On 7 May 2021, Cabinet gave its approval to the Government drafting new Fair Pay Agreement (“FPA”) legislation. In this article, we look at the proposed system that could affect employers of all sizes.
What is a fair pay agreement?
Fair Pay Agreements (FPAs) set out minimum working conditions for all employers and employers in an industry or sector. They are achieved by collective bargaining (negotiations between groups of employers and employees) and once agreed, these terms and conditions become a legal requirement at sector-level as covered by the agreement.
What is the Government proposing?
As part of its COVID-19 recovery plan, the Government plans to introduce legislation allowing unions to negotiate minimum standards for all employees and employers in an industry or occupation. The systems design intends to stop the “race to the bottom” of organisations competing for contracts by reducing wages and employment conditions.
An FPA would not replace an individual employment agreement, but rather it would work alongside them to ensure minimum standards are upheld at sector-level.
An FPA is by no means a new concept. In Australia, these industry or occupation-wide agreements exist under the Australian Fair Work regime and are governed by the Fair Work Commission and the Fair Work Ombudsman as independent bodies.
Who will be affected?
Under the proposed changes, bargaining for a new FPA will be initiated by a union applying to the Ministry of Business, Innovation and Employment and demonstrating, either:
- 10 per cent or 1,000 employees (whichever is lower) in that sector support the initiation of fair pay bargaining; or
- there is public interest in initiating bargaining due to low pay, low bargaining power, lack of pay progression or uncertain working conditions within that industry or occupation.
This means that 1 in 10 employees would be empowered to potentially change terms and conditions of employment within the industry or occupation. All employees (even non-union members) and employers (including those who were not involved in bargaining) will be covered by default if agreement is reached.
The Government Paper also suggests that once an employee-focused system is rolled out, another stage may be introduced to cover contractors. Like the “dependent contractor” issue the Government is already considering, introducing FPA regimes for contractors in certain industries would significantly blur the lines between the traditional employee / contractor worker model New Zealand operates under.
What can be agreed?
At this stage, the FPAs proposal will cover wage rates, ordinary hours, overtime pay rates, governance, redundancy, leave entitlements, health and safety and flexible working (among other terms), with some of these being mandatory terms of the FPA.
How will it work?
Bargaining will be initiated by a union. It is envisioned the union would represent the employees in that industry or occupation (including non-union members), while employers must choose representatives who meet specified requirements (BusinessNZ is expected to have a significant role in representing employers).
The bargaining obligations currently under the Employment Relations Act 2000 will apply, meaning all bargaining must be done in good faith. Other terms such as employers being required to allow employees within the coverage the intended FPA to attend two, two hour paid meetings during the FPA bargaining process, and potential further paid meetings if the FPA is voted down.
Additionally, it is proposed that any representative must use their “best endeavours to represent all in coverage [on their bargaining side], including non-members, and to ensure Maori interests and views are effectively represented.”. On one hand, this may be a pragmatic approach to achieving a speedier outcome by collating a potentially large number of employee and employer positions. On the other, it raises serious questions around effective advocacy given the number of individual and diverging interests to be represented.
It remains to be seen what guidance the Government can provide around satisfying the “best endeavours” criteria in this context.
What if the parties can’t agree?
In the first instance, the parties will have access to the mediation regime offered by Employment Mediation Services. This service is often the first port of call for any parties experiencing employment relationship problems.
Beyond that, if you reach an impasse, the Government plans to empower the Employment Relations Authority (“ERA”) to make determinations setting terms and conditions of the FPA (including mandatory ones). It remains to be seen whether this proposed change will be enacted, given it would allow the ERA to undermine parties’ freedom to agree to terms of their contracts.
Will FPAs be legally enforceable?
If this proposal is implemented, FPAs would be enacted into secondary legislation, would be publicly available and could be enforced by any individual or entity through the ERA or the Labour Inspector. A possible flow-on effect of this would be the need to vary the terms and conditions of existing collective and individual employment agreements to ensure they are compliant with applicable FPAs.
It is also proposed there will be penalties for non-compliance with the FPA legislation while an FPA is developed and/or non-compliance with the terms of the FPA once in force. These could be significant, with up to $20,000 for an individual and $40,000 for a company or other corporation.
If enacted as currently envisaged, this proposed legislation would result in an entirely new approach to setting terms and conditions of employment in New Zealand.
While it may have the intended benefit of increasing the standard of working conditions and pay for workers who tend to lack bargaining power, it could also mean employers going out of business or needing to restructure to leaner or more technology-based models. The likely increased labour costs could therefore result in job losses for the employees who the model proposes to protect. Employers may also be less likely to reward outstanding performers in their business, and instead fall back on FPA base rates, which could also disadvantage some groups of employees. Further consideration ought to be given to these matters, in the legislation drafting process.
FOR MORE INFORMATION
While the above is a high-level view of how the FPA legislation may work, we note the Government is planning to introduce fair pay agreement legislation later this year, which will bring more certainty. We will provide updates on the proposed Bill as they become available.