National’s sack race

National’s policy to let small businesses sack their staff on a whim will come as no great surprise to readers of this blog.

Undoubtedly, having to justify sacking workers could be hard on small employers who hire a non-performer or someone who really doesn’t fit in. But sack them they can. If the job is a relatively simple one, then should performance problems arise, the period given for improvement is relatively short — weeks rather than months.

And it’s not difficult to sack someone fairly. The rules of “natural justice” are not complicated. There are handy little books (wrote one myself) available, and local polytechnics, employers associations, etc, run short courses explaining these matters.

Actually, anybody hiring other people really ought to do such a course and learn about the pitfalls of being an employer, and the ways to get the most for all parties out of the empoyment relationship. Note that National’s policy doesn’t do that. Quite the reverse — it seeks to make employers less accountable.

So, what’s the problem?

Ironically, the problems were caused by the ECA. In the old days (before 1991), only union members had the right to take personal grievances, but the unions took the cases and filtered out those lacking merit. The ECA widened coverage to all employees, including senior managers. This had two bad effects.

Because payments for lost wages and entitlements, and for loss of dignity, injury to feeling, etc, were related to pay rates, there were some spectacular decisions involving senior managers, which were widely reported. This led to perceptions that personal grievance actions are a goldmine for employees.

Worse still, lawyers got involved. Do lawyers care whether a case has merit? Maybe, but they get paid anyway (unless they’re one of the few on commission) so there’s less incentive to filter out poor cases. So, the number of PGs going to the Employment Tribunal, now Employment Relations Authority, exploded.

Note that one of the stated aims of the Employment Relations Act 2000 (by Margaret Wilson, then Minister of Labour) was to rid employment relations of lawyers. Generally speaking, they make things worse for everyone. Sadly, the genie was out of the bottle, and shows no inclination to get back in.

In fact, the average payments made to successful grievants — and not all are successful — are small. Less than $10,000 all up. And remember, these are usually cases where the employer’s done things which they shouldn’t have.

However, the process has become very legalistic, and employers small and large think that they must hire expensive lawyers.

“But why not let small employers sack?”, chorus the Right. “Good staff have nothing to fear.”

Well, actually, they do. Many small employers do not know what they’re doing when they employ people. The ones who think that it’s all “common sense”, or who go to their accountants for advice (true!) are amongst the worst. This faith in the competence of untrained and often inexperienced small business people is touching. It’s also totally at odds with the reality that mediators and Employment Authority members deal with every day. Not to mention the numbers of small businesses that fold.

The CTU makes a good point when it complains that the proposal allows small employers to “opt out of fairness in employment”. Is fairness in employment a good thing? Absolutely. But note that National’s policy does nothing to promote fairness in the employment relationship.

And who are the people at risk? Why, overwhelmingly it’s the lower paid and lower skilled. They’re the same workers who got hammered by the ECA. Lost their union membership and suffered pay cuts, forced to work longer hours, etc. National’s proposals just open these most vulnerable workers to further abuse.

For all of National’s protestations that the proposals will help employment rates for these people — without producing any hard evidence to back up this claim in the face of 3.6% unemployment — it looks like they have the bosses’ interests closest to heart.

If there are problems, lets deal with the causes of the problems. Once, employment legislation was developed jointly by the state, employers and unions together. Perhaps we could do with some of that, rather than one side and then the other enacting its backers’ favourite wish-list. This latest attempt underlines this point, if nothing else.

Update: A very thoughtful post expanding on some of these points by Jordan Carter. And Roger Nome.
And a Steve Pierson post at The Standard which refers to research at the DoL showing that, in fact, there isn’t really a problem anyway.

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12 Responses to “National’s sack race”

  1. MacDoctor Says:

    JP: The fact that you see the 90 day rule as allowing employers to sack “on a whim” just demonstrates that you are not a small employer! I have a number of friends who are small employers and all of them tell me that recruiting and training new staff is the most aggravating part of their business, second only to paying taxes!

