Essentials of the new Fair Pay Agreements Bill

On 29 March 2022, the Fair Pay Agreements Bill (the Bill) was introduced to Parliament. The purpose of Fair Pay Agreements (FPAs) is to provide a framework for collective bargaining for industry-wide or occupation-wide minimum employment terms.[1] It is a significant shift in the regulatory landscape and therefore employers and employees need to understand the system proposed. The public have an opportunity to provide submissions to the Bill through the Select Committee process.[2] The Government’s intention is for the legislation to be in place by the end of the year. 

In this series of articles, we set out what the Fair Pay Agreement Bill proposes, and issues of consideration for New Zealand business/employers.[3]

What is a Fair Pay Agreement? 

An FPA is a sector-level collective agreement that sets minimum terms and conditions for all employees within an industry of occupation. For example, an FPA covering the retail sector would set and standardise key entitlements, such as wages, hours of work, overtime rates, leave and redundancy for all workers in the retail sector. A small business that employees a number of retail workers will be required to comply with a ‘Retail FPA’ in respect of these workers, regardless of whether those workers are union members. 

The Government has outlined that FPAs are intended to complement rather than replace the existing system, including single or multi-employer collective union agreements (MECA and CEAs). This means that workers and employers will still need to negotiate and abide by existing collective agreements as well as individual employment agreements, sitting under the relevant FPA.

What is the purpose of a Fair Pay Agreement?

The Government’s stated intention of introducing FPAs is to improve working conditions and outcomes for employees, while increasing productivity, by setting minimum binding employment standards across sectors and occupations, through collective bargaining. Unions will play a central role, acting as the exclusive bargaining representatives for employees within a sector or across an occupation (including for all non-union employees).

The Bill itself is significant. Rather than amending the Employment Relations Act, it proposes a stand alone Act with 244 sections. Key aspects of the Bill are:

How is bargaining for Fair Pay Agreements initiated?

Eligible unions will be able to seek to initiate bargaining through an application process through the Ministry of Business, Innovation and Employment (MBIE) Chief Executive.

 An eligible union can initiate bargaining for a FPA if:

1.      MBIE is satisfied that the application for the FPA meets one of two tests:

• The test for representation threshold which requires the lesser of either 1,000 employees or 10% of the employees in proposed coverage support the initiation of bargaining for the proposed FPA; or
• A public interest test, based on certain criteria that are applied to the employees who would be covered by the proposed FPA (for example, where there is systemic underpayment of wages or poor working conditions)

And

2.      MBIE notifies the Union that its application to initiate bargaining has been approved.

If coverage substantially expands during bargaining, the representation or public interest tests will need to be reconsidered.

A union cannot initiate bargaining if the proposed FPA and an existing FPA have the same coverage. 

How is Coverage of an FPA decided?

The union that initiates bargaining for the FPA will define the work that is to be covered by it. 

The Bill requires that coverage of a proposed FPA must be identified as either an industry based or occupation based FPA. Where there is an overlap in coverage between two FPAs (upon challenge), the Employment Relations Authority (the Authority) will be required to determine which FPA provides better terms overall for the employees covered by both FPAs.

All employers and employees within the proposed coverage will be covered by the FPA. However, there can be differentiation within an FPA for employees located in different regions, or to an exempt an employer business in significant financial hardship.

As it stands, the Bill does not include contractors. However, the Government has intended that they be incorporated in the future. Employers attempting to avoid coverage by engaging contracts, where they are in reality employees, may have penalties ordered against them. 

Who are the bargaining representatives?

Unions will represent employees and employers will select an employer bargaining party or parties. This may include eligible employer associations or a specified employer bargaining party (for certain public sector personnel). 

If one side is unrepresented (or becomes unrepresented during bargaining), default parties will step into bargaining. The Bill provides for these default parties to be specified in separate regulations, stating that the regulations must specify an employer default bargaining party that represents employers and is the most representative organisation of employers in New Zealand. Once specified, the organisation will be legally required to act as the employer bargaining party in circumstances where a default party is needed.

