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One step forward and two steps back for pay equity

02 June 2017 - By Steph Dyhrberg

A woman walking past a brick wall

Maria Dew recently wrote about the outcome of litigation taken under the Equal Pay Act (EPA) (LawTalk 904, March 2017). To recap, on 22 August 2013, a full bench of the Employment Court issued a landmark judgment which interpreted the Equal Pay Act 1972 as it applies to female-dominated work affected by gender bias: Service and Food Workers Union Inc and Kristine Robyn Bartlett v Terranova Homes and Care Ltd ([2013] NZEmpC 157. The judgment was upheld by the Court of Appeal ([2014] NZCA 516).

The EPA prohibits discriminatory pay rates on the basis of gender. For the same work, men and women must be paid the same. Where there are no men doing the same job, i.e. work exclusively or predominantly performed by women, a comparator must be found to assess what the women should be paid (absent gender-related factors). This is pay equity.

The Arbitration Court declined jurisdiction to hear a pay equity claim in 1986 (the Farmers Trading case). Nearly three decades later, the Bartlett judgments cleared the way for the Employment Court to exercise its jurisdiction to set principles to guide such assessments.

However, in late 2015, the Crown convened a working party to try to negotiate a settlement of the claim, and a Joint Working Group (the JWG, facilitated by Dame Patsy Reddy) to try to come up with agreed principles to guide parties in resolving pay equity claims.

On 18 April 2017, the outcome of the settlement negotiations was announced: a $2 billion plus settlement had been reached between Ms Bartlett, the Crown (as funder) and the unions representing about 55,000 residential aged care, disability and home support workers. Once ratified by affected workers, their pay will lift in increments over the course of five years. There will be pay rises of between 15% and 49%.

Ms Bartlett was stunned and thrilled, the unions triumphant and commended the government for agreeing to negotiate the settlement, rather than waiting for years before the legal process was finally exhausted.

The Government described the result as the largest pay rise in New Zealand’s history. The Prime Minister was reported as warning that the carers’ case was “unique” and the “hurdle would be pretty high” for any other groups making claims for equal pay. Given the lack of reliable data about the scale of the problem, these comments sounded some alarm bells.

Codifying the pay equity principles

As Maria Dew’s article outlined, the JWG reported back in May 2016, setting out appropriate principles for pay equity assessments and the process to be followed. The pay equity principles refer to a wide range of factors that should be considered in assessing a claim, once it is proven the work is predominantly performed by women, as required by the EPA. Occupational, labour market, social and economic factors were set out as potential reasons for undervaluing women’s labour.

The JWG recommended parties use the dispute resolution processes under the Employment Relations Act to avoid claimants and employers having to litigate each claim in the Employment Relations Authority (the Authority) or court. Amendments to the EPA and Employment Relations Act (ERA) would be required.

The JWG recommendations were accepted by the Government in November 2016.

A new Pay Equity Act?

Unequal piles of coins

Within two days of the announcement of the Bartlett settlement, the Government released a draft bill for public consultation, together with a much-redacted Cabinet paper. However, despite earlier statements by government ministers that the new legislation would amend the EPA and ERA, the consultation draft is the Employment (Pay Equity and Equal Pay) Bill. This would repeal the EPA (and the Government Service Equal Pay Act 1960). The public consultation period allowed was just three weeks, including written submissions and stakeholder meetings with MBIE officials. The government evidently intends to introduce the new bill in June, soon after the consultation process ends.

The introduction states the bill is intended to promote the enduring settlement of pay equity claims through a bargaining framework and to re-enact, in an up-to-date and accessible form, the provisions of the EPA. The broad description of the framework accords with these intentions.

However, as we always observe, the devil is in the detail. The provisions of the bill are over-complicated and unwieldy. Worse, the bill deviates from the EPA and interpretation of the courts in the Bartlett litigation in significant ways. Existing rights would actually be removed from potential claimants. The overall scheme of the bill looks to a critical eye like an exercise in damage control.

The framework

The bill reinforces the obligation on employers not to discriminate on the basis of gender when it comes to pay and conditions. Pay equity claims must be raised direct with employers, responded to and bargained for, if necessary with the assistance of mediation, facilitation and determination by the Employment Relations Authority. Settlements are intended to be abiding and required to be reviewed regularly. There is a requirement to act in good faith, and penalty provisions for breaches of legal duties. Claims can be consolidated to promote efficient bargaining.

Does a pay equity claim exist?

