Why are businesses worried about Fair Pay Agreements?

The Fair Pay Agreements Bill presently before Parliament is a significant shift in New Zealand’s employment law. The new system is intended to bring together unions and employers to require bargaining and agreement on minimum terms and conditions of employment in a relevant sector/industry.[1] However, rather than addressing minimum obligations within the workplace, it creates an entirely new labour relations landscape, moving negotiating away from parties to the employment relationship, to sector wide bargaining agents.    

What are the aspirations of the Fair Pay Agreements legislation?  

Fair Pay Agreements (FPAs) have been promoted to address sectors where there is systemic underfunding of wages or poor working conditions. The intention is to prevent the “race to the bottom” where rather than improving quality or technology to create productivity gains, businesses have competed by cutting labour costs.  

The objectives of the Fair Pay Agreements Bill (the Bill) in improving terms of employment in New Zealand are well intended. However, the Bill’s scope is not limited to traditionally low wage and condition workplaces. If it comes into force, it could affect all industries and occupations, regardless of working conditions. 

The argument has been made that the FPA system is using a sledgehammer to crack a walnut [2]. Opponents have highlighted the uncertainty of the economic costs associated with establishing and maintaining the significant resourcing required for this new system to operate, rather than using mechanisms already in place to improve minimum employment standards. 

New Zealand’s employment landscape 

Over 95% of New Zealand businesses are small employers, who employee under 20 employees. Less than 20% of New Zealand’s workforce is unionised.  

There is therefore a relative lack of experience, expertise and capacity in collective bargaining across the country.  

Is there really a problem? 

Bus drivers are a commonly sited example of where a sector-wide agreement could stop companies offering cheaper services by way of wage cuts in order to secure contracts. However, with public transport (bus) contracts being largely dictated by Government through the Public Transport Operating Model, businesses consider the Government’s own contracting process which results in the lowest cost tender being successful has led directly to restricted wage growth of bus drivers. They argue that the Government should first fix the funding model, rather than using Bus Drivers as an example to justify a major change in industrial relations law.[3] It is also noted that there is a shortage of Bus Drivers that requires both immigration attention and a wage correction in order to provide for current and future public transport needs. 

Supermarket workers, cleaners and aged care workers are also commonly referred to as systemically low wage workforces. The ability to bargain collectively (including bargaining for multi-party collective employment agreements) is part of existing employment law, complete with the ability to strike (which under the Bill, will be prohibited when bargaining for an FPA).  

Within the supermarket sector there are differences in employment terms. Some unionised workplaces have higher wages and arguably improved conditions of work, arguably due to the organised work and bargaining strength of the collective/union, together with the fall back of strike action should bargaining fail. Regulation of the sector generally (to address alleged excess profits, and the lack of competition affecting suppliers and ultimately grocery costs) has gained much public interest, as well as the attention of the Commerce Commission. Those supermarket workers who were deemed “essential” and paid additional bonuses based on being “at risk” during the pandemic could challenge employers in their next round of collective bargaining that such terms should be continued, leaving the employers to justify the basis upon which this may be unreasonable (if it is not agreed).  

The coverage when initiating bargaining for an FPA will be a significant issue. That is, whether the employee association will attempt to restrict cover to a limited group within a sector, example, “supermarkets”, or, more broadly try to cover “retail” for example. The consequence for the range of employers that may be then captured within the bargaining is significant. Would a worker at the corner dairy be reasonably covered by definitions of a ‘supermarket’ or ‘retail’ workforce? 

Ultimately, with low unemployment presently, employers are likely to have to continue to raise working terms and conditions to ensure that they can attract workers at all. Government statistics indicate that in New Zealand generally, wages continue to increase. 

Are there other options? 

The argument of Government is that good employers have “nothing to fear” from FPAs, however that “those who exploit their workers are on notice”.[4] The contrary position is that the majority of New Zealand businesses have good employment relations and meet their legal obligations. To create a significant new regime to address those employers exploiting workers is grossly disproportionate to the problem, particularly when it comes with a large cost of implementation and bureaucracy to manage, and there are other options available. These include: 

• increased resourcing into the Labour Inspectorate to investigate and prosecute employers not meeting their legal obligations; 
• funding of unions explicitly tied to collective and multi-employer bargaining; 
• increasing additional legislative provisions into minimum entitlements such as continuing to drive up minimum wage; 
• introducing requirements for overtime and penal rates such as for ‘unsociable hours’, or work over a defined number of hours per shift or week; 
• introducing rates for workforces deemed ‘high risk’ where arguably, pay and conditions do not reflect that risk (such as forestry); 
• the introduction of compulsory minimum redundancy compensation; 
• integrating a living wage requirement for large and public sector employers.  

