Rose Ryan

Market Rules: Industrial Relations in Hotels and Restaurants

Rose Ryan

Abstract: In recent years, various commentators have pointed out the need to examine the
nature of industrial relations in the service sector. This paper reports evidence from a multi-
method study of workplaces in the Accommodation, Cafes and Restaurants industrial sector,
which in New Zealand makes an increasingly significant contribution to employment and
economic growth. Despite the stereotype of the industry as highly casualised and low-skilled,
the research suggests that a variety of management approaches to industrial relations can be
discerned in respect of the nature of the employment relationship, the approach to
collectivism and the structure and content of employment contracts.

Introduction

The environment surrounding the Employment Contracts Act (ECA) in New Zealand has been
controversial since its passage in 1991. Much has been claimed for the Act, including increased
levels of employment and productivity, and a reduction in industrial action. While some of these
claims are difficult to prove or disprove (see for example, Henning, 1995; Yeabsley and Savage,
1996), an indisputable feature of change during the 1990s has been a decentralisation of industrial
relations to the level of the workplace. The most common type of collective employment contracts
are those established at an enterprise level (Industrial Relations Service, 1996; Harbridge and
Crawford, 1996) and it has been estimated that just under a third of the workforce are employed
under individual employment contracts (Statistics New Zealand, 1993).

Despite this change, employer approaches to industrial relations in the past five years are still a
matter for debate. While some have claimed that the Act has allowed more positive relationships to
develop between employers and employees, others have argued that the Act has facilitated a more
aggressive approach to industrial relations based on exercise of unconstrained managerial
prerogative. Attempts have been made to estimate the spread of various practices (see for example
Boxall, 1993, 1995; Heylen Research Centre, 1992, 1993), but in general little is known about the
ways in which individual employers have approached the transition to enterprise-based bargaining.

The service sector in general, and the hospitality industry in particular, is generally used to
illustrate the ways in which employers have made use of new-found freedoms to take advantage of
workers in a disadvantaged labour market position (Gosche, 1992; Harbridge and Street, 1995).
While these studies are important in providing an understanding of the impact of the Act from an
employee perspective, at the same time, they paint only a partial picture of the dynamics of
workplace industrial relations. This paper aims to reduce this gap, reporting evidence from a multi-
method study of labour, employment and work in the hospitality sector in New Zealand. It suggests
that the image of the industry as unitarist and exploitative must be rejected in favour of a more
complex picture of patterns of industrial relations.

Management practice in industrial relations

Changes in the balance of bargaining advantage in the 1970s and 1980s saw employer industrial
relations practices being more commonly included on the industrial relations research agenda.
While space considerations do not permit a review of these in this paper, several typologies of
management practice were developed (see for example, Purcell, 1987; Guest, 1990; Marchington
and Parker, 1990; Purcell and Ahlstrand, 1993) which suggested that approaches to industrial
relations in different workplaces varied according to workplace size, ownership, product market
conditions, and technological and operational considerations. While many commentators argued
that the 1980s saw a shift from collectivism to individualism, and a corresponding decline in trade
unions and collective bargaining, Purcell and Sisson (1983) argued that some employers had
adopted policies which promoted the interests of employees as individuals, while still working with
trade unions. Conversely, continuing collectivism did not guarantee protection of worker interests.

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This argument has formed the basis for several further typologies of management practice which
make a distinction between management approaches to employees as individuals (specifically the
extent to which employees are treated as a valued resource or as a commodity) and as a collective
(particularly whether a co-operative or adversarial approach is adopted). This may be represented
diagrammatically as seen in Figure 1.

Employee as
resource Employee Sophisticated human Consultative
development relations

INDIVIDUALIS
Traditional
M Paternalis paternalism
m
Bargained
constitutional

Labour Traditional
Employee as control and
commodity cost
minimisation None Adversarial
(Unitary)
COLLECTIVISM

Figure 1: Management approaches to industrial relations

(Source: adapted from Purcell, 1987; Purcell and Ahlstrand, 1993; Storey and Sisson, 1994.)

