The biggest change in New Zealand’s employment relations landscape in 20 years, in the form of the Fair Pay Agreements Act 2022, came into effect today. The Fair Pay Agreements Act 2022 sets up a framework for bargaining fair pay agreements (FPAs) that, once in place, will specify industry or occupation-wide minimum employment terms.
Summary of the System
Bargaining and notification
A union will be able to initiate bargaining for an FPA where at least 1,000 or 10% of covered employees support initiating bargaining. Alternatively, a union can initiate bargaining if it meets a public interest test (where, for example, employees within coverage of the proposed FPA receive low pay and have little bargaining power). Thresholds for these tests are set out in regulations.
A union must apply to the Ministry of Business, Innovation and Employment for approval to initiate bargaining. If approval is given, then unions, employers and the Government all have notification obligations.
Bargaining will be undertaken by employee bargaining parties (i.e., eligible unions), and employer bargaining parties (generally eligible employer associations). A duty of good faith (similar to that contained in the Employment Relations Act 2000) will apply to all bargaining parties.
FPAs must include certain mandatory terms. This includes terms relating to hours of work, payment (including minimum wages, overtime, and penalty rates), leave entitlements, training and development and governance.
Bargaining sides must also discuss other topics, including health and safety, arrangements relating to redundancy and flexible working, although they are not ultimately required to be included in the FPA. Other agreed terms can be included if they relate to the employment of covered employees and are not contrary to law or inconsistent with the Act.
Once bargaining has concluded, the FPA will go through a ratification and verification process before it comes into force. Covered employers and employees will get a chance to vote on the proposed FPA. Ratification requires a simple majority of employees and employers to vote in favour of the FPA.
Finalised FPAs will apply to all employers and employees within coverage, even if they did not participate in bargaining or vote to ratify the FPA.
Disputes and Enforcement
The Act provides for a dispute resolution process similar to that under the Employment Relations Act 2000, including access to mediation and bargaining support services provided by MBIE.
In the event that a dispute cannot be resolved between the parties, the parties can apply to the Employment Relations Authority. This includes requesting that the Authority fix the terms of an FPA in certain situations, such as where the parties are unable to agree and have exhausted all other reasonable alternatives for reaching an agreement or where the employer side does not have a bargaining representative.
Parties to bargaining and/or an FPA will be liable for penalties in the event of a breach of obligations in the Act or breach of an FPA.
Potential Areas of Issue
The new FPA framework is controversial and complex. The FPAs Bill was the subject of substantial opposition during its passage through Parliament and many concerns were raised about aspects of the proposals from a very early stage. The National Party has promised to repeal the law if it wins the 2023 election.
Despite this, few changes were made to the legislation during the Parliamentary process. As a result, there are still many parts of the legislation that are unclear and highly controversial. This will inevitably lead to early litigation when bargaining for the first FPAs commences – or potentially at the point the first application for approval to initiate bargaining is made.
Some particular areas that are likely to be the subject of dispute are:
- How to define the coverage of a proposed FPA. While the accompanying Regulations provide some further clarification on how to define an occupation or industry, including providing for the use of ANZSCO/ANZSIC codes where applicable, some of these codes are stale and often do not cover all situations.
- How the duty of good faith will operate between employers on the same bargaining side who are otherwise competitors, particularly if bargaining requires potentially commercially sensitive information to be shared.
- The Authority’s power to fix terms of an FPA, including when and how these can be used. This power is much more onerous on parties than the power granted to the Authority to fix the terms of a collective agreement under the ERA, which is rarely used. The power to set terms where an employer group is not represented or cannot agree on representation at bargaining is particularly controversial as employers could then be bound by terms for which they have not had a chance to bargain. Some have also raised concerns about the ability or capacity of the Authority to set these terms.
- The Authority’s ability to determine which agreement will apply to employees in the event where two or more different FPAs cover the same group of employees. Such a decision could result in some employers/employees being bound by an agreement that is not suited to their work environment.
It is widely expected that industries such as cleaners, bus drivers and security guards will be the first to start bargaining for an FPA. Unions have already started seeking indications of interest from employees in these sectors.
Employers in these sectors and other low-waged industries should start thinking about who will be on their bargaining teams, which other employers might form part of their bargaining sides, and potential bargaining terms. They should also consider the commercial realities of this, including how bargaining costs and increases to employee entitlements once an FPA is in force could impact on budgets.
As noted above, the numerous gaps in the current Act will inevitably need to be addressed through litigation. The time that litigation will take to progress through the Employment Relations Authority and Employment Court will likely severely delay finalisation of any FPAs. It is likely that no FPAs will be finalised by the next election in late 2023. In light of National’s promise to repeal FPAs, the future of FPAs and whether they do significantly impact the labour law landscape, will likely hinge on next year’s election.