On 7 May 2021, the government announced the implementation of its pre-election commitment to Fair Pay Agreements (FPA).

Minimum standards will be set for all workers and negotiated between unions and employer representatives

An FPA will set minimum standards for all employees and employers in a particular industry or occupation, across New Zealand. In 2018 the Government had reassured employers that there would be “no more than one or two fair pay agreements” in the first term of the Government and that they would “be in industries and sectors that have low pay and in which the workers are vulnerable and regularly exploited”. However last week’s announcements go far further than was previously signalled by the Government.

Only unions can initiate the FPA bargaining process, either by meeting a representation threshold of support from 10% or 1000 workers within coverage, or via a public interest test in an industry or occupation where employment issues exist, such as low pay or limited bargaining power.  

The minimum employment standards for that occupation or industry will then be negotiated between unions and businesses. The initiating union(s) decide which work they want covered, and whether bargaining will be for an industry or occupation. Any resulting FPA will set minimum ordinary time wages and conditions, overtime, and penalty rates across the entire industry or occupation. Some other employment terms must be discussed but do not have to be agreed, such as redundancy, leave, flexible working and health and safety. Strikes will be prohibited during negotiations.

FPAs will cover all workers within an industry or occupation whether they are a member of a union or not. Unions will represent employees. Employees who are not union members will have no freedom of association or choice as to who represents them. 

Not every employer will be at the bargaining table either. Employers will choose representatives who meet specified requirements, which have not yet been decided. The Minister has sought delegated authority to make decisions on such requirements, including government oversight in their selection. 

No opt out and Employment Relations Authority can determine the FPAs terms

There is no ability for employers or employees to opt out of bargaining or opt out of a FPA once ratified.

Once the parties have reached agreement, the proposed FPA will need support from a simple majority from both employee and employer votes to be ratified. If a first ratification fails, parties go back to bargaining. If a second vote fails, the FPA will go to the Employment Relations Authority for determination. Similarly, if bargaining parties reach a stalemate, the Authority will be given the jurisdiction to determine the FPA’s terms.

Potential impact of FPAs

The Minister for Workplace Relations and Safety has expressly acknowledged in his Cabinet Paper dated 19 April 2021 that:

• Employers covered by FPAs “will likely experience an increase in labour costs”;
• Allowing the Authority to fix FPA terms if parties to bargaining cannot agree “could be seen to amount to compulsory arbitration“  but the Minister considers “this feature necessary to prevent bargaining from being stalled”; and
• FPAs “will engage rights and obligations” related to freedom of association and the right to strike that could be inconsistent with International Labour Conventions.

While FPAs may be welcome news for those who have been concerned at what they see as a “race to the bottom”, in their current form FPAs could potentially cut across fundamental human rights, drive up labour costs, apply to sectors that do not have low pay or vulnerable workers, and enable a third party to fix terms of employment for an entire occupation or industry.

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A draft bill will be released later this year and that will be your opportunity to make submissions. Please get in contact with one of our experts if you would like assistance with this.