    Not one of them would dream of firing an employee for frivolous reasons. But two of them have ugly stories of guys with good CVs (that they checked) who seemed quite personable and then change into employees from hell within a few weeks. Note that neither of these employees were incompetent, nor were they bad people. One was lazy and inefficient, the other simply clashed with everybody else. Both were very hard to dismiss, because there were no concrete grounds for dismissal. Both received several thousand dollars worth of compensation but this was the tip of the iceberg in lost business opportunities due to serious drops in productivity (the “clasher”, in particular, caused two other resignations of good people and everyone else would not help him with his projects, making them very expensively late).

    These are precisely the situations this policy is designed to relieve.

  2. jafapete Says:

    MacDoc, it is undoubtedly problematical for many small employers. But my point is really that there may be other ways of solving this problem, to the extent that there is one. I think that a joint approach to employment relations law-making might be better for all of us.

    In the meantime, my sister-in-law has run a small business for some years now, employing quite a few people over that time. She has found my little book useful, so if you send me your mail address I’ll send you a couple of copies for your friends.

  3. Spam Says:

    Jafapete,

    When several moderately-sized companies that I know of, ones that are large enough to have their own HR specialists, have policies to pay people out rather than go through an employment tribunal / grievance process, that suggests that something stinks. The point is that it is easier and cheaper to pay people out than to go through the process. On the assumption that you support workers’ rights, this loophole should concern you: the employers believe that they are better-off by buying-out ‘bad’ employees: what do the employees think? (and if they are weak employees, who says they aren’t getting screwed by this side-step of the process?)

    Secondly, I have been involved in hiring / training of new people, and it is painful, especially given the low unemployment: Trying to find good people is difficult. Trying to even get qualified people is hard enough! As such, it is most certainly NOT the case that I would dismiss someone after a probation period on a whim. That is, admitedly, in a professional job. Minimum-wage etc MAY be different, but even then, I doubt it.

  4. MacDoctor Says:

    I think that a joint approach to employment relations law-making might be better for all of us.

    Gets no argument from me.
    Appreciate the book offer. Will take you up on it.

  5. jafapete Says:

    Spam,

    It does concern me, as you suggest it ought, that there are many employers out there, including many with HR “professionals”, who do not know enough about the prevailing law and who therefore have “policies to pay people out rather than go through an employment tribunal / grievance process”.

    I advise small businesses myself on these matters from time to time. The first rule is not to automatically pay people off. Just creates an expectation. I’m always surprised that small business people can’t see that. Anyway, you will be pleased to hear that my policy has worked really well so far — lots of very satisfied clients.

    The solution to the problem that you point out is less hysterical nonsense from the business lobbyists about the law, less sensationalist and distorted reporting by the newsmedia, and better advice for the small employers. Yes, fat chance.

    I am pleased to hear that you wouldn’t dismiss anyone on a whim. Should you ever have the time, you could go down to the Employment Relations Authority rooms in the nearest major centre and sit in on some of the cases. You would find that not all employers are as enlightened or as savvy as you. You would also find that those employers who are not do not tend to employ professionals, because professionals have other options.

    And with unemployment about to rise significantly, note that it is always the most vulnerable employees who suffer first and suffer the most.

  6. unaha-closp Says:

    And with unemployment about to rise significantly,…

    …this National proposal will become more and more attractive to the unemployed.

    unhaha, I trust that’s what you intended. Good point.

  7. One reason why National would be a calamity « Jafapete’s Weblog Says:

    […] wants to allow small employers — again, where you find the low paid for the most part — to sack their workers at whim. And reduce their contributions to their employees’ kiwisaver […]

  8. roger nome Says:

    Jafapete:

    Interesting read. I’ve just completed my own post on this, in which I differ with you a little but mostly agree.

    http://rogernome.blogspot.com/2008/07/nationals-90-day-probationary.html

  9. jafapete Says:

    Nome,
    Have now had a chance to look at your post. Your analysis is based on National enacting the earlier Private Member’s Bill without substantive amendment in the parliamentary process. Particularly if National is dependent on the Maori Party or NZ First, this would be most unlikely. Still, best people know what’s in store should National get to rule in its own right (with or without ACT).