The possibility that employers may adopt a variety of approaches to employees as individuals and as
collectives gives rise to the likelihood of a wide range of managerial practices. At the extremes,
employers may adopt an exploitative approach which is essentially anti-union and based on
reducing labour costs as much as possible. Alternatively they may recognise collective interests and
negotiate agreements with unions which include provision of training and recognition of skills. In
between these extremes an almost infinite variety of types is possible. A refusal or reluctance to
recognise collective interests may be based on a paternalistic approach which regards management
as being in a better position to promote the interests of employees, or an ideological opposition to
trade unionism. Where the collective is recognised, employers approaches to bargaining may fit
anywhere along a continuum between adversarialism and co-operation; and the content of the
contracts which are negotiated may similarly range from minimalist to being comprehensive and
generous in nature.

In the New Zealand context, studies of management practice in the period following the ECA have
followed the tradition of classificatory systems which suggested that three broad approaches were
taken as industrial relations environments diversified (Batstone, 1988; Baglioni, 1990; Horstman,
1988). Boxall (1993) hypothesised the existence of three types of employment strategy in the early
1990s mainstream employers who had changed little in their employment practices; those who
have used the ECA to drive down wages and conditions of work; and those pursuing a high-trust
strategy. In addition, factor analysis of workplace data has been used to argue that a range of
enterprise types can be distinguished (see Heylen, 1992, 1993; Armitage and Dunbar, 1993;
Whatman et al., 1994). Neither of these analyses, however, have attracted significant debate, nor
has there been systematic analysis of why employers in similar circumstances adopt different
practices, and how these have changed over time.

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Research methodology

The study on which this paper is based was carried out from mid-1995 through 1996, using several
methodological approaches. In the second half of 1995, a survey was sent to a sample of 1,150
workplaces in the Accommodation Cafes and Restaurants industrial sector (ANZSIC subdivision
57), selected at random off the Statistics New Zealand Business Directory1. A response rate of
60.7% was achieved, and Table 1 below provides details about the survey responses.

Table 1: Responses to survey

Number
Employed fewer than 5 staff or had gone out of business 98
Returned incomplete or not completed 8
Declined to answer2 13
Gone no address 19
Useable responses 560
Total 698
Completed questionnaires were received from a wide range of workplaces across all sizes, locations
and industry sub-groups. It is impossible to definitively establish whether the sample is fully
representative of the industry as a whole, as Statistics New Zealand currently publishes its
statistics according to the old NZSIC. However, estimates suggest that the sample is reasonably
representative, although with a slight over-representation of hotels and pubs; and a slight under-
representation of motels and cafes. The reason for this is likely to be the different response rates
from workplaces of different sizes, so that those parts of the industry in which workplaces are
medium- and large-sized are likely to be over-represented.

In addition to the postal questionnaire, qualitative data was collected through follow-up interviews
at 37 workplaces, across a range of industry sub-sectors, size groups and locations. Interviews were
semi-structured, following a pre-set list of subject areas, but being wide-ranging in specific content.
All interviews took place at the interviewee's workplace, and ranged in length from half an hour to
an hour and a half, with most taking 45-50 minutes. All interviews were tape recorded.

Lastly, an analysis of employment contracts pertaining in the industry was undertaken. Wherever
possible, employment contracts were collected from workplaces where interviews took place; and
these were supplemented with others obtained from a variety of sources.3 In all, 62 contracts, all
current at January 1997, were analysed according to a pre-determined range of variables.
Contracts ranged from those covering an individual employee at a specific workplace to standard
contracts applying at a number of workplaces.

1 The Business Directory is the most comprehensive listing of businesses in New Zealand. It comprises
information on all economically significant enterprises defined as those with more than $30,000 annual GST
expenses or with more than two full-time equivalent employees. Information on employers is obtained
through an Annual Business Directory Update Survey. In addition, the database is updated by receiving
feedback from other economic and financial surveys (e.g. Retail Trade Survey); by a monthly birth survey of
all compulsorily GST registered businesses (this is the prime source for adding new businesses to the frame)
and by media and Building Permit information to capture significant new business start ups (e.g. new
shopping malls).