The threshold test a claimant would have to meet to establish their claim “has merit” goes well beyond s 3(1)(b) of the EPA, and what the JWG recommended. The bill takes all the factors set out in the JWG principles for “assessing the merits” of a claim, but turns them into cumulative criteria which a claimant must prove before the parties are required to embark on an assessment of the pay rate.

Claimants would bear the burden of proving a large number of reasons and factors (social, historical and macro-economic) assumed to contribute to gender discrimination, to even get their claim on the table. MBIE officials explained the merit threshold is designed to weed out other, non-pay equity pay claims. In my view, it will also weed out valid claims.

Hierarchy of comparators

In the Bartlett litigation, Terranova argued the work women could point to as a comparator (to assess the correct rate for their work) should come from within the same employer, or failing that, the same industry. The courts rejected this submission, observing that, in order to find a suitable comparator untainted by gender bias, women may need to look beyond their enterprise, or even the sector or industry.

The consultation bill would reverse this ruling to impose a hierarchy of comparators on claimants: first they must try to find a comparator within their own employer; failing that, similar businesses; and failing that, the same industry. Only if all of those possibilities were exhausted could a comparator be drawn from beyond the same industry. How parties are meant to gather this intelligence, or fund it, is a mystery.

The justification for making parties use comparators within the same enterprise is that it will reduce transaction costs. This is wrong, both in principle and in practice. Even the example of pay equity given in the Cabinet paper is between a drainlayer and a police officer.

In low-paid, female-dominated sectors, many of the roles will be affected by gender discrimination. Many workplaces will not have sufficient roles to find a suitable comparator. Identifying a suitable comparator should focus on the right attributes and the absence of gender bias, not its location. Comparing jobs in male-dominated industries or workplaces is the simplest way to guarantee you are looking at untainted male pay rates.

Raising a pay equity claim

Pay equity claims would be raised with employers in the first instance. The employer would have obligations to notify other potentially eligible employees (30 days) and to respond with a decision about whether the claim is accepted to have merit (90 days). These timeframes can be extended by the employers if they claim to have reasonable grounds (unspecified and with no upper limit).

If a claim was accepted as having merit, good faith bargaining would be required. Multiple similar claims would be required to be treated as a class action. Employers facing similar claims could choose to consolidate their bargaining, but would have to reach individual settlements at the conclusion of bargaining. Consolidation raises numerous issues, particularly for employees and employers not used to MECA bargaining.

Navigating through a procedural maze

The process described in the bill is supposed to be simple and low level, with the aim of keeping parties out of the courts. The detailed provisions are closely modelled on the current good faith collective bargaining regime under the ERA, even for claimants who are not members of a union (i.e. around 77% of working women in New Zealand). This will present challenges to potential claimants in the majority of workplaces.

If the employer declined to accept a claim had merit, this could be challenged in the Authority. However, all the dispute resolution processes would apply to this preliminary threshold enquiry. The parties could be directed to mediation or even facilitation, before the Authority would consider the application for a ruling on merit. Determinations of the Authority can be challenged and heard de novo by the Employment Court. Appeals to the Court of Appeal can be taken on questions of law.

If the Authority ruled a claim had merit, back the parties would go to bargain about the appropriate comparators and assessment of an untainted pay rate. If they could not agree on these assessments, they would be required to mediate and seek facilitation, before an application could be made to the Authority to set the pay rate. The JWG recommended easy access to facilitated bargaining, but a contentious threshold has been included; applications could be opposed and declined.

These processes are tortuous and repetitive, rather than simple and low level. The transaction costs for claimants, even those supported by unions, would be excessive. Employers would also face significant costs. The potential for litigation at each stage to test interpretations of new provisions, merit, appropriate comparators and participants’ actions, including claims of bad faith, could see parties involved in more litigation, not less.

It is worth noting that the EPA delivered a result for 55,000 people from one case which went through the Employment Court and Court of Appeal (as a test case on jurisdiction), and bargaining to agree the pay rate. That looks like economic efficiency.

Resourcing

The JWG recommended that, given the complexity of pay equity assessments, it was essential parties have ready access to information and resources to assist them. Parties and the employment institutions would need access to market and remuneration data, and the expertise of specialists. The institutions will require additional personnel and support, including training, to deal efficiently and competently with the tasks required of them. There has been no indication of additional resourcing coming from the government.

The only provision in the bill dealing with information provides for specific disclosure from the employer in question, on request, after a claim has been raised. How claimants (or employers) are supposed to access wider labour market data which is not currently collated is unclear. There is a real need for transparency of pay rates for men and women across the economy, which is what Green Party MP Jan Logie’s Equal Pay Amendment Bill is designed to address.

