Prohibited Preference and Passing On

Tensions can arise during bargaining processes when some employees are union members covered by the collective agreement and others are not[1]. Where the employer provides greater wage increases for some employees via a longer back-dating period, this could escalate into being unlawful preference.

Last year the Employment Court held that an employer had conferred unlawful preference on employees who were not union members (Pact Group v SFWU and The PSA[2]).  The employer was also held to have misled and deceived the unions during collective bargaining.  As a result, the employer was ordered to pay additional wages to each union member employee, in order to put them in the same position as their non-union member colleagues. However, the Court held that the employer had not unlawfully passed-on new terms and conditions of employment to non-union members.

Unlawful preference

It is unlawful for a contract, agreement or other arrangement to confer a preference on an employee because they are a member, or not a member, of a union[3].  In this case, different back-pay dates were applied to the wage increases for union and non-union employees.  As a consequence, union members were each approx. $249 worse off than the employees who did not belong to a union.  This was held to have given the non-union staff an unlawful ‘preference’ over the union members, as a consequence of their union membership.  The question of whether or not the employer intended to confer preference on employees because of their union status was considered to be irrelevant.

Misleading conduct

Misleading and deceptive statements in collective bargaining breach ‘good faith’ obligations.  In this case, the employer stated, during collective negotiations and to employees directly, that it was financially unable offer a wage increase over the 1% increase in Government funding that it had received. Because this was framed as a non-negotiable upper limit, the union eventually agreed to a wage increase equal to 1% over the year. The individual agreements offered the non-union employees the same percentage increase, but starting at the earlier date. This meant that, overall, the wage increase given to employees was in excess of the 1% – so the employer had misled and deceived the union by its statements.

Passing on

The meaning of “passing on” in this context is where an employer is bargaining for or has agreed a new collective agreement with a union or unions, and offers the same or substantially the same terms and conditions to employees who are not union members.  Doing so is not necessarily unlawful.  In determining whether there has been unlawful passing on, the Act provides for the following matters be taken into account:

  1. whether the employer bargained with the employees before they agreed
  2. whether the employer consulted the union in good faith before agreeing with individual employees
  3. the number of employees bound by the collective agreement compared to the number of the employees not bound by the collective or not covered by the bargaining
  4. how long the collective agreement has been in force.

To satisfy the first test above, employers must provide individual employees with the proposed terms of conditions it intends to pass on, give them the opportunity to seek advice, invite them to enter into negotiations, and genuinely consider any issues raised.  The second consideration requires the employer to notify the union of their intention to pass on and to consider their response before deciding whether to do so. Where passing on is the long accepted practice between the parties, the union’s agreement may be assumed.  However, express communication is preferable.  The last two matters reflect considerations of whether the passing on is likely to adversely affect the collective agreement or not.

In this case, passing on terms and conditions settled in collective agreements was the accepted long-standing process between the unions, the employer, and its non-union employees.  The employer invited its non-union employees to enter into new individual employment agreements and expressed a readiness to negotiate with them individually.  The court found that the requirement of good faith was satisfied.

Points to keep in mind

For employers in collective bargaining, this case provides the following key lessons:

  1. Don’t just assume individual employees want collective terms and conditions passed on – give them an opportunity to respond.
  2. Don’t assume unions agree to terms being passed on – notify them of your intentions and listen to any concerns.
  3. Make sure the potential to obtain a preference is extended to all employees doing the same work in the same circumstances – as it will otherwise be difficult to justify why one group obtained a benefit.
  4. If, during collective bargaining, a central term is portrayed as non-negotiable or an ‘upper limit’ and this induces the union to accept the offer, later conduct that contradicts this position invites a finding of bad faith.

[1]Eastern Bay Independent Industrial Workers Union Inc v ABB Ltd [2008] ERNZ 537

[2]Pact Group (A Charitable Trust) v Service and Food Workers Union Nga Ringa Tota Inc and The Public Service Association Te Pukenga Here Tikanga Mahi Inc [2014] NZEmpC 119

[3] Section 9, Employment Relations Act 2000

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