What is the bargaining process?

As with all bargaining in the employment jurisdiction, parties must bargain in good faith. Bargaining parties are required to use their best endeavours to represent the collective interests of all those within the coverage (including non-members). Bargaining parties must ensure effective representation of Māori interests and views.

What are the requirements in an FPA?

 An FPA must include mandatory content. For example:

• When the FPA comes into force and expires (no less than three years, but no more than five)
• Coverage of the FPA
• Normal hours of work
• Minimum base wage rates
• Overtime
• Penalty rates
• Any superannuation entitlements

Bargaining must discuss other terms, including whether to include health and safety requirements or leave entitlements. However, the provision of these terms are not mandatory in an FPA.

What about Good faith?

The Bill sets out a general obligation of good faith, which is based on similar obligations in the Employment Relations Act. It outlines specific good faith obligations between parties within the same bargaining side (for example, between two bargaining parties) and also between the employee and employer bargaining sides.

Who pays for bargaining?

A Government provided bargaining support person, together with training will be offered to each side in bargaining. In assuming that no more than four FPAs will be in bargaining per year, the Government will also contribute up to $50,000 per bargaining side, with the potential for some additional funds.

After Business NZ and the EMA ruled themselves out from being the bargaining agent, the Chief Executive of MBIE will now have the ability to appoint a “default” employer bargaining agent. 

Funding is available to the New Zealand Council of Trade Unions and an employer representative body to support their coordination roles for FPA.

Disputes in bargaining – what if agreement can’t be reached?

The Bill provides for a dispute resolution process based on the Employment Relations Act. When disputes arise over coverage, parties may seek mediation or a determination in the Employment Relations Authority. Where parties cannot resolve their dispute using mediation and support services, a bargaining party may apply to the Employment Relations Authority for a determination.

If parties cannot reach agreement during bargaining and specified criteria are met (for example, exhausting all other reasonable alternatives), the Authority can set terms of an FPA.

If the Authority is required to fix terms, a panel of three Members must sit on the Authority (not a single member).

Where there is non-compliance or a breach, the Bill includes a penalty regime. The Labour Inspectorate will have powers to enforce certain terms of FPAs.

How is an FPA finalised?

The following must occur for an FPA to be finalised, the FPA must be:

• assessed and approved through the Authority (vetting process) to ensure compliance with FPA requirements;
• ratified by a voting process by employees and employers covered by the FPA, which is verified by MBIE; and
• brought into force by the Chief Executive of MBIE.

If an agreement in principle is reached through bargaining, the proposed FPA will be voted on. Employers will have one vote per employee within coverage, with a slightly higher vote weighting of employers with less than 20 covered employees (thereby providing SMEs with a slightly greater voice in the process, where coverage includes larger organisations). 

Ratification requires a simple majority of employees and employers to vote in favour of the proposed FPA (i.e. the 50% + 1 that is common in enterprise-level collective bargaining). 

If ratification fails, parties can return to bargaining. If it fails twice, the FPA must go to the Authority which will determine the terms.

Regardless of whether an employer participated in the bargaining or ratification process, a finalised FPA will apply to all employers within its coverage.

The legislative process

This is a significant shift in New Zealand employment law. With small businesses (employing under 20 employees) making up over 95% of all businesses in New Zealand often having a lack of dedicated HR capacity, and less than 20% of New Zealand's workforce being unionised, there is a relative lack of collective bargaining experience, expertise and capacity across many businesses. This is a significant concern when considering how businesses will be able to effectively engage in the FPA process, and the relative costs that will be incurred by employers as a consequence.

Anyone may provide a submission on the Bill, prior to 11.59pm 19 May 2022. The Bill and public submissions will then be considered through the Select Committee process.

Questions and advice

If you have questions about the Bill, or are interested in making a submission, don’t hesitate to contact our specialist employment law team on 07 282 0174, or by email.