Fiji Public Service Association v Public Service Commission [2005] FJAT 32; Award 52-57 of 2005 (19 October 2005)

THE REPUBLIC OF THE FIJI ISLANDS

NOS: 52 - 57 OF 2005

AWARDS OF
THE ARBITRATION TRIBUNAL

IN THE DISPUTES BETWEEN

FIJI PUBLIC SERVICE ASSOCIATION
FIJI NURSING ASSOCIATION
FIJI TEACHERS UNION
VITI NATIONAL UNION OF TAUKEI WORKERS
PUBLIC EMPLOYEES UNION
FIJIAN TEACHERS ASSOCIATION

AND

PUBLIC SERVICE COMMISSION

FPSA, FNA and FTU: Mr R Singh with Mr N G Singh,
Ms K Lutua and Mr A D Singh
VNUTW, PEU and FTA: Mr H Nagin
PSC: Ms A Uluiviti with Mr S Chandra

DECISION

These are disputes between the Fiji Public Service Association (FPSA), Fiji Nursing Association (FNA), Fiji Teachers Union (FTU), Viti National Union of Taukei Workers (VNUTW), Public Employees Union (PEU) and Fijian Teachers Association (FTA) (referred to as the Unions unless otherwise stated) on the one part and the Public Service Commission (the Commission) on the other part concerning unresolved issues arising out of the 2004 Log of Claims submitted by the Unions.

Trade Disputes were reported by FPSA and FNA on 29 November 2004. These reports were accepted by the Chief Executive Officer on 7 December 2004. Trade Disputes were reported by VNUTW, PEU and FTA on 11 November 2004. These reports were accepted by the Chief Executive Officer on 14 December 2004. The Chief Executive Officer referred all five Disputes to conciliation. As the Disputes were not settled, the Minister authorized the Chief Executive Officer to refer the Disputes to an Arbitration Tribunal for settlement pursuant to section 6 (1) of the Trade Disputes Act Cap.97.

The five Disputes were referred to the Permanent Arbitrator on 20 December 2004 with the following terms of reference:
FPSA

".... for settlement over the failure or refusal by the Commission to negotiate and resolve the Association’s 2004 Log of Claims (LOC) submitted on 01/06/04 which are as follows:

1. Claim for a five percent (5%) across the board COLA increase to the salary scales of all its members employed by PSC in all grades and classification, with effect from 1 January 2004.

2. Claim for an increase in all work related allowances by 15% with effect from 1 January 2004".

FNA

"..... for settlement over the failure on the part of the Commission to negotiate and settle the Association’s 2004 Log of Claims lodged on 10 June 2004 which are as follows:

1. That salary scale for all NU classification presented by the Association be upgraded by eight percent (8%) COLA increase across the board with effect from 1 January 2004.

2. That the quantum for increments and merit increases for all NU grades to be adjusted so that they are fairly and evenly distributed for those in the same grade levels.

3. That salary scale for all NU grades be regraded to properly reflect the work performed by nurses and orderlies to attract and retain suitable employees, in particular for certificate, diploma and degree qualifications as listed in our letter of 10 June 2004.

4. That nurses and orderlies be provided with appropriate housing when posted to various divisions and if no quarters are available, then equivalent lodging allowances are paid as contained in our letter of 10 June 2004.

5. That the Government institute an additional insurance cover or pay a Risk Allowance for nurses and orderlies engaged in sectors and field, which pose such risk to their lives and career, such as HIV/AIDS as outlined in the letter of 10 June 2004.

6. That the nurses and orderlies be paid overtime when engaged in essential duties as per General Orders and sufficient budget provisions be provided annually to cater for this need as outlined in the letter dated 10 June 2004.

7. That in the event that the Permanent Arbitrator rules that COLA be paid to the Association members for 2004, the payment referred to in (a) above shall be taken as payment in compliance with the award. The COLA Award shall be built into the base pay.

8. That the Award will be binding on the parties".

VNUTW, PEU and FTA

"The dispute is over the government’s refusal to pay the 2004 Cost of Living Adjustment in accordance with the Union’s 2004 Log of Claims and the breach of clause 1(d) of the Memorandum of Agreement signed on 5 December 2003".

