The Employment Relations Act was introduced in 2000 to provide the framework for regulating relationships between employers and employees. The Act recognises "that employment relationships must be built on good faith behaviour" (Section 3(a)(i)) and the "inherent inequality of bargaining power in employment relationships" (Section 3(a)(ii)).
This report examines some of the prevalent beliefs about the operation of these provisions of the Act, and determines the extent to which these beliefs are supported by the research evidence. It also provides information about how employment relationship problems develop, and the costs and benefits of employment relationship problems (ERPs). Finally, it gathers lessons from those case study employers who appeared most successful in minimising the costs and maximising the benefits of ERPs.
The Department of Labour has conducted research into the operation of the personal grievance provisions of the Act, including a long term and short term series of projects.
Long term research programme
- a survey of businesses, with 852 respondents, of which 130 had experienced disputes during the previous 12 months;
- a survey of public sector organisations, with 130 respondents of which 40 had experienced disputes during the previous 12 months;
- case studies of 15 disputes;
Short term research programme (previously reported)
- a survey of mediations carried out over a one month period,
- a review of Employment Relations Authority determinations over the same period; and
- a series of focus groups.
Results from the long term research programme provided the main source for the findings presented in this report, with additional information from the short term research programme used where pertinent.
Methodology
There were three main aspects to the long term research: a series of case studies and surveys of private and public sector employers. Full details of the methodology are provided in the technical research report (available upon request from the Department of Labour).
Case Studies
For the case studies, we identified parties to 15 ERPs and interviewed them to learn about the process of their issues, why they took the approaches they did, and the ultimate costs and benefits of the ERP. In most cases we only interviewed one party to the ERP (either the employer or employee), but we found many of the comments from participants were convergent.
Surveys
The surveys of the private and public sectors were conducted online, and participants were recruited via e-mails sent to senior managers/owners of businesses, or HR managers of businesses with separate HR functions. The survey requested detailed information about the ERP most recently settled and general information about the numbers of ERPs faced over the past 12 months and their costs and benefits.
Limitations
The total response rate for the private sector survey (11.5%) and the incidence rate for employment relationship problems were lower than expected. As a result the total numbers of ERPs resolved by some methods (mediation by non-DOL mediators, Employment Relations Authority hearings and the courts) were not large enough to provide reliable representative measures of their specific costs, time taken to resolve and satisfaction levels. Therefore, in sections of the report discussing specific resolution methods, analysis was conducted only for those methods with sufficient numbers to provide meaningful results.
The very low response rate for the public sector (4%), and particularly for district health boards and core government departments, have limited our ability to comment on costs and benefits of ERPs in the public sector.
Key Results
Incidence
- The incidence of employment problems is low. The survey found that in the past year, businesses experienced 1.5 ERPS per 100 employees. The incidence rate of ERPs for the public sector organisations responding to the survey was 0.8 ERPs per 100 employees.
- Despite claims of rising numbers of ERPs, the research uncovered no evidence that the incidence of ERPs is increasing over time and some evidence of decreasing levels. However, given the snapshot nature of this research and the shortage of comparable previous research, this conclusion must be tentative.
Costs and Benefits
- The median direct cost of all ERPs in the survey of private sector employers, including those proceeding to litigation, was about $5000, of which $2800 represented payouts to employees. The remainder included legal representation/advice, investigation costs and any replacement staff used to cover for participants in the ERP.
- The total direct costs for all employers (that is multiplying the average costs found in the survey by the number of ERPs estimated for the whole economy) would be around $146 million for the 12 month period. This amounts to around 0.4% of private sector wages and salaries for the year.1 Adding in lost management and staff time and productivity during the course of the ERP would increase the total cost to employers of ERPs to $214 million (0.6% of private sector wages and salaries for the year).
- There was no evidence that the presence of no win no fee advocates has greatly changed the environment for ERPs other than by allowing some lower income employees to access personal grievance procedures.
- The lowest costs of ERPs arose where resolution took place entirely in-house with neither the employer nor the employees having representation. This was also the process most favoured by employers for resolving future problems and which produced the highest level of satisfaction for employers. Unsurprisingly, costs increased if problems progressed through the hierarchy of problems resolution methods (mediation, Employment Relations Authority, Employment Court).
Effective Problem Resolution
The most effective employers (those who had few employment relationship problems and dealt with them in cost effective ways) involved in this study shared several features:
- They set up policies and procedures to deal with the most common or damaging employment issues ahead of time. They made clear to their employees what the boundaries of acceptable conduct were.
- They sought to address potential issues before they led to major conflict.
- They focussed on the major issues of concern and maintained good faith relationships.
- They knew about the full range of resolution methods available and could choose among them according to circumstances.