Fair Pay Agreements

Fair Pay Agreement Legislation

The Government has introduced Fair Pay Agreement legislation into Parliament.

The Fair Pay Agreement (FPA) system will bring together employers and unions within a sector to bargain for minimum terms and conditions for all employees in that industry or occupation.

The Bill proposes that employers and employees will be represented by bargaining parties – unions will represent employees, and employers will be represented by incorporated societies, such as employer representative organisations. This won’t require employees or employers to join those organisations to have a voice - non-members must be given opportunities to feed into bargaining strategies.

The proposed system will offer support for bargaining sides to help them navigate the bargaining process and reach an outcome, as well as guidance and processes to resolve disputes and ensure compliance.

Timeline and Background

A Fair Pay Agreement Working Group was set up in June 2018 to make recommendations on the design of a sector-level bargaining system. It was chaired by Rt Hon Jim Bolger ONZ.

The Working Group looked at:

• the criteria and process to initiate bargaining on a Fair Pay Agreement
• how bargaining participants will be identified and selected
• what Fair Pay Agreements should cover in terms of scope
• bargaining rules and dispute resolution processes, and ratification and enforcement of Fair Pay Agreements.

The Working Group provided its recommendations to the Minister for Workplace Relations and Safety in December 2018.

Following this in October 2019, the Government released a discussion paper that sought feedback on a range of options for the design of a Fair Pay Agreements system. The consultation closed 27 November 2019.

In May 2021, the Government announced the design of the Fair Pay Agreement system which proposes a process for bargaining to commence and Fair Pay Agreements to be established. The design was informed by the Fair Pay Agreement Working Group and public consultation, as well as involvement from the New Zealand Council of Trade Unions and BusinessNZ.

On 29 March 2022, the Bill Fair Pay Agreements Bill was introduced and passed its first reading on 5 April 2022. It is now going through the full parliamentary process with submissions open until the 19 May 2022.

The Fair Pay Agreement system is expected to commence shortly after the Bill has passed, anticipated to be at the end of 2022.

If you wish to make a submission on the Bill, you can do this here before 19 May 2022: https://www.parliament.nz/en/pb/sc/make-a-submission/document/53SCEW_SCF_BILL_121328/fair-pay-agreements-bill

Why has the legislation been introduced?

According to the Fair Pay Agreement Working Group’s report, New Zealanders work longer hours and produce less per hour than in most Organisation for Economic Co-operation and Development (OECD) countries.

Wages in New Zealand have grown, but much more slowly for workers on lower incomes than those on high wages. The highest earners have seen their wages increase at twice the rate of middle-income earners.

Many other countries, especially in Europe, use sector-wide collective agreements as part of their employment relations systems. The OECD recommends a model of combined sector and enterprise level collective bargaining, because it is associated with higher employment, lower unemployment, a better integration of vulnerable groups and less wage inequality than fully decentralised systems like ours.

What is the legislation meant to do?

In the short term, the aim of Fair Pay Agreements is to:

• Increase bargaining power for employees
• Ensure the minimum pay and employment terms are reflective of the needs of sectors covered by a Fair Pay Agreement
• Create an environment where businesses compete based on better products and services, rather than some trying to compete by driving down wages and conditions
• Incentivise businesses to invest in training and innovation 
• Create sector-wide coordination

And in the long term it is hoped that Fair Pay Agreements will:

• Boost living standards for employees and their families
• Share the benefits of increased productivity more widely
• Improve economic productivity
• Establish better dialogue between employers and workers

How is the legislation meant to work?

Under the proposed system, any union may initiate bargaining for a Fair Pay Agreement if it represents at least 1000 employees or 10 per cent of the employees in the proposed coverage.

Once initiated, an employer bargaining side must be formed to bargain for the claim. Individual employers cannot sit at the bargaining table. Instead, “employer associations” will bargain on behalf of their members.

If both sides can reach an agreement, those terms will become the minimum standard which applies to everyone in the coverage clause.

This will be regardless of whether the employee belonged to one of the unions on the bargaining side or not. Similarly, it will apply to all employers with covered workers, regardless of whether they belong to an employer association on the bargaining side or not.

Employees are not allowed to strike for the purposes of bargaining for a Fair Pay Agreement. However, if both bargaining sides cannot reach an agreement, then the Employment Relations Authority can set the terms of the Fair Pay Agreement.

While the legislation is anticipated to largely impact roles such as cleaners, security workers or similar roles where there are poor working conditions and low pay, however, as currently proposed, the bill could affect all industries and occupations, regardless of whether they are low paid or not.

Will the legislation impact me?

If passed, the legislation is anticipated to have an impact in almost every corner of the New Zealand workforce, so very likely, yes. We’ve put together a series of articles that provide both legal and other opinions to help you anticipate what these changes will mean for you and your workplace.

What should I do to prepare?

• Consider the potential implications for your business or organisation
• Get a handle on the timeline and make a public submission if you have feedback on the proposed bill
• Plan for different scenarios i.e. increased labour costs and ways to manage this should a FPA be implemented in your sector
• Reach out to experts if you need more information

Legal Opinions

While the intent behind the legislation is clear, the potential impacts for different parties do vary greatly. Some employers who have never had to negotiate or be involved in bargaining before face the potential need to do so, in addition to managing potential increases in salaries and wages. Check out the opinions from various legal professionals by following the links below.

Are the proposed Fair Pay Agreements a good idea? – Mahony Horner Lawyers
Fair Pay Agreements - What will they mean for New Zealand businesses? – PwC
Employment Update - Fair Pay Agreements – Russell McVeagh
Fair Pay Agreements Bill introduced to Parliament – Dentons Kengsinton Swan
Fair Pay Agreements – Morrison Kent

Useful Resources

• Designing a Fair Pay Agreements System - Discussion Paper – MBIE
• Fair Pay Agreements – MBIE
• Fair Pay Agreements Bill – New Zealand Parliament
• Fair Pay Agreements in NZ: What you need to know – KeyPay
• Fair Pay Agreements – Working Group Report – MBIE