Mr R Singh subsequently informed the Tribunal that the FNA claim for COLA had been amended down to 5%.

The five Disputes were listed for a preliminary hearing on 26 January 2005. On that day the parties were directed to file preliminary submissions by 26 February and the Disputes were listed for mention on 25 February 2005.

A sixth dispute between the FTU and the Commission was referred to the Permanent Arbitrator on 26 January 2005 with the following terms of reference:

"..... for settlement over the failure or refusal by the Commission to negotiate and resolve the Union’s 2004 Log of Claims (LOC) submitted on 01/06/04 which are as follows:

1. Claim for a five percent (5%) across the board COLA increase to the salary scales of all its members employed by PSC in all grades and classification, with effect from 1 January 2004.

2. Claim for an increase in all work related allowances by 15% with effect from 1 January 2004".

This Dispute was also listed for mention on 25 February 2005. On that day all parties were directed to ensure that their preliminary submissions were filed by 28 February 2005. The Disputes were listed for hearing on 16 May and to continue each day if necessary up to and including 25 May 2005.

During preliminary discussions with the parties, it was agreed that the six disputes would be heard together. It was also agreed that the issue common to all six Disputes, i.e. the claim for Cost of Living Adjustment (COLA) would be dealt with first and then any outstanding ancillary claims contained in the references would be dealt with. The Tribunal indicated that it would permit cross examination of witnesses by all the parties involved in the Disputes.

It should be noted that the time initially allocated by the Tribunal for the hearing of these Disputes was based upon information provided by the parties at the mention on 25 February 2005. Mr R Singh on behalf of FPSA, FNA and FTU indicated that he would be calling five witnesses. Mr H Nagin, representing VNUTW, PEU and FTA indicated that he would be calling three witnesses whilst Ms A Uluiviti indicated that the Commission would call nine witnesses.

There is a further matter that should be mentioned at this stage. Claims by three of the Unions involved in the present Disputes (FPSA, FNA and FTU) for a COLA increase in their 2003 Log of Claims were the subject of trade dispute reports in 2004. These reports were accepted and the Disputes subsequently referred to this Tribunal for compulsory arbitration. The Unions challenged by way of Judicial Review in the High Court the decision of the Chief Executive Officer to refer the Disputes to Arbitration.

In a decision (JR No.5 of 2004) delivered on 17 November 2004 the High Court granted the Unions’ application for Judicial Review. The State has appealed the decision and the matter is presently pending in the Fiji Court of Appeal.

The parties filed their preliminary submissions on or about 1 March 2005.

The hearing of the Disputes commenced in Suva on 16 May 2005. The hearing continued on 17 to 20 and 23 to 25 May 2005. The hearing was then adjourned part heard to 20 June 2005. On that day the hearing resumed and continued on 22 and 23 June 2005. The hearing was then again adjourned part heard to 11 July 2005. The hearing resumed on 11 July and then continued on 13 and 15 July 2005. There were a total of 14 sitting days and 37 witnesses called to give evidence. In addition there were 70 exhibits tendered as evidence.

At the conclusion of the evidence relating to the COLA claim, Mr R Singh on behalf of FPSA, FNA and FTU indicated that the further hearing of the Disputes in relation to all claims concerning allowances should be adjourned to 30 September 2005 as the parties had reached some agreement and further time may result in full agreement. As a result this Award will be an interim Award for those three Unions dealing only with the issue of COLA and a final Award for the other three Unions.

The parties sought and were granted leave to file final written submissions on the claims for COLA. During the course of a subsequent mention of the Disputes, Mr R Singh indicated that he would file a final submission on behalf of FPSA and FTU. He also indicated that the final submission would include material relevant to the FNA claim for COLA. Ms Lutua indicated that FNA did not intend to file separate submissions but would instead rely upon the submissions filed by Mr Singh.

The Unions filed their final submissions on 17 August 2005. The Commission filed its answering submissions on 22 September 2005 and the Unions filed reply submissions on 6 October 2005.

