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Pay Equity: It should be on your radar

Every HR professional in New Zealand should read the 2014 Court of Appeal decision in Terranova Homes and Care Ltd v Service and Food Workers Union (SFWU) (Terranova).


Why? Because what was held in Terranova forms the basis for major legislative change set to take effect in New Zealand this year. We do not know the form that the new legislation will take, but we do know the Government will legislate in response to the Terranova decision. We also know the legislation will provide guidance and a framework for how to facilitate a resolution in a pay equity claim.


In many cases it will be you, an HR professional, who is one of the first people to know about a pay equity claim an employee wishes to bring against his or her employer. I wrote this piece to bring awareness to the developing story of equal pay legislation in New Zealand. I hope the brief summaries of the line of Terranova cases and the historical overview of the legislation will deepen your understanding of this complex area and, in turn, assist in navigating a pay equity claim should one land on your desk in the future.


Once the new legislation is introduced there will be a practical requirement for HR teams to review policies, procedures and communicate with teams about new developments. What the inevitable pay equity framework will be is unknown, but it will be novel and it will need to be carefully understood by lawyers and ER/HR teams.


Unions will be mounting pressure on the Government to start pay equity negotiations. As this magazine goes to print, the Government has just announced it is set to enter into negotiations with unions for pay equity for mental health support workers.


Equal Pay Act 1972:


The Equal Pay Act 1972 (the Act) is a key piece of legislation governing pay equity and acting to reduce the gender pay gap (currently sitting at 9.7% in New Zealand). Its purpose is to remove and prevent sex-based discrimination in the rates of remuneration of males and females in paid employment.


The Court of Appeal in Terranova chose these powerful words to write in para. 1 of the judgment: 'For 42 years [the Act] has remained "largely mute". This [Terranova] case seeks to reactivate it.'


And, so it did.


Equal Pay v Pay Equity:


Equal Pay


Equal pay is defined in s 2 of the Act and is a rate of pay for work in which rate there is 'no element' of sex-based discrimination.


Section 2 of the Act had been widely understood to have been limited to requiring employers to pay equal rates to their male and female employees who do the same (or substantially similar) work. Importantly, it was understood the inquiry was limited to a particular workplace and employer.


This is now not the accepted interpretation of the definition of s 2. Crucially, the Court of Appeal in Terranova said there is nothing in the language of the Act to justify not extending the inquiry beyond the particular workplace and employer.


The Court also confirmed equal pay in terms of s 2 of the Act is 'broad and is capable of embracing pay equity' (para. 113).


Pay Equity


In its simplest form, pay equity is about fairness. It means women and men have the same opportunities to participate fully in employment regardless of their gender.


In the legal sense, it is more complex. It is commonly understood to mean 'equal pay for work of equal value.'  It assumes a comparison with a hypothetical male performing the same or substantially similar work. The test is not formulated in terms of what is paid to an actual or real male comparator elsewhere performing other types of work.


Equal Pay: An Historical Overview


The Government has taken a variety of steps to reduce the gender pay gap for more than 50 years.


Before the Equal Pay Act 1972 there was no legal requirement for equal pay between men and women in the private sector.


Equal pay between men and women had been implemented in the public sector by the Government Service Equal Pay Act 1960. About 25% of the total workforce were covered.


At the time, approximately 40% of all employees were covered by the Industrial Conciliation and Arbitration Act 1954 (this Act was subsequently replaced by the Industrial Relations Act 1973).


An example of a Collective Agreement typical at the time was the New Zealand (Except Canterbury) Rest Homes Employees Collective Agreement 1975. The Agreement set out pay rates for cooks, cook-generals and other workers. For each category there were separate male and female rates.


By 1977 the Act had been effective in eliminating separate female and male rates in collective and other types of employment agreements.


A missed opportunity for the judiciary to analyse pay equity was in 1986. In that year the Clerical Workers Union submitted a case to the Arbitration Court to test the continuing applicability of the Act and whether the Act encompassed pay equity. While the Court confirmed the Act was 'still alive' it rejected the Union's case. In its view the Act was limited to ensuring equal pay between male and female employees for the same work.


