Fair Pay Agreements - here they come!

In 2018, the Government unveiled its plans to introduce a legislative framework to allow for the creation of Fair Pay Agreements. In 2019, former Prime Minister the Honorary Jim Bolger was appointed to lead a working group on establishing Fair Pay Agreements. Two weeks ago, the Government announced that the Fair Pay Agreement (FPA) system was 'all go' and that legislation would be framed up during the course of 2021.

What is an FPA?

FPAs are large-scale agreements that cover all employees and employers within a particular sector. They broadly operate to regulate and provide a compulsory 'floor' for basic employment standards including wages, overtime, leave and other employment conditions. The theory is that conditions are improved for employees across an entire sector or industry creating 'across the board' fairness for some of New Zealand's lowest paid workers. The concept is similar to Australia's modern award system.

Why does New Zealand need FPAs?

One of the key drivers for the introduction of an FPA system is that they will prevent a 'race to the bottom' in certain industries. Minister for Workplace Relations and Safety, Michael Wood, has commented that many workers in New Zealand are undervalued by our workplace system and that FPAs address that issue by levelling the playing field. Minister Wood believes that healthy market competition between business shouldn’t be driven by low wages but rather by better products and services.

Whilst unions in New Zealand support an FPA initiative, a number of concerns have been raised by the business community including:

• Sectoral bargaining is outdated and assumes that industries are homogeneous.
• Businesses now compete on different measures - both globally and locally.
• Forcing compulsory labour agreements on employees is 'going back to the 70's'.
• FPAs remove a businesses right to have a say over wage setting.

What will an FPA look like?

• It would generally apply across an entire sector/industry (all cleaners or all bus drivers for example).
• It would sit alongside an individual employment agreement or a collective employment agreement by setting out the minimum standards.
• It would contain minimum rates of pay, terms around overtime and penalty rates, plus potentially minimum leave requirements and other related terms.
• Employees will not have to be union members for it to apply to their employment.

How are FPAs agreed?

• A union can initiate bargaining for an FPA if they have agreement of 10% of the workforce or 1,000 employees.
• Potentially, a 'public interest test' (in relation to when bargaining can be initiated) can also be used. This aims to address workers who are disadvantaged in the market or lack bargaining power.
• A union will represent the employees. Employers can choose who represents them although it is envisaged that Business NZ will be heavily involved.
• The Government will fund both sides (to a capped amount) for representation in bargaining.
• Employers must allow employees paid time off during the bargaining.
• Once agreement is reached, the FPA goes out for ratification. Employers get as many votes as they have 'covered' employees.
• During the bargaining, strikes and other industrial action is prohibited.  
• An FPA becomes binding after it is agreed and MBIE creates a legislative instrument that makes the agreement legally binding.
• Employers who breach the terms of an FPA can be fined or banned from employing people.  

So what do we think?

The FPA system has the ability to force all employers across a sector into the same mould. It removes employer flexibility and operates much like a compulsory wage control. It is widely understood that the award system in Australia adds a layer of complexity (and often difficulty) to its employment relations environment. 

There are still many unknowns with the proposed FPA system here. Coverage is a key issue - it is not clear how each sector or industry will be defined. Cost is also an issue, although the Government has indicated it will fund bargaining, bargaining is expensive - how will the residual cost be divided up between employers? And a related point, how will competitors bargain together, share information and protect their own business? There has also been some indication from the Government that contractors will be covered. It remains to be seen how this will work in practice, or if this is even feasible.

In short, there are far too many grey areas to form a firm view yet - the Government has a huge volume of work to do to iron out the details of how FPAs will work practically in our markets.

Timing

The Government isn't intending to introduce draft legislation until November 2021 and the proposed law will then go through a full six-month legislative process. The Government is aiming to fund four or five bargaining rounds per year so not every sector will be 'covered' by an FPA right away.