These Disputes ultimately came before the Tribunal as a result of agreements each of the six Unions made with the Commission between 13 and 15 December 2004 (the 2004 Agreements). The Agreements provided, amongst other things, that the Commission would make a 2% one–off pay increase to the members of each Union/Association for 2004 with effect from 1 January 2004. The Agreements also provided that the disputes concerning the 2004 COLA claims be referred to voluntary arbitration. In the event that the Tribunal awarded COLA to the members of each of the six Unions, the 2% one-off payment was to be taken as payment (or part payment) in compliance with the awards.

The Disputes involving the VNUTW, PEU and FTA include a claim that the Commission breached clause 1 (d) of a Memorandum of Agreement made with each of the three Unions on 5 December 2003 (the 2003 Agreements). This clause states:

"To continue discussions on how COLA is to be accommodated or treated with PMS and the salary/wage structure that will be recommended by the nearly concluded JEE as part of the Successor Industrial Relations Framework (IRF)".

In relation to the issue of COLA, the disputes raise two questions. The first is whether COLA should continue to be paid to public servants in view of the introduction of a performance management system which the Commission submits should be the basis of future wage movements. The second question is assuming that COLA is retained, what amount should be awarded in response to the claim made by the Unions in their 2004 Log of Claims. There is also the allegation by three Unions that there has been a breach of clause 1 (d) of the 2003 Agreements.

The first question may also be expressed as whether public service pay should be adjusted according to individual performance assessed under the Performance Management System (PMS) introduced by the Commission in January 2004 or according to the Consumer Price Index (CPI) which represents the best indicator of inflation in Fiji at the present time? The evidence and the material before the Tribunal suggested that the parties approached these Disputes as raising a question of choice between COLA and PMS. However the possibility of a system which might contain both a COLA and a PMS component was also raised during the course of the hearing.

The Unions submit that COLA has been an essential component of wage fixation in Fiji for many years. The Unions claim that as COLA is paid across the board it ensures that the purchasing power of the wages and salaries paid to all public servants is not eroded due to inflation. In other words, according to the Union’s position, COLA is designed to ensure that public servants do not suffer a declining standard of living due to the effects of inflation. In addition, the Unions submit that the PMS adopted by the Commission purports to reward performance. It does not contain any mechanism for ensuring that the salary and wages of all public servants are protected against the eroding effect of inflation.

The Commission submits that COLA rewards all workers regardless of performance and is therefore unfair to those who do perform. The Commission claims that the incremental increases which are provided for in the PMS are sufficient to cover both cost of living increases and performance rewards. The Commission also claims that the cost of paying both COLA and PMS is unsustainable and in the long term Fiji will be better served by a more efficient public service where pay increases are based solely on performance.

It is appropriate to start by considering the precise nature of the two concepts. The evidence was that a COLA increase is designed to ensure that the present real wage of a worker does not lose its purchasing power due to the effects of inflation. A PMS increase is designed to reward a worker by increasing the real wage and is linked to performance compared with the previous year. Generally, COLA increases are awarded to the whole work force (in this case the public service) whilst PMS linked increases are awarded to individual workers based on productivity and assessed in accordance with criteria set out in an annual performance agreement between the individual worker and a supervisor or management representative.

There was a considerable amount of evidence given and material submitted on this subject. Dr Mahendra Reddy, Mr F Anthony, Mr Paula Uluinaceva, Dr Sukhdeo Shah, Ms Laila Harre, Mr Tom Lee and Mr Kenneth Roberts expressed views on the advantages and disadvantages of a system of wage movements based on either COLA or PMS.

The Tribunal has carefully considered the evidence, the material and the submissions. As a result the Tribunal has arrived at certain conclusions which are briefly set out in the following paragraphs.

The purpose of a COLA increase in wages is to maintain the purchasing power of existing wages, where the loss of the purchasing power is caused by inflation. It is not a reward and it is not based on productivity. Its purpose is to try to minimize the erosion of living standards of workers brought about by inflation. The Tribunal rejects the proposition that COLA rewards workers, even those who are deemed not to be performing. The consequences for under-performing should not necessarily include a reduction in the standard of living for the worker and his family. Whilst under-performance may mean a worker does not qualify for a performance reward, a COLA will at least ensure that his standard of living does not decline. This is especially important for lower paid public servants for whom the scope for substitution due to inflation is marginal or non-existent.