2 This included respondents who objected to completing the questionnaire and those where the organisation
has a policy of not doing so.

3 I am particularly grateful to Associate Professor Raymond Harbridge who generously allowed access to his
database of contracts.

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Industrial relations in hotels and restaurants

The research addressed a number of issues relating to the nature and content of employment
contracts operating at the workplace, the process for their negotiation, and employee representation
in industrial relations processes. The overall picture was one which confirmed some but not all
stereotypes of the industry. 56.2 per cent of the workplaces surveyed had written employment
contracts, rising to over two-thirds where more than 15 employees were employed. In addition,
collective contracts were evidenced in larger numbers than was expected. While a higher
proportion of workplaces had individual rather than collective employment contracts (43.9 per cent
as opposed to 32.3 per cent) a further 17.7 per cent had individual arrangements applying on top of
collective ones. The content of contracts, however, and the process of wage determination for
individual employees, can rarely be said to constitute a process of negotiation. Even by managers
own accounts, employment contracts, irrespective of whether they are collective or individual, are
determined by management, and in only 18.2 per cent of workplaces did managers describe their
contracts as being negotiated, either by individuals or by an employee representative. This lack of
negotiation in part reflects the low level of union density applying in the industry. Two-thirds of
survey respondents had no union members in their workplace, and in only 3.6 per cent did the
number of union members exceed 50 per cent. Other measures indicated a low level of union
activity. Unions had attempted to recruit members in just over 10 per cent of workplaces in the
previous year, and in a similarly low percentage the union had raised an issue with management on
behalf of an employee. Few managers had any contact with the union, and a number said that
while they had had dealings with them in the past, this had dropped off significantly in the post-
1991 period. While only a small proportion of employees belonged to an employee organisation, a
larger number of employers belonged to an employer body. Only just over a quarter of respondents
did not belong to any employer organisation, and a high proportion belonged either to the relevant
industry body (e.g. the Hospitality Association, Motel Association of New Zealand, Chartered Clubs
Association) or to an employer organisation (e.g. the New Zealand Employers Federation or a
constituent Employer Association) or to both. Those that did not belong to any employer group
were generally those employing fewer than 10 staff.

The general picture painted above masks considerable variation in patterns of industrial relations
in the industry. Four different management approaches were discerned, and may be described in
terms of the view that managers had of their employees (in particular in respect of training and
skill formation) and the construction they placed on the employment relationship, the approach
they took to contract negotiations, and their attitude towards employee representatives. The four
managerial variants, which should be seen as behavioural clusters rather than distinct and
mutually exclusive types, are described below.

The good employer

Despite the popular image of employers in the industry as adopting a largely exploitative stance in
relation to their employees, a number of organisations have adopted progressive industrial relations
and human resource practices. These tend to be larger than average, and typically include
workplaces that are part of a larger organisation (such as hotel and fast food chains, and some
Licensing Trusts). Their larger size means that they often employ personnel or human resource
professionals responsible for industrial relations matters. Workplaces of this type are characterised
by a high level of commitment to employee training, a continuing recognition of collective interests
including protection of union rights, and employment contracts which establish mutual rights and
obligations between the parties.

Levels of training in the industry have increased at an exponential rate over recent years, with
numbers of employees attending courses overseen by the Hospitality Standards Institute (formerly
the Hotel and Catering Industry Training Board) increasing by 267 per cent in the 1990s. A
reflection of this was seen in the survey results, with between a third and a half of restaurants and
fast food restaurants providing on-going training to more than half of their employees in the
previous year. Hotels and fast food restaurants commonly have their own in-house training
programs which provide employees with structured learning experiences and skill appraisal. In
addition, employment contracts increasingly include training provisions which set out training
guarantees, recognition of training undertaken at workplaces of a similar quality standard, paid

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time off for training, and employer reimbursement of tuition and examination fees. Pay rates are
frequently based at least partially on skill, and extra payments or increases in wages for skill
attainment are provided for.