    Should employees in small businesses retain the right under the ERA to call on the Mediation Services to solve employment problems, at least in theory they would be able to take up problems such as the six that you list in your post. However, in practice, employers would probably resort to sacking straight off, so unless there is a provision preventing dismissal for any grounds that breach the HRA, etc — as is the case in the USA — access to Mediation Services means little in practice. Such a proviso would also be a good bet should National have to share power.

    I am not sure why you think that sacked employees would be able to resort to a civil court. As you know, the exclusive jurisdiction of the ERA and Employment Court as set out in ss 161 and 187 are very extensive in employment matters, so these would need to be changed. If you’re thinking of a wrongful dismissal action that simply would not be worth any low-paid worker thinking about it, even if it were allowed, which it currently is not.

    Nonetheless, there is absolutely no doubt that this would simply be another attack on the most vulnerable, lowest paid workers by the interests of wealth and priviledge, as represented by the National Party (and ACT).

  10. roger nome Says:

    Thanks for the response jafa. Just a few points.

    You know, I don’t think it can be assumed that National would change the bill.

    Firstly, the Maori Party will probably be more interested in getting concessions on treaty issues, than employment issues, so I doubt amendments to this Bill would be a bottom line.

    Secondly, I don’t see the Maori Party supporting National over Labour if they have the choice (i.e. they are kingmakers). What many people don’t realise is that, their internal democratic process would likely preclude this. i.e. In the kingmaker situation, The MPs go back to their constituents, and ask their opinion, and polls show that only 20% of voters in the Maori seats are looking at giving their party vote to National, whereas 40% are looking at Labour. So a deal with National, despite what the media is saying, is in practicality very unlikely.

    NZ first is definitely a different story. They have shown an interest in work rights in the past (i.e. part of their deal with Labour was a $12 minimum wage by 2008). So you have a very valid point there. But there are other things that may preclude National budging on this (see below).

    “in practice, employers would probably resort to sacking straight off”

    I agree. But the primary stated dispute resolution mechanism of mediation is reinstatement, which runs directly contrary to the purpose of the Probationary Employment Bill (making it cheap and easy to get rid of employees that employers don’t like). This is why I don’t see National amending the PEB to include the mediation service in any circumstance. That amendment would make the bill largely pointless.

    Also, this is arguably one of National’s points of difference with Labur coming into the election – so if they don’t get this through, many of their backers will be annoyed, and there will be a feeling of “what’s the point” within the party.

    “I am not sure why you think that sacked employees would be able to resort to a civil court. ”

    New section 69AD excludes recourse by either party to dispute settlement under the Act, whether personal grievance procedures, mediation services or any other dispute settlement, in relation to probationary employment.

    “there is absolutely no doubt that this would simply be another attack on the most vulnerable, lowest paid workers by the interests of wealth and privilege, as represented by the National Party ”

    Yep, it’s basically either removing all employment rights, or making them unenforceable for many thousands f workers. In practice it’s a move back to the ECA (low income workers have almost no rights). i.e. probably 90% of workplaces in the hospitality industry and the retail industry employ less than 20 people – as you may know, these are the lowest paid, most vulnerable (typically young women and/or ethnic minorities) workers, and these industries make up around 20% of the workforce. In practice, National are taking aim at the wages and conditions of our 400, 000 most vulnerable workers vulnerable workers. It’s a hugely significant piece of legislation.

  11. roger nome Says:

    Hey pete – just finished another post on this subject looking at who would be affected. Hope you find it interesting if you get time to have a look.

    http://rogernome.blogspot.com/2008/07/who-would-be-affected-by-nationals.html

  12. National’s IR policy is bollocks, but could be worse « Jafapete’s Weblog Says:

    […] the need for this measure is overstated by the Nats as I have discussed in a recent post. In brief it’s unnecessary and […]

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