The Education and Workforce Committee (Committee) recently released their final report on the Fair Pay Agreements Bill (Bill). After receiving and considering 1,796 written submissions and hearing oral evidence from 120 submitters, by majority, the Committee has recommended the Bill pass with very few changes.

Our survey in April 2022 found that 81% of respondents considered their businesses will be impacted by Fair Pay Agreements (FPAs) and 74% of respondents were not in favour of the Bill. These employers will be disheartened to see that the Committee’s limited recommended changes do not address their key concerns with the Bill, and in fact reflect more challenges for employers.

We set out some of the Committee’s recommended changes below, and the final report can be found here.

Public interest test

Our survey found that 69% of respondents thought the representation test (or public interest test) to initiate bargaining was too low a threshold. Despite feedback such as this, the Committee only recommended minor changes to the threshold.

While the policy intent of the Bill is said to be to stop a “race to the bottom”, the Bill is not currently limited to lower-pay workforces. The Committee recommended a change to the public interest test to require employees within coverage of the proposed FPA to be low paid and to meet one of three other criteria (little bargaining power, lack of pay progression or inadequate pay, taking into account factors such as contractual uncertainty or long or unsocial working hours).

While the change would limit initiation of an FPA under the public interest test to lower-pay workforces, higher-pay workforces could still initiate an FPA using the representation test (requiring the union to prove that either 1,000 covered employees or 10% of all covered employees support initiating bargaining). Therefore, the threshold to initiate bargaining remains low and means that substantial resource, time and cost may be incurred in bargaining for a ‘fair pay’ agreement with groups of employees who may already be very fairly paid.

Content of Fair Pay Agreements

A common theme throughout our survey was that respondents felt the Bill would detrimentally affect an employer’s ability to maintain managerial prerogative and competitive advantage in the market.

Based on the Committee’s recommendations, it appears employers’ managerial prerogative will be further restricted. In addition to the mandatory content for FPAs (when the FPA would come into force, when it would expire, its coverage, normal hours of work, details of wages and superannuation), the Committee recommended expanding the mandatory content so that FPAs must specify training and development and leave entitlements also. Currently, the Bill only requires mandatory discussion of these topics but does not require agreement.

Default bargaining parties

The Minister for Workplace Relations and Safety’s parliamentary paper alongside the Bill proposed that, in circumstances where there is no employer bargaining side, then first, a default bargaining party will be specified in regulations who would be legally required to act as the employer bargaining party and second, if no bargaining party steps forward, as a “back stop”, the Employment Relations Authority (Authority) will fix the terms of the FPA.

Helpfully, in its final report, the Committee has recognised the role of the default bargaining party should be voluntary and not mandatory.

However, of concern, it now recommends a new Part 10A. This provides that if there is no employer bargaining party or default party then the Authority automatically gets to set the terms of an FPA. It is still not clear and the question remains, who would represent the employer side in the Authority - if anyone?

Given the significant hurdles in the Bill for there to be an employer bargaining party or default bargaining party, the Committee’s recommendations create more challenges for employers in relation to who will represent employer parties.

The Public Service Commissioner is an employer bargaining party if the coverage of the FPA includes at least one covered employee of a public service agency or the education service.

However, many employers will not be part of any “employer association” and there are barriers to employers setting up an employer association for this purpose. Any employer association must be “independent from, and is constituted and operates at arm’s length from, any union or worker organisation” and must be an incorporated society. Eligible employer associations must also, among other things, have a constitution that enables the association to promote the collective interests of covered employers for the purposes of FPA bargaining and an FPA.

Even where there is an employer association in place, it has been thirty years since New Zealand had an awards system, and therefore it is unlikely there will be many who have the experience and resource to undertake collective bargaining on behalf of their members and other employers in the covered industry or occupation. This is particularly the case for large scale bargaining where there will likely be different, and often competing, interests between a wide range of employer parties who do not even get a seat at the table but instead rely on the employer association to act on their behalf. This can be contrasted with the union bargaining parties, where a core aspect of their role has always been to conduct collective bargaining on behalf of their members and they have significant expertise in this area.

Increased role of the Authority

In our submission to the Select Committee, we raised concerns about the power for the Authority to set the terms and conditions of FPAs, particularly following such a low threshold for referral to the Authority. These changes are in addition to the Authority being able to set terms where there is no employer bargaining party.

The Committee’s recommendations do not address, and in fact heighten, these concerns by making explicit that, once the threshold is met for the Authority to fix the terms of an FPA, it must do so. This is particularly concerning given that there are very narrow grounds on which to challenge the Authority’s decision in the Employment Court or to resort to a judicial review process.

Further, the Committee has recommended the Authority be given more discretion. It recommends the Bill be amended so that, in fixing the terms of an FPA, the Authority “may” consider the list of statutory factors (eg terms already agreed, industrial or occupational norms), rather than “must”. The Committee says this change will reduce the risk that the Authority’s decisions would be challenged and FPAs delayed.

The Committee also recommends broadening the Authority’s ability to fix terms of an FPA to include when one bargaining side breached the duty of good faith and the breach was either deliberate, serious and sustained or involved behaviour that undermined the bargaining process.

What’s next?

There do not appear to be any further opportunities for submissions from employers in relation to the Bill. We predict that the legislation will be enacted without substantial amendment in late 2022 or early 2023. It will then be a case of wait and see in respect of whether any FPAs are concluded before next year’s election and if a change of Government would see a repeal or substantial revision of the fair pay framework. The Select Committee report sets out the differing views of ACT and National, with both parties opposed to the Bill and National indicating they would repeal fair pay legislation, if elected.

Get in touch

Please contact one of our team members listed for more information.

Thanks to Alana Harrison for her assistance in preparing this article.