New Zealand People Watch: February 2017

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Our first edition of People Watch for 2017 takes a look at the changing nature of the workplace. Labour market systems to ease compliance with changing regulations, motivating a multi-generational workforce and realising the full potential of older workers will all be vital in the coming years.

In this issue:

  • How will the gig economy impact employment taxes?
  • Adapting reward strategies for the future workforce
  • Engaging with unions – what role do they play as workforces transform?
  • The changing demographics of our workforce – opportunities for business
  • Business travellers – managing your mobile workforce
  • The future of global mobility and global talent management

Snapshots: the changes you need to know:

  • Latest market reward trends from REMonTAP

    More than 150 companies provided data for the November 2016 EY REMonTAP Survey. The 19th edition of the survey includes the latest remuneration data for over 50,000 incumbents, covering 398 roles and explores the following topics:

    • Regional differences and talent attraction
    • Market benchmarking and job sizing policies
    • Flexible benefits
    • Diversity
    • An analysis of redundancy provisions

    Caution and conservatism rule
    The median overall actual salary increase reported for the previous 12 months is 2.5%. This data is constant across career levels at 2.5 - 2.6%, with the exception of Collective Agreements (2.0%). Despite the bright economic climate, forecasts are conservative, with the median at 2.5%, a slight decrease of 0.2% from November 2015.

    Wage pressures are being diffused as a result of low of inflation, coupled with record high immigration rates. Although business confidence is at its highest point since 2014, there seems to be an atmosphere of caution and conservatism around spending. Many of our largest organisations are Australian-owned and with GDP growth much slower across the Tasman than has been typical over the last decade, Australian-parented organisations appear cautious around salary movements. Finally, the impact of major global changes such as Brexit and the recent elections in the United States make for an uncertain world economy, which puts a damper on business confidence and encourages conservatism.

    War for talent continues
    67% of respondents report difficulty attracting and retaining talent. Auckland is the hardest-hit region. At the same time 21% of organisations indicated that they are experiencing skill shortages across the whole country. Despite this and ongoing publicity about housing affordability in Auckland, 94.5% of organisations do not operate a regionally-differentiated pay policy.

    Diversity strategies in short supply

    • Only 36% of responding organisations have a specific diversity strategy in place
    • Another 21% of organisations plan to implement a diversity strategy in the next 12 months
    • Percentage of female management is the most commonly measured statistic
    • No respondents measure LGBT participation in the workforce

    85% of responding organisations have succession–related diversity policies in place. They want to recruit from balanced talent pipelines and candidate pools.

  • EY’s Contingent Workforce Study

    40 to 50 percent of the workforce could be in non-permanent employment by 2020.

    In June 2016 EY conducted the Contingent Workforce Study1 to uncover key insights into the nature of the “gig economy”. This global study was conducted across 215 private and public sector organisations with more than 1,000 contingent workers surveyed.

    A few key insights from the study: 

    • Why use a gigger? Giggers allow organisations to flex their capabilities and control costs. 56% of organisations are using gig workers to complete projects where the specific expertise is beyond the capability of the existing workforce.
    • But what about the giggers themselves? Some think that contingent workers are only working in this manner as they are unable to find permanent employment. However, 52% of contingent workers would prefer not to be employed full time.
    • Benefits to contingent working: The majority of workers appreciate the flexibility of their work (80%), with others appreciating the control (49%) and the ability to work from home (33%).
    • Challenges of contingent working: 58% of workers feel that permanent workers are treated better than they are. Contingent workers’ worries are based around not being offered paid vacation, sick/personal leave and health care or retirement benefits.
    • Culture and contingent working: Contingent workers reported feeling disconnected or ambivalent toward their employer’s business objectives. 40% feel as if they are outsiders compared to the permanent workforce.

    Getting value from giggers
    Organisations need to assign responsibility for the contingent workforce. We found 37% of organisations admit to having fragmented governance models for managing their contingent workforce. Additional issues highlighted for organisations and their contingent workforce were the lack of streamlining in hiring processes, lack of capability to improve talent management of both permanent and contingent workers and perceived security threats of using contingent workers - especially in relation to intellectual property and cybersecurity.

    1EY’s “Contingent Workforce Study: Is the gig economy a fleeting fad, or an enduring legacy?”.

  • Do New Zealand’s age discrimination provisions trump Hong Kong law?

    Analysis of the recent New Zealand Basing Limited v Brown [2016] NZCA 525 decision

    Are parties to an employment agreement able to choose to have that agreement governed by a jurisdiction that offers the employees lesser protection?  Yes, says the New Zealand Court of Appeal.

    Two Auckland-based pilots employed by Cathay Pacific disputed provisions in their employment agreements stating that they could be required to retire at the age of 55. The parties had agreed that the employees’ employment would be governed by the laws of Hong Kong. The retirement age would have been unlawful, had the agreements been governed by New Zealand law.

