Fair Pay Agreements

2 August 2021

The Government has announced that Fair Pay Agreement legislation will be introduced later this year. This could have significant effects on employers, employees, and the labour market generally.

Fair Pay Agreements (FPA) will set out the minimum entitlements and working standards for employees in a specific industry or occupation. Parties to a proposed FPA bargain collectively in an attempt to reach an agreement on the terms of the FPA. Once a FPA is agreed, it will legally bind all employers and employees in the industry or occupation – even those that did not participate in the bargaining process.

The proposed system in a nutshell

As the system is currently proposed, bargaining for a FPA would be initiated by the Union representing the relevant employees. The Union would need support from 10% of the employees in the industry or occupation, or 1000 employees in coverage, or at least meet a public interest test. A FPA would need to cover certain terms, such as base wage rates and overtime, but could include other terms agreed by the parties. Where bargaining parties encounter difficulties, mediation could assist, and if an agreement cannot be reached, the Employment Relations Authority could set the terms of the FPA. The Employment Relations Authority would vet all FPAs for lawfulness before the FPA went to a vote. A simple majority would be required from both the employers and employees. If that is achieved, MBIE will bring the FPA into force by creating secondary legislation.

Our thoughts

The introduction of FPAs represents the biggest change to the employment law landscape since the Employment Relations Act 2000 was introduced over 20 years ago. It signals a partial return to the award system which existed in New Zealand prior to the introduction of the Employment Contracts Act 1991. While our Australian readers will have more comfort with a system that looks similar to awards, it will be an unfamiliar experience for most New Zealand employers who have, for the last 30 years, had the ability to negotiate and agree on terms and conditions with either employees or Unions directly. The introduction of FPAs may lead to some employers instead having most terms and conditions imposed on them.

Given the amount of work and time required to bring an FPA from its genesis through to being in force, we do not expect to see a significant amount of FPA bargaining initiated once a system is in place. Unions will likely act with caution when selecting which industry/occupation they initiate bargaining in respect of. Early indications are that the Unions’ efforts might initially be directed at ‘employee-heavy industries’ such as retail and supermarkets.

Defining industries and occupations is likely to be a difficult and involved exercise. We anticipate disputes will arise, for example, as to whether a certain employee is in a covered occupation, or a certain occupation is within a covered industry.

The proposed system is clear that industrial action, such as striking, will not be permitted during bargaining for a FPA. The recent nationwide nurses strike, which attracted 30,000 nurses, midwives, and other health professionals around New Zealand, would not have been permitted if it was in support of a FPA. This removes a tool that can give employees significant leverage when bargaining.

The Employment Relations Authority is unlikely to have any appetite to seriously ‘shake up’ labour markets and rates of pay. If it were charged with setting the terms of a FPA following parties reaching a stalemate, we expect it would need to set fairly middling terms to balance the interests of both parties. The Minister responsible for the FPA system has indicated that a new regulatory institution would be needed “over the longer term” to manage the FPA system.


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