The system has delivered two leaders, David Cunliffe and Andrew Little, who failed to connect with the general public.
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Dunedin South MP Clare Curran said a discussion was needed about whether unions and party members should continue having a say in who leads.
''I think we do need to re-look at the way we select our leaders, but that's a question for after the election,'' Ms Curran said.
Unions get a 20% vote share under the system introduced in 2012. It took some power away from MPs, who get a 40% say in the decision.
New Labour leader Jacinda Ardern was appointed in a simple caucus vote because it was less than three months before the general election.
After affiliated unions piled in behind Mr Little, he squeaked ahead of rival Grant Robertson in the 2014 selection by just over 1%.
Bill Newson, a top union official, defended the unions' role in propelling the former union boss into the role after just three years in Parliament.
''We knew Andrew closely and stand by that assessment; a very high sense of integrity and responsibility, a team player.''
Mr Newson, Etu union's national secretary, acknowledged that Mr Little ''didn't work out in the public eye''.
Mr Newson said Mr Little's decision would have ''weighed heavily'' on the former national secretary of the EPMU.
In 2014, Mr Little got 75% of the union's 20% vote share. In the final result, he got 50.52% to Mr Robertson's 49.48%
University of Otago public law specialist Prof Andrew Geddis said it was a matter for the party, but the unions' involvement was problematic.
''The problem ... is it's not the members of the unions who [vote], it's the officials within the unions. It's not a popular choice by union members.''
Labour Party president Nigel Haworth defended the system. It selected leaders in a ''very clear way''.
''The effort that both our previous two leaders have put into campaigning has been exceptional. The fact that they haven't necessarily won elections can't be sheeted home solely to them.
''The members very much wanted a new system in 2012. They will no doubt look at its performance and if they want to make changes they will,'' Prof Haworth said.
Mr Little might still get a winnable spot on the party's list, he said.
The party would deliberate to determine Mr Little's new list placement. As leader, he automatically had the No1 spot.
Comments
As Union members, we were given an option as to whom we preferred by a vote system, but were pretty much told to vote Little because he was 'one of us'.
Ps. I don't vote Labour anyways