Fair Pay Agreements: Old, New, Borrowed, Blue

Welcome to Alpha Bravo Mike Mike, a series of in-depth articles about contemporary legal issues from the experts at Auld Brewer Mazengarb & McEwen.

In December 2018, the Fair Pay Agreements Working Group, chaired by former Prime Minister Jim Bolger, made recommendations to the Government about the design of a Fair Pay Agreement system.

The Government has largely accepted those recommendations and expects to introduce legislation in November 2021.

Fair Pay Agreements mean sector-wide collective bargaining. It is a process for employers and employees to agree on minimum employment terms and conditions for an entire industry or occupation.

This is the biggest change to New Zealand’s employment relations framework since the 1990s.

The Problem

The Working Group identified three problems that FPA’s are designed to solve:

  • our labour productivity is significantly below the OECD average,
  • real wages have increased slower than labour productivity, and
  • a perceived “race to the bottom” in industries where competition is based on “ever-decreasing labour costs” rather than quality or productivity.

The Working Group considered other countries’ approaches to sector-wide bargaining, including the Australian Modern Awards System, Singapore’s Progressive Wage Model and approaches from Continental Europe and Nordic countries.

The Working Group recognised that an FPA system needs to fit within our current employment relations framework, which is unique to New Zealand. The essential features of our current framework are:

  • strong statutory minimum standards (like the Minimum Wage Act 1983 and Holidays Act 2003),
  • collective bargaining between employers and unions (enterprise-level bargaining), and
  • negotiation directly between an employer and employee for an individual employment agreement.

Sector-wide bargaining is a significant addition to this landscape. It is intended to complement, and not replace, the existing structures.

The Proposal

An FPA can only be initiated by a union. To initiate bargaining for an FPA, the union must have the support of 10% or 1,000 employees under coverage (whichever is the lesser). Alternatively, bargaining can be initiated if, in the opinion of the Minister, a public interest test is met.

Both employers and employees will need to be represented by a bargaining team. Employees will be represented by registered unions. The unions will have an obligation to represent non-union members. Employers will be represented by a ‘representative organisation’. If a suitable representative organisation cannot be found, BusinessNZ will be the default representative.

There will be rules about notifying employees about the bargaining and about communication during the process. Employers will be required to pass on contact details of employees under coverage to the union bargaining team unless the employee opts out. Unions will be able to access workplaces if there are employees within the intended coverage of the FPA.

The legislation will set out the topics that must be included in an FPA and topics which must be discussed. These are:

Must Include

  • Base wage rates
  • How wage rates will be adjusted during the term of the FPA
  • Whether employer superannuation contributions are included in base wage rates
  • Ordinary hours, overtime, and penalty rates
  • Coverage
  • Duration of the FPA
  • Governance arrangements (such as what ongoing responsibilities, if any, the bargaining parties will have)

Must Discuss

  • Redundancy
  • Leave requirements
  • Objectives of the FPA
  • Skill and training
  • Health and safety
  • Flexible working

If the parties reach an agreement then their proposed FPA will need to be supported by a simple majority of both employee and employer voters to be ratified. Employers have one vote per employee under coverage (with a slightly higher weighting for employers with fewer than 20 employees under coverage). Any disputes during bargaining will go to mediation in the first instance. If the parties still cannot agree, either party can apply to the Employment Relations Authority for a non-binding recommendation. If the parties still cannot agree, either party can apply to the Employment Relations Authority for a binding determination fixing the terms of the FPA.

If a first ratification vote fails, the parties go back to the bargaining table. If a second ratification vote fails, the terms of the FPA will be fixed by the Employment Relations Authority.

If a ratification vote succeeds, the Employment Relations Authority will undertake a “light touch vetting” of the FPA, to ensure that the terms of the FPA are lawful. The FPA will then be made into law by secondary legislation (like the Covid Response Orders that we’re now used to seeing).

When an FPA has been finalised, all employers within coverage will be bound by it, regardless of whether they participated in the bargaining process. Similarly, all employees within coverage will be bound by the FPA, regardless of whether they are a union member or not.

Our Analysis

We’ve followed the progress of the Working Group since 2018 and have some predictions about what this will mean for New Zealand:

  1. Fair Pay Agreements won’t increase productivity.
  2. Fair Pay Agreements will increase wages for employees under coverage, probably to at least the living wage. This will create upward wage pressure in adjacent sectors as employers attempt to retain staff.
  3. Security guards, cleaners, bus drivers, retail workers, and supermarket workers will be among the first to negotiate Fair Pay Agreements.
  4. Unions will focus on fragmented industries where most businesses are too small to justify traditional collective bargaining. (The legal industry, for example, is a good target for a Fair Pay Agreement.)
  5. The role of the employer bargaining team will be particularly challenging. If the bargaining team is dominated by larger businesses then there is a risk that small employers will be overlooked, and the resulting agreement could be anti-competitive.
  6. There will be litigation about coverage clauses.
  7. Some employers are philosophically opposed to collective bargaining. They will attempt to obstruct and delay the negotiation of any Fair Pay Agreement that would be binding on them. We see this already with traditional collective bargaining – the litigation between Jacks Hardware and Timber Limited and First Union is an extreme example of this: that bargaining resulted in eight Employment Relations Authority determinations, two recommendations of the Authority after facilitation processes and six Employment Court judgments.

Want to find out more about Fair Pay Agreements? Get in touch with Sean:

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