While workplaces of this type place high value on individual employees, they have not eschewed
collective rights. Some employment contracts continue to include provisions for deduction of union
fees, recognition of job delegates and paid time off for union meetings, and a larger number are
negotiated with the unions. Managers at these workplaces can in no way be characterised as anti-
union. They are happy to continue to work with unions where their employees are members. As
one employer stated:

I don't have a problem with the union. I don't care whether we have a union or not. If I had
a problem with a dismissal and that person's been a union member, I've sought advice.
Because if you involve the union at the right time, then the union will be helpful, because
they want to see their work ... they want to succeed as well. It s a matter of trust. (Fast Food
Restaurant manager)

At the same time, moves towards alternative forms of employee representation are evident. Larger
workplaces have commonly moved towards the establishment of various committees made up of
employer and employee representatives for discussion and policy formation on varying issues
including health and safety, training, negotiation of the employment contract, and disputes and
grievances. Employee representatives are rarely elected, however, but are more commonly
volunteers or selected by management.

We use volunteers ... those that are interested, usually no coercion, and a lot of them. You'd
be surprised at the people that want to be on people that don't normally volunteer for
anything else, but are really interested in that area. You know, chefs, kitchen hands,
telephonists people that you might not think would be interested because of the level of the
job that they are doing. But we ask for volunteers and we say to them look this is for your
benefit, it s not only for the benefit of management. (Hotel manager)

There's never any problems about finding a representative. What we try and do is to make
sure we've got a really good cross-section of people. So we've got some older people, some
younger people, some full-time and part-time workers, and we put up the list. If we select, we
select the people basically so that we've got a spread of people, like we've a manager in there,
because they're on the time card as well they're not all on salary. (Fast Food Restaurant
manager)

The employment contracts applying at these workplaces are invariably collective, and
comprehensive in the range of conditions of employment that they cover. In addition to wage and
leave provisions, they generally include provision of meals and clothing, transport to and from work
between 11pm and 7am, two rostered days off in seven, limits on-hours of work and payment of
overtime outside these times, and occupational health and safety and training. Because these
conditions are included in the contract, they not subject to managerial discretion. Pay and
conditions are generally above average, reflecting what one manager described as a desire to be the
employer of first choice . Where contracts set out employee obligations, these are often framed as
requests, and the operational reasons for their inclusion specified. In addition, contracts frequently
include a statement of intent which describes the employment relationship in terms of mutual
obligation. One contract for example expresses this in the following way:

Nothing within this agreement exempts any manager from their duty to treat those for whom
they are responsible in a caring and equitable manner. Likewise, nothing in this agreement
shall exempt workers from their responsibility to do their best to promote the industry and
the enterprise for which they work. The parties agree that they will give each other the
utmost cooperation to ensure that harmonious industrial relations are maintained. (Hotel
contract)

Paternalism

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Paternalistic employers form perhaps the numerical majority of those in the hospitality industry.
In contrast to the professionalism and business-like nature of good employers , the construction of
the employment relationship in workplaces with a paternalist style of management is intensely
personal and direct, in part reflecting the fact that these workplaces are often small- to medium-
sized. In interviews, managers frequently made reference to the workplace dynamic as being
family-like , to socialising with their employees after work, and to providing them with assistance
with personal problems which impacted at the workplace. An indication that employees shared at
least some of these perspectives is seen in the fact that labour turnover at these workplaces is
frequently low, with longer than average job tenure.

The direct and personal nature of the employment relationship in these workplaces is reflected in
the attitude of these employers and managers to employee representation. Most commonly, these
managers would express a positive view of unions as protecting workers from other employers, but
saw them as unnecessary in their own workplace. Two managers outlined this as follows:

[If the union wanted a meeting with employees] ... we'd say fine, we can t really stop them.
But I believe there's nothing here, in the contracts, that would contravene ... everybody's
treated fairly. Pay-rates are probably a little above the award. (Hotel manager.)

