, most new employees are recruited from existing employment, and some are in a position of having to choose between offers of employment.

In all these risks, whether those applying to the employer or those applying to the employee, there can be no perfect knowledge or information and a huge element is left in the control of others.

So does the law have a role to play in mediating or moderating these risks?

There are those who still argue that the best form of employment regulation is none at all. They are people who see that labour’s best interests are in a labour market in which employers are free to hire and fire at will and, as they would argue, employees are free to come and go as they please. This way, they can presumably leverage the threat of leaving to lift their returns (if there is scarcity in the market for their skills or there is otherwise inconvenience caused that the business might wish to avoid). In my view, this is the stuff of fantasy. Putting aside notions of perfect information, which the labour market has shown no evidence of ever providing, there is another dimension to employment that this view ignores. It is the social dimension of work.

The reality is that for many employees work is more than just an economic relationship. Sure, it is the source of income and livelihood. But it is also a source of friendship, camaraderie and engagement with peers. It is a source of pride for what one does. And for many, it is genuinely an object of loyalty. For most of us, one way or another, the work we do defines who we are socially.

And even just looking at the economic dimension of work, that is, as a source of income, it is not just income to an individual. In most cases, an individual income earner is supporting others – family, dependants and even not-quite dependants. You might say, there is a social aspect to the economic dimension of work.

And, so for most people, an enormous amount hangs on their employment.

So how should the law balance the respective risks?

One of the things the common law does is impose on employees a number of implied obligations. These include obligations of

- fidelity - acting in good faith towards the employer and not undermining the business
- confidentiality - information gained in the course of one’s employment remains the property of the employer
- the duty to obey lawful and reasonable instructions.

The last of these is very important. Any contract or agreement one enters into is necessarily a constraint on one’s freedom. A contract or agreement creates obligations for compliance.

But the duty on an employee to obey goes beyond an issue of mere compliance with agreed obligations. It requires a level of submission. I don’t say this to be dramatic; it is just the nature of the employment relationship.

Put the employee’s duty to obey alongside the employer’s right to fire and we see a further dimension to the employment agreement and the employment relationship – the element of a power relationship.

This is the nature of the employment relationship before any statute law intervenes.

Now we can begin to see what useful role the law – statute law - might play in mediating and moderating the employment relationship.

It can be seen that a decision by an employer that materially changes an employee’s employment status – whether by firing or demoting or changing the status in other ways – has the potential for a significant impact – and a potentially significant negative impact – on the employee.

The law has developed principles for dealing with the situation in which a person or body in a position of power makes a decision about an individual and where that decision has the potential for a negative impact.

These principles include:

- letting the person know in advance that a decision is to be made and could have a negative impact

- ensuring the person affected has the opportunity to be heard. This is especially important if adverse conclusions could be made about the person

- ensuring the decision-maker is free from any conflict of interest

- ensuring that in any decision only relevant considerations are taken into account and irrelevant considerations are discounted

- and ensuring that any decision, once made, is supported by reason; that is, there is a reason for the decision.

These are basic public law principles of administrative decision-making. They apply when public and statutory bodies make decisions about individuals, usually when exercising a prescribed discretion.

The principles have an important origin. They go back to the days of feudal privileges and the powers of the Crown. They were developed to stop the use of arbitrary power.

As the notion of citizenship developed with the rise of the nation state since the 18th century, rules curbing the arbitrary use of state or public power have become even more prominent.

As the role of the state expanded around the world during the 19th and 20th centuries, so did the need for protection of individuals from harsh and arbitrary decision-making.

This is what defined the difference between subject and citizen.

The need for protection from arbitrary and irrational decision-making by those in power is no less necessary when the decision-maker is a private power as opposed to a public one, or when the decision-making is made in the private realm rather than the public sphere.

I see no need to distinguish rights in the private world of employment and rights in the public world of citizenship.

Unless employees are to be regarded as subjects – and employers to take on the role of feudal lords – then the law must afford them – employees – rights and protections against irrational and arbitrary decision-making.

Much of our current employment law, especially in relation to dismissal and fair treatment, can be defended on this basis.

The need for protection against arbitrary decision-making is no less necessary whether in the first 90 days of employment or after 900 days of employment.

Ensuring employers’ decisions on individual employees’ employment are not arbitrary and irrational addresses one of the biggest risks in employment from an employees point of view – the risk of bad decision-making.

And so from an employer’s point of view, they might want to see the present law on dismissal and fair treatment of employees as encouraging good decision-making, and therefore encouraging good management.

The fight against arbitrary and irrational decision-making that has a negative impact on individuals is centuries old. We have no hesitation in taking up that fight against the power of the state. But we should be consistent, and take it up against any power, public or private.

It is for this reason I have been surprised by the many newspaper editorials in recent months that have argued for the right for arbitrary and unaccountable decision-making in the private realm. They would never do so for public authorities and agencies. But then it might have something to do with their own private owners.

There is one other risk I should raise.

As a small economy at the bottom of the world desperately seeking its way in a more globalised and competitive world, we need to attract and retain the best talent across the national workforce.

What we do in our labour market, and the framework that regulates it, is important.

We shouldn’t send a signal that says we will start to diminish employment rights and protections. That tells the world we want to compete at the low end of the labour market, not at the high end. As a country, we have some real challenges to attract and retain skilled and talented labour. Our employment law framework should send a signal that we want good quality management, not bad. If we do otherwise, the signal we send could be fatal.

This is a risk we shouldn’t take.

Thank you for the opportunity to speak today.

ENDS

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