Collective Agreements

A recent landmark Employment Court decision confirmed the Employment Relations Authority (“ERA”) can exercise its discretion to fix the provisions of a collective agreement. The fixing of a collective agreement by the ERA is unprecedented and a first for New Zealand. The Court’s decision released this week was “one of the rare sort” which required a “game-breaker”. The effect of such a determination to fix a collective agreement means that ratification, and signing by the parties, is not required.


The employer trades as Mitre10 in Dunedin and Mosgiel. A small number of employees were members of First Union.

First Union had been bargaining for a collective agreement with Dunedin employer Jacks Hardware and Timber for five years since 2013. They had been through face to face bargaining, mediation, facilitation and litigation with no success in settling a collective agreement between them.

During the course of facilitation, a fundamental disagreement emerged about the inclusion of the Union’s proposed pay scale in the collective agreement which the employer would not agree to nor would it offer alternatives. Eventually when the Union would not make a concession to exclude the pay scale, the employer made a unilateral decision to end bargaining, announcing that it had gone as far as it could and purported to conclude bargaining, claiming there were genuine reasons based on reasonable grounds not to reach agreement.

Union asks ERA to fix the provisions

In an attempt to break the impasse, First Union applied to the ERA for a declaration that the employer had acted unlawfully and a determination that the Authority fix the provisions of the collective agreement being bargained. This meant effectively a third party would impose a decision on the parties about the inclusion of the pay scale (and other provisions). Fixing by an ERA of collective agreement provisions is seen as a last resort under the Employment Relations Act (the “Act”) and requires a breach of the duty of good faith by one of the parties that is so sufficiently serious and sustained as to significantly undermine bargaining. All other reasonable alternatives for reaching agreement must also be exhausted.

Employer breaches bargaining process agreement

The employer unsuccessfully challenged the determination in the Employment Court. The Court criticised the employer’s unilateral decision to end bargaining and considered the employer’s bargaining was artificial and strategic: it consisted of a request for a concession to exclude the pay scale and when that was declined, to declare that it was not prepared to continue bargaining, there was no discussion about mediation or other ways to end the impasse, it offered no other alternatives. The Court concluded the employer’s actions breached the bargaining process agreement where the parties had agreed they had to continue to bargain until a conclusion was reached. The court held that adherence to the duty of good faith included complying with the bargaining process agreement which the employer had not done.

‘Surface bargaining’

The Court agreed the Union had exhausted all reasonable ways to settle a collective agreement, and criticised the employer for engaging in delaying tactics. The Court considered that the employer’s actions went further than just not concluding a collective agreement or using its bargaining power to its advantage.

The employer’s behaviour illustrated that it was delaying and going through the motions of bargaining, a practice commonly known as “surface bargaining.” That behaviour significantly undermined the bargaining.

The good faith duty under the Act requires parties to an employment relationship to be active and constructive in establishing and maintaining a productive employment relationship in which they are, among other things, responsive and communicative. While the employer was not bound to conclude a collective agreement, the duty of good faith prevents behaviour designed to frustrate bargaining. The employer did not comply with that duty during the facilitation process. It engaged in delaying tactics contrary to the duty. These tactics of the employer demonstrated a pattern where the company was delaying and, as a result, was frustrating bargaining. The breach by the employer of the good faith duty was held to be sufficiently serious and sustained so as to significantly undermine bargaining.

What does this mean?

The impending new employment rules in May will require pay rates to be included in collective agreements which will put more pressure on employers to negotiate pay as part of collective agreements.

This case is a good reminder that parties to an employment relationship whether they be employer and employee or Union, must act in good faith when bargaining to negotiate the terms of employment or collective agreements.

Facilitation is also available where parties find themselves at an impasse and are able to ask the ERA to provide a “non-binding” agreement.