We have not seen them since the Employment Contracts Act started, not even to bring in any
information. When the ECA was first proposed we said to the staff, we believe in unions and
we think you should stay members of the union. It costs you a pittance, and you never know
when you're going to need it. And of the 12 people we were employing then, one person chose
to keep paying union fees. (Restaurant manager)

The importance of personal relationships meant that these managers often felt a sense of failure
when employees went outside the workplace for advice on employment-related matters. One hotel
manager saw it as underhand that her employees had approached the union for advice on
changing hours of work; while a motel manager expressed a sense of hurt that an employee had
rung the Labour Inspectorate to ask about payment for public holidays. In both situations, the
managers were unable to understand why their employees had not been able to come to them direct
with their problem. This attitude was prevalent despite the fact that nearly three-quarters of
workplaces were members of employer or industry organisations from whom they sought
professional advice on employment-related matters. Few employers understood the gulf between
their own resources and those of their employees. Even when they did, they saw themselves as
being the best source of assistance for their employees:

We have to admit we did want to position the contract in a way that benefited us without
though taking away any rights from them, or making it harder for them ... To a certain
degree we had to spoon feed our staff. There was very little understanding and very little ...
what we could see as true support being given to them. If they wanted support, if they
wanted the understanding to work through the Contracts Act, they actually had to go to the
agencies involved to do that. But even being able to find out what agencies were involved, we
had to spoon feed them that. Which we didn't have to do, but it was a case of going through
that process. We found that giving them the responsibility of doing what the old union
representatives had done before them was a daunting task, and many of them are still at a
loss with that situation. (Motor Lodge manager)

While employers at these workplaces were open to the possibility of employee negotiations over
their employment contracts, most noted that in practice this had not eventuated. Contracts of
employment are not comprehensive, and it is common for conditions of employment (such as
uniform and meal allowances, late transport home, protections against working on rostered days
off, and so on) included in a staff handbook , or paid informally. This allows a considerable degree
of employer discretion in wages and conditions, and it was clear from interviews that employers
made use of this. For example, managers talked about paying wage increases or providing training
for those employees who they considered to be worth it and providing or withdrawing benefits
according to their personal assessment of whether the employee deserved that benefit. Thus while
paternalist employers believe that they have employees best interests at heart, and while their

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workplaces may be good places to work , their approach may not guarantee protections for
employees.

The legal minimalist

The employers and managers who may be described as legal minimalists include those whose
general approach to the employment relationship is based on reducing labour costs to the maximum
extent possible within the framework of the law. Little value is placed on employees, work is seen
as low-skilled, and the training that is provided is based simply on providing employees with the
minimum amount of information which they need to perform their jobs. These managers have a
very low level of trust of their employees, and frequently expressed sentiments which suggested
that they saw employees as constantly trying to get away with as much as they could. To avoid
this, employers maintained a strong sense of their managerial prerogative. They expressed this
through demands for employee loyalty and commitment; total flexibility in hours of work (including
being available to work seven days a week if required) and acquiescing to employer scheduling of all
annual leave. They took little consideration of employees personal lives and in interviews several
managers explicitly stated that employees were regarded as not being co-operative if they refused to
be available for work at particular times, because of sporting or church commitments. Needless to
say, the expectation of loyalty and commitment was one way. One employer for example, in
explaining how he established rosters for casual staff, stated:

We organise their hours as much as possible, because then you don t attract penalty rates
when you get public holidays and things. Trying to avoid as much as possible giving
Saturday as set hours or any days so you don t form permanent patterns. So we don t fall
into the trap of accountability if you like. (Hotel manager)

This emphasis on managerial prerogative is also seen in the specification of offences which may lead
to use of the disciplinary procedure or result in instant dismissal. While it is common in hospitality
sector contracts for contracts to specify that disciplinary procedures may be instituted for
insubordination, dishonesty, or arriving at work under the influence of alcohol or drugs , contracts
applying at workplaces where emphasis is placed on legal minimums include long lists of actions for
which disciplinary action may be taken. These frequently emphasise the requirement of employees
to obey employer instructions and in one contract even go so far as to attempt to prohibit employee
discussion or criticism of management.