On the other hand, the purpose of an increase in wages based on PMS is to reward workers for their performance over the year which by definition should be better than the previous year, otherwise workers would continue to receive increases in real wages each year for performing at the same level each year.

The PMS adopted by the Commission is an individual – based system where performance is assessed or measured against pre-determined criteria set out in an annual performance agreement between the individual worker and supervisor or management. The system was analysed at length during the course of the evidence and was fully explained in the Commission’s Circulars No.1/2004 and No.6/2004.

In general terms, the Tribunal considers that any criteria (at individual, group or sector level) for measuring performance should be objective, measurable, measure only what is important, based on an appraisal system which measures performance appropriately, provide for employer feedback, easily understood and relate to what is controllable.

The Tribunal has concluded that on balance the Commission’s present system of individual – based performance assessment for public servants does not reflect those features to the extent necessary to make the system workable in the long term. The Commission’s witnesses acknowledged that there were some shortfalls and that the system was under review.

The Tribunal emphasizes that the move to performance management does represent an appropriate attempt to achieve greater efficiency in the public service. The present system does ensure that public servants are aware of their principal job functions, do understand the level of performance expected and do receive timely feedback about their performance. The system is useful as a guide for promotions, disciplinary action and training opportunities. The principal problems with the present system are that it lacks objectivity, the criteria are not easily measured, and it is confusing and cumbersome. Achieving objectivity and identifying measurable criteria become more difficult when the nature of work performed by the core public service is taken into account. The Tribunal is not satisfied that the PMS implemented by the Commission will reward only more efficient public servants each year. There is a strong possibility that most public servants will receive an annual performance increase for doing the same job as well as they did the previous year. There was during the course of the evidence a suggestion that, given the nature of work performed by the core public service, it may be more appropriate to measure performance on a sector basis by reference to the National Accounts.

The Tribunal has formed the view that the present PMS system does not promote equity in pay determination in the public service. The evidence before the Tribunal was that the Commission’s initial projection was that 70% of the public service would qualify for some form of performance pay increase. It would appear from the evidence that the Commission now expects 90% of the public service to qualify for some form of performance pay increase in 2004. The Commission apparently anticipates that the percentage figure will eventually level out at about 70%. This means that between 10% and 30% of public servants will receive no pay increase in any given year. Without some form of payment to compensate for the effects of inflation, the living standards of those public servants and their families will decline and in some cases to an extent that they will experience hardship. Whilst the Tribunal accepts that it may not be the same public servants who do not qualify each year, there is still the risk that some public servants, not necessarily through any fault of their own, may not qualify for the performance payment for a period in excess of just one year.

The Tribunal has formed the view that the present system does not promote macro-economic stability. The evidence before the Tribunal was that initially the budget estimates for 2005 included an amount of about $12m for the payment for the 2004 performance pay increases. However the revised estimated cost was closer to "no more than" $35m with the result that the Ministry of Finance had instructed certain Ministries to identify savings totaling $23m to accommodate this increased figure. Although the Commission is anticipating a gradual reduction from the estimated 90% of public servants qualifying for some form of performance payment in 2004, it has to be stated that there is no guarantee that this is achievable. From the evidence it is apparent that $35m per annum for performance payments is not sustainable in the longer term.

The Tribunal accepts the importance of achieving an appropriate balance between capital and current Government expenditure. The evidence before the Tribunal was that the aim of the Government is to reduce the operating costs of the Commission from 11% to 8% of Gross Domestic Product (GDP). Wages and salaries apparently represent around 70% of the Commission’s operating costs. Having considered the evidence the Tribunal is not satisfied that the introduction of PMS based wage increases and the phasing out of COLA payments alone will achieve those objectives. It would seem that a combination of measures will need to be considered and implemented following appropriate consultation with all the affected stakeholders. The Tribunal is not satisfied that the present system of performance pay is consistent with the cost reduction objective of the Commission.