In response, the Government commissioned an equal pay study to question the existence and extent of the gender pay gap. It found the Act had failed to reduce the gender pay gap and failed to deliver equal pay for work of equal value to working women in New Zealand.


Parliament then enacted the Employment Equity Act 1990 which was well received and included pay equity provisions. However, New Zealand's progress in pay equity was again halted as within three months of the Act being enacted the National Party came into Government and the Employment Equity Act 1990 was repealed.


In its place Parliament enacted the Employment Contracts Act 1991. Its underlying philosophy was to foster individualism in employment relationships.


Since 1991 the Employment Contracts Act 1991 has been repealed and replaced with the Employment Relations Act 2000.


Terranova v Service and Food Workers Union (SFWU)




Ms Kristine Bartlett is a rest home caregiver and is a member of the Service and Food Workers Union (SFWU). She contended that the wage rates paid to her by her employer, Terranova Homes and Care Ltd did not provide for equal pay within the meaning of the Act.


The Employment Court


SFWU v Terranova Homes and Care Ltd was originally heard by the Employment Court in 2013. The key issue for the Employment Court was the scope of the requirement for equal pay for female employees for work exclusively or predominantly performed by them, and how compliance with this requirement would be assessed.


This involves (amongst other things) consideration of s3 of the Act. Section 3 provides criteria to be applied in determining whether an element of differentiation in remuneration based on sex exists.


The evidence that may be taken into account in determining what would be paid to the hypothetical male comparator (and therefore what their correct pay rate should be) was analysed in the case.


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.


Crucially, the Court rejected this submission, observing that it was too narrow. Instead, it held in order to find a suitable comparator untainted by gender bias, women may need to look beyond their workplace, or even more widely - beyond their sector or industry.


The Court of Appeal


Terranova appealed to the Court of Appeal on a question of law including whether the Employment Court had been correct in its interpretation of s 3 of the Act. The Court of Appeal agreed with the Employment Court and dismissed the appeal.


The Government's immediate response:


The result of the decision was a $2 billion settlement over five years affecting 55,000 service and food workers. From July 1 2017 this dedicated and predominantly female workforce who are mostly on or around minimum wage received a pay rise between around 15 and 50 percent dependent on their qualifications and or experience.


The Court of Appeal said the next stage of the proceedings should be the setting of universally applicable pay equity principles that could be supported by employers and by unions.


In 2015 the National Government established a Joint Working Group on Pay Equity Principles (JWG) for this purpose.


Led by Dame Patsy Reddy the JWG delivered its recommendations in 2016. The Draft Employment (Pay Equity and Equal Pay) Bill was the Government's response to the JWG's pay equity principles. It received widespread disdain. Many commentators believed the Bill was flawed, created unnecessary hurdles for workers raising claims and did not accurately reflect the recommendations of the JWG.


In November 2017 the Labour Government withdrew the Bill.


On 23 January 2018 the Government announced it would reconvene the JWG and said it would make recommendations to the Ministers 'by the end of February 2018'.


Once the recommendations are received the Government will work to develop new pay equity legislation which is expected to be introduced to the House by mid-2018.




Ms Bartlett has been instrumental in bringing the term 'pay equity' into parlance in New Zealand. Social attitudes and values develop over time and she has given a voice to a large group of women who previously remained silent. Her contribution to the pay equity conversation in New Zealand has secured her position as a pioneer for New Zealand women's rights.


It would serve us all to analyse what our organisation's employees are being paid (where appropriate) and see if there are differences between men's and women's earnings. If there are, find out if there are valid reasons for the differences. Take notice of gender pay gap developments in the media. Get involved in your workplace when diversity, inclusion and women's issues come up. Be ready to read the pay equity framework when the draft Bill is made public. You may even like to provide a submission to Parliament.


NB: This article is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice.


Philippa Donnithorne-Nicholls is an HR Practitioner, an Assessor on the Chartering Assessment Panel at HRINZ and an in-house lawyer.