    The Employment Court considered that it was important to go beyond the words of the employment agreement and look to the surrounding circumstances. It determined that a number of factors pointed to New Zealand as the relevant legal jurisdiction: the pilots lived in New Zealand, were paid in New Zealand dollars and paid New Zealand income tax and ACC payments. The Employment Court found that applying the Hong Kong law would be a serious violation of justice and an infringement of human rights.

    By contrast, the Court of Appeal held that the starting point was to assume that the parties’ express choice of Hong Kong law would govern their rights and obligations, and then assess whether any exceptions applied. The relevant exception in this case is whether the parties’ choice of law should be overridden on public policy grounds. To succeed on public policy grounds the choice of law and its consequences would need to “shock the conscience of a reasonable New Zealander”.  The Court of Appeal did not consider that Hong Kong’s lack of prohibition on age discrimination met this threshold.

    The right to be free from age discrimination is not absolute in New Zealand “but is a flexible concept linked to and reflecting a range of fiscal, social and cultural factors”. Under the Hong Kong agreement, the pilots also benefitted in other ways that would not necessarily have been the case under New Zealand law.

    The decision confirms that (unless exceptional circumstances apply) the Courts in New Zealand will respect parties’ decisions as to the choice of governing law. The position remains less clear where no express choice of law has been made.

  • Do employment investigations need the rigor of a judicial inquiry?

    The Court of Appeal says no. 

    A Ltd v H [2016] NZCA 419

    Employers have become increasingly concerned about what is required of them when investigating alleged misconduct. Cases have placed quite onerous obligations on employers when conducting an investigation process.  The Court of Appeal’s decision in A Ltd v H brings some welcome relief for employers regarding the standard to which employers will be held.

    This long running case stems from an allegation of sexual harassment by Ms C (a flight attendant) against, Mr H (a pilot) during a stopover.  Following an investigation, Mr H was dismissed for sexual harassment and serious misconduct. He brought a claim for unjustified dismissal on a number of grounds including deficiencies in the investigation procedure followed.

    The Employment Court decided that dismissal was unjustified. While Mr H’s account of the incident had been vigorously tested, the same approach had not been taken with Ms C or the other witnesses. The Employment Court did not consider that A Ltd (the employer) had conducted a sufficiently rigorous investigation into the allegations. Mr H was reinstated and awarded compensation. 

    The Court of Appeal disagreed with the Employment Court. It considered that the Employment Court had imposed a set of rules that did not correspond with the statutory test for employer investigations.  The Court of Appeal found that the relevant test is what a fair and reasonable employer could have done in all the circumstances. This requires “substantive fairness and reasonableness” rather than “minute and pedantic scrutiny”.

    It will still be necessary for employers to conduct a full and fair investigation into any allegations of misconduct prior to taking any action. However, the Court of Appeal’s decision means that employer investigations will be judged more holistically, applying a standard of reasonableness to the investigation as a whole, and looking at any procedural errors in a broader context.

  • Correct categorisation of workers essential

    Dewhurst v CitySprint UK Ltd ET/2202512/2016

    Following last year’s high profile Employment Tribunal victory for two Uber drivers in the UK, which could force Uber in the UK to offer sick pay and holiday pay to its 40,000 strong fleet of drivers, the Employment Tribunal has now also ruled that a cycle courier working for delivery firm CitySprint is a “worker” rather than an independent contractor. CitySprint, in a similar way to Uber, provides self-employed drivers with access to potential jobs through an iFleet portal and app.  The Tribunal essentially considered that CitySprint had labelled the courier’s employment status in a way that twisted the reality. Ms Dewhirst was given a uniform, required to undergo an induction and there was a high level of control over her duties. Accordingly, the Tribunal classified her as a “worker”; a middle ground between an independent contractor and an employee, which allows the worker some minimum employment rights, but not the full suite of employment benefits and protections. New Zealand does not have a similar distinction.

    The implications of these decisions are likely to reverberate widely, and they will almost certainly be appealed. With at least three further legal challenges currently being taken against courier companies in the UK, the concern of some people that the gig economy sounds the death knell for worker protections may have to be reconsidered. Employment lawyers are warning that the likes of construction workers and cleaning and maintenance staff engaged as independent contractors may bring legal challenges for significant amounts of back pay.

    While we do not have a similar contractor/worker/employee distinction in New Zealand, it remains essential for businesses to ensure they are categorising workers correctly as independent contractors. Miscategorisation can lead to increased tax liability, exposure to claims for unjustified disadvantage and dismissal if employees have their contracts terminated and liability for minimum employment benefits, such as minimum wage and holiday pay.  Businesses considering a move to a contingent workforce should also take heed of developments in other countries when considering how to structure their workforce, to ensure that their employment relationship categorisation will continue to be defensible as working patterns change.