Employers raise concern that coming off the back of Covid-19, additional cost, and administrative burden is highly undesirable. For those in sectors disproportionately impacted by Covid-19, such as hospitality, this is particularly challenging. 

Why are employers worried about the Fair Pay Agreements Bill? 

Who’s covered by bargaining? 

While FPAs are relatively simple on the face of it; a union may initiate bargaining for a FPA if it represents at least 1000 employees or 10 percent of the employees in the proposed coverage of the FPA, under the Bill, once initiated, an employer bargaining side must be formed to bargain for the claim. Employer associations must bargain on behalf of their members, not an individual employer.    

If the employer and employee bargaining sides reach an agreement in principle, the terms will become the minimum standard to everyone within the coverage clause, regardless of whether they are represented by the union or the bargaining association.  

Who represents the employer? 

The Bill requires an employer association to be the default bargaining party for employers if no other employer association volunteers. They will have a challenging role, needing to endeavour to represent the collective interests of all employers covered by the bargaining.  

Business NZ and the EMA have made clear their opposition to FPAs and that they will not undertake the role of employer bargaining agent/employer association on the basis that the FPAs are unnecessary and harmful to employers. There are few other employer organisations indicating their willingness to fulfil this role instead. If no employer association is found to represent and negotiate employer interests, the Employment Relations Authority will set terms of the FPA. There will likely be litigation around who could be a party to such action and on what grounds. 

There are significant questions about how the employer association is to obtain sector/industry wide information. How will the employer association know what roles exist in all organisations? What resourcing will be required to standardise role definitions and understand the varied nature of existing terms across a sector, out of fairness to the competing interests within the employers covered?  

Limited funding is provided for the representative parties, but employers assert that the funding proposed is extremely light when considering the likely work required. 

There are concerns about how affected parties be identified and notified under the proposed FPA system, to enable them an opportunity to be involved in bargaining, how representation within the employer group will be determined, and voting on ratification of an agreement in principle. Those who have been involved in representing parties and negotiating pay equity claims in the past are well aware of the frequency with which notification of affected employer parties to a claim is incomplete or inaccurate. 

Who makes the decisions if parties can’t agree? 

Employees cannot strike for the purposes of bargaining for an FPA, and as noted, if parties cannot reach agreement, the Employment Relations Authority will be able to set the terms of the FPA. 

Employers are critical that the FPA system removes control for bargaining terms and conditions of employment from the parties to the employment relationship itself. Unions’ response is that FPAs will be minimum terms only and employers are free to bargain terms above this. 

In relation to the Authority’s role, employers have raised concern about the significant backlog and delay in the Authority’s ability to determine cases before it presently, let alone in addressing sector wide terms and conditions of work.  

How are working terms and conditions set? 

If the Authority is required to set terms, under the Bill, there are a range of factors that it must consider including industrial norms and practices and the likely impact on workers and employers covered by the FPA. Considering the significant differences in workplaces that may be covered by an FPA (geographic location, size and scale of businesses including technology plant and employees, presenting “norms” is likely to be subject to some dispute). These matters are likely to gain the attention of the Select Committee. 

Unique aspects of the Bill 

The Bill requires that employer parties bargaining for a proposed FPA must ensure effective representation of Māori employers. Similarly, there is an obligation to ensure representation of Māori employees. There is an absence of any detail about how that assessment may be made. This requirement goes well beyond any explicit provision in existing legislation. 

What happens next? 

If passed, the impact of the FPA Bill will be significant. Employers should expect that the Unions will be well prepared to initiate fair pay claims quickly, knowing the tight timeframes prescribed for the bargaining process and using this to employees’ advantage by putting employers under pressure to get coordinated in response and commence bargaining, or face potential litigation. We recommend employers pay close attention to the final version of the Bill which is likely to progress through the Select Committee in October. The Government has indicated it intends that the legislation is enacted promptly. 

Our specialist employment law team have been involved in submissions to the Select Committee on the Bill and will keep you updated on progress. You can contact the DTI Lawyers Employment Law team at 07 282 0174 or [email protected]