The Tribunal considers that it is appropriate for a PMS based system of wage movements to make provision by way of some agreed formula for the maintenance of the purchasing power of existing wages of all public servants. It is noted that the obligation in clause 1 (d) of the 2003 Agreements that the parties continue discussions on how COLA is to be accommodated or treated with PMS was thwarted by a Cabinet decision in October 2004. The evidence was that as a result of that decision the Commission discontinued discussions with the three Unions with whom it had agreed to discuss the matter. However, the 2004 Agreements would appear to represent a reversal of policy to some extent in that they clearly contemplate the possibility of this Tribunal making an Award for COLA with which the Commission and hence the Government would comply.

Having considered the evidence and the material and essentially for the reasons stated above, the Tribunal has concluded that there should be a COLA based increase in the wages and salaries of public servants for the year 2004.

The Tribunal is not satisfied that this outcome is in contravention of section 140 of the Constitution which mandates that the management of a state service be carried out effectively, efficiently and with due economy. Furthermore, the Tribunal does not consider that a COLA based increase in public servants’ wages, the purpose of which is to maintain the purchasing power of existing wages, will have any significant effect on inflation or the CPI. The Tribunal is satisfied on the evidence that so far as Fiji is concerned the principal source of inflationary pressure is external and results primarily from unfavourable terms of trade. A COLA increase in public servants’ pay does not directly affect the cost of production of goods and services. The maintenance of the purchasing power of public servant’s pay should not lead to any noticeable increase in demand for goods and services.

The Tribunal accepts that ability to pay is also a matter to be considered in determining whether COLA based pay increases should be continued. The Tribunal also notes the evidence given by the Commission’s witnesses that in the event that a COLA increase is granted the position of PMS based pay increases will need to be reviewed. The Tribunal has concluded that on the evidence and the material placed before it, the key economic indicators in Fiji do not suggest that there should not be some form of COLA based increase to maintain the existing purchasing power of public service wages. Whether there is to be a PMS based increase in wages for public servants is a matter for the parties.

The Tribunal has considered all the evidence carefully and has concluded that under the present circumstances, it is more consistent with the constitutional requirement of fair labour practices to award a COLA based pay increase for public servants for 2004 than to discontinue COLA in favour of performance based increases.

As to what that increase should be has been a matter of some concern to the Tribunal.

As previously noted, the rationale behind a COLA based increase is to maintain the existing purchasing power of public service wages. The erosion of the purchasing power is brought about by inflation which is usually measured by the CPI. There was detailed and helpful evidence as to how the CPI is calculated.

The Tribunal heard useful evidence about the goods that are included in the basket, and how they are weighted to arrive at an annual CPI. The CPI has in Fiji become the measure of the increase in the cost of living. It was acknowledged that the basket of goods does not reflect current purchasing trends and that the data cannot be said to be totally reliable. There is a view amongst some expects that the CPI slightly overstates the true level of inflation. However, that may not necessarily be the position in Fiji because the bases of calculation have remained the same for some years.

The parties acknowledged that for the purposes of the 2004 COLA claim the CPI for 2003 was the appropriate measure. On the evidence before the Tribunal, it would appear that the CPI for 2003 was measured at 4.2%.

The Tribunal notes that recent COLA based increases have been in the form of a percentage figure and expects for the 2003 Award have been a single percentage figure across the board. In addition, the percentage figure has in most cases been less than the CPI or Average Annual Inflation Rate (AAIR) and as a result, usually, less than the amount claimed.

The Tribunal considers that this approach has produced some unfair results. A flat rate percentage figure across the board tends to overcompensate the higher paid public servants whilst at the same time under compensating lower paid public servants. The result is a partial increase in the real wages of higher paid public servants whilst there is a partial reduction in the real wages of lower paid public servants. This would have the effect of not only increasing the wage gap and wage inequalities but also reduce the standard of living of lower paid public servants pushing some towards hardship.