As Maria Dew noted, the regulations which have just come into force under comparable UK legislation (The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017) require large employers to publish annual statistics concerning the pay gap between their male and female employees. Recent research has revealed that, to date, the 2010 UK legislation has not delivered a significant reduction in gender inequality. Greater transparency about pay would be a useful mechanism in New Zealand.

An alternative process

It would be far simpler and cheaper for all parties, including the state, if detailed claims were put to employers, and if not accepted to have merit within 90 days, proceeded directly to the Authority for a preliminary ruling on merit. Market data and research about pay equity assessments, together with expert evidence -resourced within the Authority – could be drawn on to identify suitable comparators. Once a ruling was made on merit and suitable comparators, good faith bargaining could proceed, if necessary with the assistance of mediation and/or facilitation. If not settled through those processes, the ERA would have jurisdiction to set the rate and impose any penalties. As precedents were established about merit thresholds and identification of suitable comparators, settlements would become more straightforward. This would be efficient, would encourage early settlements and is more consistent with the EPA, and the JWG recommendations.

Anti-rights provisions

The bill would separate out equal pay, and treat it as a wage arrears claim, rather than a discrimination action.

Suitable comparators may include those which have already been the subject of a pay equity settlement. Rates set by settlements are not guaranteed to set a rate free from gender bias; this may drag down the assessment of a new claim.

Inexplicably, in pay equity cases only, the Authority would have no jurisdiction to award backpay for the six-year limitation period. Pay would only be awarded from the date the claim was made. This is inconsistent with the principle that for a legal right there must be a remedy. This begs the question why employers would agree to a settlement including backpay, if they know there is no power to award it, even if employees ever manage to get their case heard.

Claims where there has been a previous pay equity settlement which the employer extends to the claimant would be barred unless the Authority or court was satisfied there were exceptional circumstances. A future claimant would face a hearing to be allowed to challenge the outcome of a past settlement, even if pay inequity persisted.

The consultation paper suggests existing claims could be brought under the new legislation. That is, the more onerous legal tests, processes and restrictions could apply retrospectively. This is contrary to the Legislation Advisory Committee Guidelines (retrospective effect and not pre-empting matters currently before the courts).

The bill would impose low-level penalties on employers for breaches of their legal obligations under the provisions, but no penalty for inequitable pay.

Conclusion – a backward step

Women seeking to pursue a pay equity claim under the proposed legislation would face significant procedural and evidential obstacles. Many will simply give up. MBIE officials suggest employers would agree to a settlement at an early stage, to avoid the expense and uncertainty of litigation. The outcome is likely to be the opposite: the risk of an adverse finding is too remote to incentivise early settlement.

The Cabinet paper, Regulatory Impact Statement, recognised the value of the existing model after the Court of Appeal judgment in the Bartlett case: “Bargaining would be influenced by relevant court precedent and the incentive to avoid litigation” (para 33). It went on to recommend the proposed model, saying early recourse to the courts is inconsistent with the ERA (para 41). The paper states bargaining is more economically efficient as employer and employees are best placed to know their particular circumstances and agree on the optimal mix of wages and conditions to reflect productivity and business and employee needs.

The bill should be about correcting injustice in an efficient way, not achieving economic efficiency. The market has seldom delivered a just outcome in terms of pay equity, without a court decision or the threat of one compelling the parties to resolve the situation. The bill would deliberately make accessing the ERA and court much more difficult. This risks disempowering the very people it is stated to be helping. Litigation will not be reduced by the bill – new legislation is always tested in the courts.

Contrary to the stated purpose of the draft bill, it does not re-enact and modernise the Equal Pay Act and it does not implement a workable regime based on the Bartlett case and JWG report. Passing this bill would be a major backwards step for pay equity. It could bring New Zealand under renewed criticism from the ILO for failure to fully comply with ILO 100. The bill and, as importantly, the policy underlying it require significant change if women in New Zealand are to achieve pay equity in our lifetimes.

Acknowledgement

I acknowledge with thanks the intellectual input of Martha Coleman, Elizabeth Tennet, Linda Hill and Prue Hyman of CEVEP as we have worked on a submission on the bill. Some of their ideas are reflected in this article, but the view expressed is mine; on this occasion I am not advocating on behalf of CEVEP.


Steph Dyhrberg steph@ddelaw.co.nz is a partner with specialist Wellington employment law firm Dyhrberg Drayton.

Last updated on the 2nd June 2017