The employment contracts in place in these workplaces are often individual, but standardised, with
no employee input or negotiation over their content. That they are drawn up by lawyers is
suggested by the often complex legal phrasing that they use (e.g. The employer hereby offers to the
employee the position referred to in the schedule hereto, on the terms and conditions stipulated
herein ). They provide little more in the way of conditions of work than that provided by statute,
and wage rates are no higher than those needed to attract staff. About a quarter of contracts also
include confidentiality and restraint of trade clauses. While some of these simply draw employee
attention to their duty of fidelity under common law, others go into substantial detail about
employee obligations ... not to reveal any of the trade secrets, secret or confidential operations,
processes or dealings, or any other information ... business, finances, customer lists, transactions, or
affairs of the employer (Motel contract). Given that the survey data found that few employers
provided their employees with information about operational plans or the financial position of the
workplace, these clauses are clearly excessive in their nature. A smaller number include an
employee loyalty clause which, reminiscent of employment contracts from the turn of the century,
requires employees to pledge loyal, honest and trustworthy service to the employer at all times in
return for being treated with respect and dignity. A small number of contracts also contain a
prohibition on employees being employed in other jobs.

The exploitative employer

Exploitative employers are generally small in number, and differ from legal minimalists in that
their attempts to reduce labour costs extend to conditions of employment that are contrary to
employment law. To the extent that many employers do not clearly understand their obligations as
employers, some of these unlawful actions may be the result of ignorance rather than deliberate
action. Interviews conducted as part of the research, for example, found managers who believed

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that there was still an award in place; that they were required by law to abide by the Hospitality
Association standard contract, that they could negotiate away statutory holidays by negotiation,
and that they could reduce wages to the level of the minimum wages without employee consent. Of
even more concern is the fact that some of these beliefs were based on advice which they had
received from their lawyers and accountants.

While ignorance may explain at least some incidents of unlawful employment practices, there is no
doubt that a small minority of employers see the law as standing in the way of operational efficiency
and the exercise of their managerial prerogative. The highly competitive environment of the
hospitality industry, and the emphasis on responsiveness to customer requirements is maintained
in some workplaces at the expense of fairness in employment matters. One bar manager explicitly
stated that he would instantly dismiss an employee that customers did not like, and felt that the
procedural fairness requirements developed by the Courts interfered with the running of his
business. Similarly, the employment contract applying in one hotel paying its cleaners by the room
states that no payment will be made where the standard of room cleaning gives rise to a justifiable
customer complaint. Nevertheless, it must be said that these employers form a small minority
within the industry.

Summary and conclusions

This paper has described some of the range of industrial relations practices applying in the
hospitality sector in New Zealand. It suggests that the stereotype of the industry as being entirely
exploitative in its approach to industrial relations is too simplistic and that management
approaches range from the very exploitative through to good employers who continue to bargain
with unions, value their employees and apply contracts which are generally fair. It is clear,
however, that there is a significant gulf in bargaining power between employers and employees in
the industry. Employers have access to considerably more employment-related advice and resource
than do employees, and develop contracts on the basis of advice from outside experts who not
surprisingly have their client s best interest at heart. While good employers exist within the
industry, the power to construct industrial relations on mutual, rather than exploitative terms, is
very clearly in the hands of managers and employers, rather than workers and unions.
Unsurprisingly, this is most likely to occur where the power gulf between the power of employers
and employees is bridged in some way. Collective employment contracts, for example, are generally
more comprehensive and beneficial to employees than individual contracts, and those contracts that
have been negotiated by the union are generally more comprehensive and beneficial to employees
than those that have not.

The research does, however, raise a number of other questions to be followed up in further analysis.
In particular, questions are raised about possible explanations for differences between workplaces.
While some association with size and industry sub-sector is found, exceptions suggest that other
factors, including employer assumptions and beliefs, may prove to be important. Secondly, the
extent of each managerial variant within the hospitality industry will be examined. While
paternalist and legal minimalist employers may form a numerical majority of employers, their
small workplace size may mean that practices may impact on a smaller number of employees in
comparison to the larger than average good employers. Lastly, the research raises some
interesting questions as to how employer practices in hospitality compare with those in other
industries in New Zealand. It is to be hoped that further research will take place in the future,
allowing us to make some assessment as to whether the service sector is managed in the same way,
or differently, from manufacturing and processing industries; or whether factors such as size are
the key variables in determining managerial practices.

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