It is apparent to the Tribunal that a considerable number of goods included in the basket used to calculate the CPI are goods that may be described as necessary for all families or, at least, goods which should be affordable to all income earners and their families. It is difficult to justify paying a public servant who is earning $60,000 per annum an increase of $3000 (being 5%) to compensate for the erosion of purchasing power whilst at the same time paying a public servant who is earning $15,000 per annum an increase of $750 (being 5%) as compensation for the erosion of purchasing power when each has actually experienced an erosion in monetary terms which in all probability falls somewhere between $750 and $3000.

On the evidence and the material placed before the Tribunal it appears that in recent years lower paid public servants have not been adequately compensated for the erosion of the purchasing power of their existing wages after each COLA increase. They have also experienced a reduction in real wages over a period of time. Conversely higher paid public servants have experienced an increase in real wages as a result of recent COLA increases. The Tribunal considers that these consequences are inappropriate outcomes in the sense that a COLA increase is not intended to bring about changes in real wages. Furthermore, the consequences are unfair and are unsustainable from both a social and macro-economic point of view.

As a result the Tribunal proposes to depart from the past practice. It is proposed to award a monetary amount instead of a percentage figure. This will ensure that lower paid public servants are fairly compensated for the erosion of the purchasing power of their wages as a result of inflation.

It is also proposed that his monetary amount will be graduated. This will ensure that the lowest paid public servants receive a larger COLA increase partially as a matter of fairness and wage justice and because their wages have become low in absolute terms.

The Tribunal has decided that public servants who were earning $17,500 or less as at 1 January 2004 are to receive an increase of $14.00 per week in their pay as COLA. For those public servants earning between $17,501 and $35,000 as at 1 January 2004 there is to be an increase of $10.00 per week as COLA. For public servants earning in excess of $35,001 as at 1 January 2004, there is to be an increase of $7.00 per week as COLA. To avoid any doubt these increases are to be backdated to 1 January 2004 and are to be incorporated into all public servants’ pay scales from 1 January 2004.

INTERIM AWARDS

Award No.52 of 2005

1. In Dispute No.7 of 2005, all FPSA members employed by the Commission are to receive the following COLA increases with effect from 1 January 2004:

(a) Up to $17,500 .........................- $14.00 per week

(b) Between $17,501 and $35,000 .....- $10.00 per week

(c) $35,001 and above ...................- $7.00 per week

The claim for an increase in all work related allowances by 15% from 1 January 2004 is listed for mention on 28 October 2005.

Award No. 53 of 2005

In Dispute No.6 of 2005, the salary scale of all NU classifications represented by FNA be upgraded by the following COLA increases with effect from 1 January 2004

(a) Up to $17,500 .............................. - $14.00 per week

(b) Between $17,501 and $35,000 ........... - $10.00 per week

(c) $35,001 and above ......................... - $7.00 per week

Any unresolved claims set out in the Terms of Reference are listed for mention on 28 October 2005.

Award No 54 of 2005

In Dispute No. 9 of 2005, all FTU members employed by the Commission are to receive the following COLA increases with effect from 1 January 2004:

(a) Up to $17,500 ........................- $14.00 per week

(b) Between $17,501 and $35,000 ....- $10.00 per week

(c) $35,001 and above ...................- $7.00 per week

2. The claim for an increase in all work related allowances by 15% with effect from 1 January 2004 is listed for mention on 28 October 2005.

FINAL AWARDS

Award Nos: 55, 56 and 57 of 2005.

In Dispute Nos. 3, 4 and 5 of 2005 all members of VNUTW, PEU and FTA employed by the Commission are to receive the following COLA increases with effect from 1 January 2004:

(a) Up to $17,500 ..................................- $14.00 per week

(b) Between $17,501 and $35,000 .......- $10.00 per week

(c) $35,001 and over ............................- $7.00 per week

2. In accordance with clause 1 (d) of the 2003 Agreements and as a result of the 2004 Agreements, the parties are to continue their discussions as to how best COLA can be incorporated in any PMS adopted by the Commission.

DATED at Suva this 19 day of October 2005

Mr. W. D. Calanchini
ARBITRATION TRIBUNAL